In a helpful decision for Ontario employers, the Ontario Superior Court of Justice (the “ONSC”) recently ruled that an invalid termination clause in an employment contract does not impact the legal enforceability of a clause in the same contract which allows the employer to place an employee on temporary layoff.
In Taylor v. Salytics Inc., 2025 ONSC 3461 [Taylor], the ONSC held that an employee had not been constructively/wrongfully dismissed by being placed on temporary layoff for six months, even though a termination clause in their employment contract violated the Employment Standards Act, 2000 (the “ESA”). This is because the court found that the clause permitting the temporary layoff was not a “termination clause”, such that it was not invalidated pursuant to the legal principle that one invalid termination clause renders all other termination clauses in a contract legally unenforceable.
Background
In June 2020, the Ontario Court of Appeal (“ONCA”) released its landmark decision in Waksdale v. Swegon North America Inc. (“Waksdale”), which substantially changed the law on termination clause enforceability in Ontario. In this decision, the ONCA ruled that any termination which provides that an employee can be dismissed for “cause” without notice or pay in lieu of notice is legally unenforceable for violating the ESA.
Additionally, the ONCA also held in Waksdale that if one termination clause in an employment contract violates the ESA, then it renders all termination clauses in the same contract legally unenforceable. However, the ONCA did not elaborate one what counts as a “termination clause” for the purposes of this principle, which created legally ambiguity.
Notably, it is also established law that employers do not have a common law right to place employees on temporary layoff, and that an employee can treat a temporary layoff as a constructive dismissal if the employer did not reserve the right to temporarily lay them off in their contract.
The Taylor Decision
Mr. Taylor was employed by Salytics Inc. (“Salytics”) for approximately 11 years before he was placed on a temporary layoff from his Senior Technical Consultant position in 2024, due to Salytics experiencing financial difficulties.
Notably, Mr. Taylor’s employment contract contained a section titled “Termination”, which included three separate clauses: (i) a for-cause termination clause; (ii) a without-cause termination clause; and (iii) a temporary-layoff clause. The layoff clause simply provided that Mr. Taylor could be placed on a temporary layoff in accordance with the requirements of the ESA.
While on temporary layoff, Mr. Taylor filed an Application against Salytics seeking a declaration that he had been constructively/wrongfully dismissed by being temporarily laid off and also seeking damages for pay in lieu of reasonable notice. Mr. Taylor argued that the termination clauses in his contract violated the ESA, that the layoff clause was also a “termination clause”, and that the layoff clause was therefore invalid. Further, he argued that the layoff clause in his contract was a “termination clause” because: (i) it was contained within the “Termination” section of his contract; (ii) a temporary layoff is a constructive dismissal at common law; and (iii) the ESA stipulates that a layoff is a termination if it exceeds the maximum duration for a temporary layoff permitted by the ESA.
Salytics acknowledged that the for-cause termination clause in Mr. Taylor’s contract violated the ESA but argued that a contractual temporary layoff is not a constructive dismissal, such that the layoff clause was not a “termination clause”.
Ultimately, the court agreed that the temporary layoff clause was not a “termination clause”, that it was legally enforceable, and that Mr. Taylor therefore had not been constructively dismissed by being placed on a temporary layoff. In reaching this conclusion, the Court ruled that where a termination clause is located in a contract is legally irrelevant, and that the substance of the clause is what matters. Applying this principle, the court ruled that the layoff clause being located in the “Termination” section of Mr. Taylor’s contract did not make it a termination clause. Further, the court ruled that the layoff clause was not a termination clause because a contractual layoff in accordance with the ESA is not a termination of employment. Thus, the court found that the layoff provision was not invalidated by the other termination clauses in the contract.
As a result, the Court found that Mr. Taylor was not constructively/wrongfully dismissed, and dismissed his Application against Salytics.
The Bottom Line
Taylor is a welcome decision for Ontario employers, as it means that employers who have reserved the right to place employees on temporary layoffs (in accordance with their employment contracts) can confidently exercise that right without facing wrongful dismissal liability, even if changes in the law have rendered the termination clauses in their contracts legally unenforceable.
If you require any advice on how to effectively navigate a business slowdown while avoiding employment law related liability, please do not hesitate to contact us for expert legal advice and guidance.
