Toronto, ON – November 4, 2026 – The Ontario Court of Appeal’s recent decision in Taylor v. Salytics Inc., 2026 ONCA 621 provides important guidance on the treatment of temporary lay-off clauses in employment contracts. The Court confirmed that an enforceable temporary lay-off provision does not automatically become unenforceable simply because a separate termination provision is invalid.
The Facts
Barry Taylor signed his employment agreement with Salytics Inc. on June 24, 2013. It included a clause permitting Salytics to temporarily lay him off.
Fast-forward to 2024, when Salytics hit a financial rough patch. In February, it asked Mr. Taylor to accept a temporary 20% reduction in hours and pay, and he signed an Agreement for Reduced Hours on February 28, 2024. Things did not improve. Effective April 1, 2024, Salytics placed him on a temporary lay-off. He received no income from Salytics, but his benefits continued. Salytics recalled him in September, offering the same position, hours and salary, and he returned to work on September 30, 2024.
A happy ending? Not quite. While still on lay-off, Mr. Taylor commenced a court application seeking a declaration that the lay-off constituted constructive dismissal. He sought damages in lieu of 12 months’ notice.
The Argument
Salytics conceded that the “for cause” termination clause in Mr. Taylor’s agreement was unenforceable. Mr. Taylor argued that under Waksdale v. Swegon North America Inc., 2020 ONCA 391, that concession meant all of the agreement’s termination clauses were invalid. Mr. Taylor argued that a lay-off is just a “species” of termination, so the lay-off clause had to fall with the rest.
Salytics responded that a temporary lay-off clause is not a termination clause at all.
The Ruling
The Court of Appeal agreed with Salytics and dismissed the appeal. Justice Lauwers wrote for the Court.
The Court applied the text, context and purpose approach to section 56 of the Employment Standards Act, 2000 (the “ESA”). It found that the ESA itself draws a clear line between two things:
- Terminations under s. 56(1); and
- Temporary lay-offs under s. 56(2).
At common law, a unilateral lay-off is a constructive dismissal. The ESA’s temporary lay-off provisions respond to that by letting employers lay employees off without triggering termination obligations, as long as the lay-off fits within the statutory conditions. A lay-off is a termination only if it goes beyond those conditions. So a lay-off clause is not automatically a termination clause. A clause that permits a lay-off within the ESA framework does not become one just because a different clause in the contract is void.
In practical terms, the lay-off here was ESA-compliant. It lasted more than 13 weeks but less than 35 weeks in a 52-week period, and Salytics kept making the employee’s benefit plan payments, which is one of the qualifying conditions in s. 56(2)(b). Because the lay-off was done within that framework, it was not a constructive dismissal.
Substance Over Form
Mr. Taylor also pointed out that the lay-off clause sat under the “Termination” heading of his agreement. The Court was not moved. Employment agreements are read as a whole, and a heading doesn’t decide what a clause is. The Court approved the application judge’s finding that: “it is the substance that matters, not the form.”
The lay-off clause also said lay-offs would occur in accordance with the requirements of the ESA. In other words, the parties had agreed to be governed by the lay-off rules, not the termination rules.
Takeaways for Employers
- Check your lay-off clause. A temporary lay-off clause should expressly permit lay-offs and track the ESA’s temporary lay-off rules. A non-compliant clause leaves you exposed.
- Stay inside the ESA window. Lay-offs of up to 13 weeks in any 20 consecutive weeks are permitted. Longer lay-offs (under 35 weeks in any 52) need one of the s. 56(2)(b) conditions, such as continuing the employee’s benefit plan payments. Go outside the window and the lay-off is a termination.
- Have the clause in the first place. Without a contractual right to lay off, a unilateral lay-off is generally still a constructive dismissal at common law. Salytics helps employers who planned ahead, not those who improvise.
- Don’t treat this as a rescue for your termination clauses. Salytics conceded that its for-cause clause was void. That concession still wiped out the termination provisions, and the decision did not change that. It only protected the lay-off clause from the fallout.
- Don’t rely on headings. Where a clause sits will not save it, and it will not sink it. Draft it so that what it says is ESA-compliant.
- Paper reduced hours too. Mr. Taylor signed a written agreement for the temporary reduction. That is good practice for any change to hours or pay.
If you are thinking about a lay-off, our team is happy to advise before you act!
