A recent decision1 from the Ontario Superior Court of Justice has provided helpful guidance to employers on what parts of an employment contract will be considered a "termination provision" as part of a court's assessment of their enforceability. In a helpful ruling for employers, the Court found that a temporary layoff provision in an employment contract was not a termination provision, and therefore remained enforceable despite deficiencies in the termination provision itself.
Background
The Applicant, Mr. Taylor, had been employed by Salytics Inc. ("Salytics") as a Senior Technical Consultant for approximately 11 years before being placed on a temporary layoff in April 2024. At the time of his temporary layoff his employment was governed by an employment agreement that contained the following section titled "termination", made up of three separate clauses:
Termination
Salytics may terminate your employment at any time for cause.
Salytics may terminate your employment without cause at any time by providing you with the minimum notice, or pay in lieu of such notice, and any severance pay required by the Employment Standards Act, 2000 and no more except in the event a lay-off is required within the first six (6) months of your employment without cause, you will be entitled to continue receiving salary up to the end of this six month period.
In the event a temporary lay-off is ever required, it may be implemented in accordance with the requirements of theEmployment Standards Act, 2000.
On April 1, 2024, Salytics notified Mr. Taylor that he was being placed on a temporary layoff as a result of ongoing financial challenges facing the Company. Mr. Taylor did not accept the temporary layoff and on July 19, 2024, brought an application seeking a declaration that the temporary layoff constituted a constructive dismissal. Despite the application, Mr. Taylor was recalled to work – and did in fact return to work – on September 30, 2024. He was therefore without income for a six-month period, during which time Salytics maintained his company benefits.
The Issue
The issue before the court was whether Salytics placing Mr. Taylor on a temporary layoff constituted a constructive dismissal and more specifically whether the temporary layoff provision in his employment agreement was valid. Both parties agreed that if the temporary layoff provision was not valid, then Salytics had no right to place Mr. Taylor on a temporary layoff and its doing so constituted a constructive dismissal.
Mr. Taylor took the position that the temporary lay-off provision was not enforceable because the other provisions within the termination section of his employment agreement were not compliant with Ontario's Employment Standards Act, 2000 (the "ESA"). While Mr. Taylor did not argue that the temporary layoff provision itself contravened the ESA, he argued that any non-compliance with the ESA within the termination section of his employment agreement should result in the entire termination section – including the temporary layoff provision – being found unenforceable.
This argument was based on a well-established line of cases in Ontario that have repeatedly held that employment agreements must be interpreted as a whole, rather than on a piecemeal basis2, and that if a termination provision violates the ESA, all the termination provisions in the agreement are invalid.3 Salytics did not dispute this point of law or that the termination provision – specifically the provision allowing Salytics to terminate Mr. Taylor at any time for cause – contained a violation of the ESA. However, Salytics argued that the temporary layoff clause was not a termination provision and therefore remained enforceable despite the violations of the ESA elsewhere in the termination section of the employment agreement.
The Decision
The Court agreed with Salytics and found that the temporary layoff clause was not a termination provision. The Court recognized that while a temporary layoff without a valid layoff provision constitutes a constructive dismissal at common law (and therefore a termination of employment), a temporary layoff in accordance with a valid layoff provision is not a termination. Therefore, a valid layoff provision is not a termination provision and not invalidated by violations of the ESA in the termination provisions in the employment agreement.
In coming to this conclusion, the Court also relied upon section 56(4) of the ESA, which sets out the circumstances in which a temporary layoff is not a termination of employment. The Court found that it was bound by these definitions of the ESA, which specifically provide that a temporary layoff is not a termination of employment.
The Court also found that it was irrelevant that the temporary layoff provision was found under the heading of "Termination" in Mr. Taylor's employment agreement. Relying on Waksdale v Swegon North America Inc., the Court held that the characterization of a provision in an employment agreement does not depend on where it is placed in an employment agreement, and that a court's analysis must focus on substance rather than form. The issue is whether the provision is, in substance, a termination provision, not whether it was labelled as such by the employer when drafting the agreement.
Key Takeaways
The Court's decision provides clarity on what terms in an employment agreement will be considered "termination provisions" and therefore subject to being deemed unenforceable where another termination provision in the employment agreement is not compliant with the ESA. In particular, this decision provides assurances to employers that they will still be able to rely upon compliant temporary layoff and other provisions in employment agreements that restrict an employee's rights, even where the termination provision itself is not compliant with the ESA.
The decision is also a good reminder to employers that employment agreements will be interpreted based upon substance, rather than form. In this case, the employer had included the temporary layoff provision under the heading of "termination", but this was found to be irrelevant to the court's analysis, as it is the substance of each individual clause that will determine how it is interpreted. While this finding was beneficial to the employer in this case, employers should remember that this can cut both ways and be sure to review their employment agreements based on the substance of each provision, rather than how such provisions are labelled or where they appear in the agreement itself.
Footnotes
1. Taylor v. Salytics Inc., 2025 ONSC 3461.
2. Waksdale v. Swegon North America Inc., 2020 ONCA 391.
3. Rahman v. Cannon Design Architecture Inc., 2022 ONCA 451.
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
