‘A court is never going to look to the placement of a clause, they're going to look to the substance’
“As long as the employment contract contemplates the possibility of layoffs, then it's not going to be a constructive dismissal if an employee is placed on a temporary layoff, because the contract is already considering that that's something that would happen.”
So says employment lawyer Jeff Rochwerg of Turnpenney Milne in Toronto, after the Ontario Superior Court of Justice dismissed a worker’s constructive dismissal action following a temporary layoff.
Salytics Inc. is a Toronto-based company providing data and technology consulting services. It hired the worker in 2013 as a lead developer, and five years later he became a senior technical consultant.
The worker’s employment contract included a termination section with three separate clauses. One allowed Salytics to terminate the worker’s employment “at any time for cause.” The second allowed the company to terminate the worker’s employment without cause “at any time” by providing the statutory minimum notice or pay in lieu, unless the worker was laid off within the first six months of employment – in which case he would receive his salary up to the end of six months.
The third clause in the section stated that “in the event a temporary layoff is ever required, it may be implemented in accordance with the requirements of the (Ontario) Employment Standards Act, 2000 (ESA).”
Terms of employment
In 2024, Salytics began experiencing financial troubles, with its revenue dropping 60 per cent from the previous fiscal year, and the company’s president and CEO asked the worker if he would be willing to accept a temporary reduction in his hours and pay of 20 per cent. The worker agreed and signed an agreement that, effective March 1, reduced his weekly hours from 40 to 32 with his salary reduced accordingly. The agreement stated that the reduction would continue “until the company and the employee mutually agree to the employee’s full return and salary.”
Salytics approached the proposal to reduce employee hours and salary well, according to Rochwerg.
“Typically, any time that you’re going to be making changes to the employee’s terms of employment, it’s always good practice to have the employee sign an addendum and consent to those terms, just because it protects the employer in the event that there is a constructive dismissal,” he says.
However, Salytics’ financial difficulties continued and, on April 1, it implemented a company-wide mandatory workweek reduction. Of its 19 employees, six were placed on full temporary layoff and 10 were placed on partial temporary layoff with a four-day workweek. The worker was one of the employees placed on full temporary layoff.
Constructive dismissal claim
During the layoff, the worker wasn’t paid but Salytics continued his benefits. Three-and-a-half months into the layoff, on July 19, he commenced an application against the company seeking a declaration that he had been dismissed, claiming 12 months’ pay in lieu of notice.
Over the course of the summer, Salytics started to recall employees as work became available. It sent a recall notice to the worker on Sept. 6 for a return to the same position at his full-time hours and salary, starting Sept. 12.
The company also provided a revised employment agreement at his request, which removed the temporary layoff clause. The worker returned to work full-time on Sept. 30, but he continued his legal action for wrongful dismissal.
The court noted that, despite the fact that the ESA has a provision contemplating temporary layoffs, at common law employers don’t have the right to lay off employees unless they have “an express or implied term in an employment contract.” Otherwise, a unilateral layoff is a substantial change in the employment contract that constitutes constructive dismissal, said the court.
Salytics asserted that the temporary layoff was in accordance with the ESA and the worker’s employment agreement, while the worker argued that the layoff provision was a termination clause that was void and unenforceable.
Termination clause
The worker argued that the layoff provision was in the contract’s “termination” section and therefore part of a broader termination clause that had an invalid “for cause” provision. The invalid provision made the entire termination clause unenforceable – as established in jurisprudence such as Waksdale v. Swegon North America Inc., 2020 ONCA 391 - so his temporary layoff amounted to constructive dismissal, he said.
“The ‘for cause’ termination provision was one of those pre-Waksdale clauses that says the employer may terminate employment at any time for cause, but it didn't specify that there's a difference between [statutory] willful misconduct termination and a [common law] just cause termination,” says Rochwerg. “By being silent on this and containing the ‘at any time’ language, there really was no question that the ‘for cause’ provision was unenforceable, as is the case with many contracts that have been drafted with that language.”
“Waksdale and now [Dufault v. Ignace (Township), 2024 ONCA 915] have really placed the onus on employers and their counsel to ensure that contracts are being looked at and drafted to ensure enforceable terms, which isn't as hard as it sounds but a lot of employers don't have them,” he adds.
Salytics acknowledged that the “for cause” termination provision was invalid but maintained that the layoff provision was separate and not a termination clause.
The court found that the placement of the layoff provision wasn’t determinative of whether it was a termination clause, or that would allow an employer to change the meaning of a contract by rearranging headings – the substance of the clause was more important. While a layoff provision can restrict an employee’s rights, it isn’t a termination provision because s. 56 of the ESA specifically states that a temporary layoff isn’t a termination, the court said, adding that a layoff provision in an employment contract ensures that the layoff isn’t a constructive dismissal.
“The worker made some arguments that the placement of the temporary layoff clause so close to the termination provision renders it a termination provision, but the court dispensed with that argument using some of the principles outlined in Waksdale - that a court is never going to look to the placement of a clause, they're going to look to the substance of a clause,” says Rochwerg.
Temporary layoff contractually authorized
As a result, the court determined that the layoff clause wasn’t inconsistent with the ESA and the worker’s temporary layoff was contractually authorized and not a constructive dismissal.
The court dismissed the worker’s action and awarded costs to Salytics.
It’s a good reminder for employers to have employment contracts checked before placing employees on a temporary layoff or doing anything in accordance with the ESA, says Rochwerg.
“Just because the ESA permits it, it doesn't mean that it's going to be permitted at common law, so employers would be wise to make sure that their contracts are drafted and reviewed once a year, because the law on these clauses is constantly shifting and is very employee-friendly,” he says. “Salytics got away with [the unenforceable termination clause] because this wasn't really a termination case, it was a temporary layoff case, and the temporary layoff was implemented in accordance with the ESA, which explicitly provides that temporary layoffs that are implemented in accordance with it are not terminations - that was fatal to the employee's argument.”
See Taylor v. Salytics Inc., 2025 ONSC 3461.
