New Taylor track – from Ontario court

Exclusive to Canadian HR Reporter from Rudner Law.

While Swifty employment lawyers are upset that we are probably not getting Reputation (Taylor’s Version) any time soon, or maybe ever, we can enjoy the next best thing - a fresh employment law decision.

The Ontario Superior Court of Justice issued its decision in Taylor v. Salytics Inc., and this new Taylor track is a banger.

In all seriousness, Taylor is a really interesting decision because the court found that language that would invalidate a termination clause did not impact the layoff provision in the employment agreement. The court’s decision was based on its finding that a lawful layoff is not a termination.

Background of temporary layoff

The plaintiff in Taylor was employed as a senior technical consultant and was with the employer for about 11 years when he was temporarily laid off on March 25, 2024 due to the employer’s financial struggles.

Shortly after being laid off, Barry Taylor sued for constructive dismissal, claiming 12 months of reasonable notice damages, on the grounds that the layoff provision in his employment agreement was unenforceable because it contained language stipulating that his employment could be terminated “at any time.” This language was recently confirmed to breach the Employment Standards Act, 2000 (ESA).

Taylor argued that, since the offside language was in the termination clause, and the layoff provision was part of the termination clause, the layoff provision should be struck.

Six months after filing the lawsuit, Taylor was recalled to work at the same income level, effectively capping his damages at six months.

Termination clauses and ESA

The parties agreed that the “with cause” and “without cause” provisions in the termination clause both contained language that breached the ESA. They also agreed with established jurisprudence which holds that language in a termination provision that breaches, or has the potential to breach the ESA, renders the rest of the contract’s termination provisions unenforceable, regardless of whether these are under the same heading or elsewhere in the contract.

The parties’ disagreement was about whether the layoff provision was a termination provision. If so, then it would not be enforceable and the layoff would have constituted a constructive dismissal.

This is because there is no common law right for employers to lay off employees — there must be an express or implied term in an employment agreement, otherwise a layoff is a substantial change in the terms of employment and constitutes constructive dismissal.

Layoff provision not termination provision

The court determined that a layoff provision is not a termination provision, even if the provision is under the same heading as the contract’s termination clause. The court reasoned that layoffs are not terminations, because they do not terminate the employment relationship.

A layoff provision is designed to allow the employer to make a change to the employment relationship, the change being that the employee can be temporarily sidelined from their duties.

The temporary nature of a layoff is key, since the expectation is that the employee will return and continue providing services. As such, it cannot be said that the employment relationship is being terminated when it is continuing under the terms provided for in the employment agreement.

The only times when a layoff is a termination is when the employer does not have the right to lay off an employee, or when a layoff breaches applicable statutory layoff provisions, such as those deeming when a layoff becomes a termination.

Consequently, the layoff provision in Taylor was not a termination clause, and therefore valid. The employer had the right to lay off Taylor — there was no constructive dismissal.

Pith and substance with temporary layoffs

Taylor is a good reminder that employers do not have an automatic right to impose temporary layoffs. In times of economic uncertainty, employers often try to reduce labour costs through moves such as cutting hours and laying off employees.

As Taylor shows, where an employer does not have an express or implied contractual right to lay off an employee, the layoff will be a constructive dismissal. Employers should therefore be careful before making any cost-cutting decisions such as cutting hours, because the fact is that while layoffs certainly are offside without the proper contractual provision, even cutting hours can be a substantial change in terms of employment.

Being hit with a constructive dismissal claim is a surefire way of turning a cost-cutting measure into significant unnecessary additional costs.

Invalid termination clauses

That said, somewhat surprisingly, the court did not find that an invalid termination clause invalidates a temporary layoff clause, which would have removed the right to impose temporary layoffs from many contracts. This has spurred discussions within the HR law bar, as the court’s approach did not fully align with past jurisprudence which struck clauses for ambiguity and potential to breach the ESA.

In Taylor, the court seems to have decided that since the employer had a contractual right to layoffs, the layoff could not possibly be a termination, so that jurisprudence did not apply to strike the provision.

The good news is that, based on Taylor, a bad termination clause will not invalidate a layoff provision. Still, it’s advisable for employers to work with HR counsel to implement cost-cutting measures and strong employment agreements to avoid the risks of liability for wrongful dismissal.

David Gelles is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].