Another Win for Employers: Enforceability of Termination Provisions Does Not Impact Contractual Right to Layoff
July 9, 2025
| By
Alyssa Johnson
Employment Standards
|
Employment Litigation
Bottom Line
In the recent case of Taylor v Salytics Inc., 2025 ONSC 3461, the Superior Court of Justice (the “Court”) held that the enforceability of termination provisions in an employment contract does not impact the enforceability of layoff provisions. Despite the unenforceable termination provision, the Court held that Salytics Inc. retained the contractual right to lay the Plaintiff off, such that he was not constructively dismissed.
This decision reassures employers that a properly drafted layoff provision is not a termination clause and remains enforceable even if the termination provisions are invalid. This allows employers to rely on layoff provisions to place employees on a temporary layoff without automatically risking constructive dismissal claims.
Facts
In early 2024, Salytics Inc. experienced financial difficulties. Mr. Taylor first entered into an agreement for reduced hours and wages, before being placed on temporary layoff effective three weeks later, on April 1, 2024. He had been employed by Salytics Inc. for approximately 11 years, and was working as a Senior Technical Consultant at the time. His employment contract contained the following provision:
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 the Employment Standards Act, 2000.
Mr. Taylor responded to the layoff by filing an Application to the Court seeking a declaration that he was wrongfully terminated, and 12 months of common law reasonable notice. Mr. Taylor was recalled to work on September 30, 2024.
Issues in Dispute
The Parties agreed that the termination provision was unenforceable, but disagreed as to its impact on the enforceability of the layoff provision.
Specifically, the dispute centered around the impact of the decision in Waksdale v Swegon North America (see our previous Insight here). In that case, the Court held that, if any portion of a termination provision is unenforceable, it renders the entire termination provision unenforceable. As a result, an employee terminated pursuant to the unenforceable termination provisions has been wrongfully dismissed, and is entitled to common law reasonable notice.
While the Plaintiff’s contract did contain a right for Salytics Inc. to lay him off, the Plaintiff argued that the layoff provision should itself be considered a “termination provision”, and, per Waksdale, be voided by the other unenforceable termination provision.
The Decision
The Plaintiff first argued that the layoff provision was actually a termination provision on the basis that the language was contained in the same section of the contract. However, the Court agreed with Salytics Inc. that the heading or placement of a provision is not determinative; the focus is on the substance of a provision, rather than its form.
The Court further rejected the Plaintiff’s second argument that a contractual layoff should be considered a termination provision because a layoff at common law is a constructive dismissal. Instead, the Court held that a layoff is only equivalent to a termination when there is no clause in the agreement which permits the layoff. As a corollary, where there is a clause, the layoff is not a termination because the employer has contractual authority.
Finally, the Court rejected the Plaintiff’s third argument that a contractual layoff provision ought to be considered a termination provision because the provisions relating to layoffs in the Employment Standards Act (“ESA”) are contained under the heading “Termination and Severance of Employment” and in section 56, which enumerates various types of terminations. The Court noted that the Plaintiff did not argue that the layoff provision itself breached the ESA, and, more importantly, section 56(4) of the ESA explicitly states that temporary layoffs are not terminations.
The Court therefore concluded that the layoff provision was not a termination provision and could not be invalidated by the unenforceable termination provision in the contract. As a result, the Plaintiff was not constructively dismissed.
The Court proceeded to calculate, in the alternative, the common law reasonable notice the Plaintiff would have been entitled to, holding that the Plaintiff would have been compensated for the six months he was laid off. This would be paid at his unreduced earnings and hours, on the basis that it was contrary to the ESA to rely on the agreement for reduced wages to lower the employee’s statutory pay in lieu of notice when terminated.
Takeaways
This case entrenches an employer’s contractual right to lay employees off and confirms that properly drafted layoff provisions remain enforceable even if termination clauses in the contract are void. Employers can therefore rely on valid layoff language to manage business and workforce needs without being at risk of constructive dismissal claims, provided the layoff complies with the ESA.
Need More Information?
For more information or assistance with drafting employment agreements or preparing for layoffs, contact Alyssa Johnson at ajohnson@filion.on.ca or your regular lawyer at the firm.
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