Since 2020, most Ontario employers have learned to fear the word Waksdale. One defective sentence in a termination clause and the whole provision collapses, leaving the company exposed to full common law notice. Employment counsel have been rewriting contracts for six years to survive that scrutiny.
The Ontario Court of Appeal has now put a fence around it.
In Taylor v. Salytics Inc., 2026 ONCA 621, released in early September, the Court held that a temporary layoff clause is not a termination clause, even when it sits directly beneath void termination language under a heading that literally says "Termination." A technology company that placed a long-serving employee on a six-month unpaid layoff during a cash crunch, then recalled him, did not constructively dismiss him. The employee's appeal was dismissed.
For CEOs and HR leaders, this is the most practical employment contract decision of the year. It confirms that the single sentence most Ontario employment agreements still lack, an express right to implement a temporary layoff under the Employment Standards Act, 2000, is enforceable on its own terms and is worth adding now, before the next downturn makes it necessary.
What happened
Barry Taylor worked for Salytics for roughly eleven years, first as a Lead Developer and later as a Senior Technical Consultant. In 2024 the company ran into financial difficulty. Taylor first agreed to a temporary 20 percent reduction in hours and pay. About three weeks later, Salytics told him he was being placed on a temporary layoff effective April 1, 2024. His benefits continued; his salary did not. He was issued a recall notice on September 6 and returned to full-time work on September 30, 2024, twenty-six weeks after the layoff began.
Taylor sued anyway, seeking a declaration that the layoff was a constructive dismissal and damages in lieu of notice for the period he was off.
His argument was clever. The employment agreement's "Termination" section contained three sentences: a for-cause termination clause, a without-cause termination clause, and a sentence stating that "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." Salytics conceded on appeal that its for-cause clause was invalid because it did not preserve statutory entitlements for conduct falling short of the ESA's wilful misconduct standard. Under Waksdale v. Swegon North America Inc., 2020 ONCA 391, that concession meant all of the contract's termination provisions were void. Taylor's position was that the layoff sentence was a termination provision too, that it had to be read together with the rest of the section, and that it fell with them. Without a valid contractual right to lay him off, the layoff was a unilateral change to a fundamental term and therefore a constructive dismissal.
The application judge rejected that argument in 2025 ONSC 3461. The Court of Appeal has now agreed.
The ruling in plain language
The Court's reasoning rests on three points.
First, the ESA itself treats layoffs and terminations as different things. Section 56 defines a "temporary layoff" by its length and conditions, and provides that an employee is not terminated by a layoff so long as it stays within those limits. As the Court put it, "a temporary lay-off is not included in the definition of termination." A layoff only becomes a termination when it runs past the statutory maximum.
Second, substance beats form. The Court acknowledged that a unilateral layoff is a constructive dismissal at common law, but only where the contract does not permit it. Where the parties have expressly agreed that the employer may implement a temporary layoff in accordance with the ESA, exercising that right is not a unilateral act. And the fact that the sentence appeared under a "Termination" heading, immediately after the void termination clauses, did not convert it into a termination provision. The question is what the clause does, not where it sits.
Third, the Court was unwilling to interfere with a lawful bargain. The parties had agreed to a temporary layoff mechanism that tracked the statute. The employer used it within the statutory window, continued benefits, and recalled the employee. There was nothing for Waksdale to reach. Bow River Law's analysis frames the result well: the problematic termination clauses simply could not be used to taint the layoff provision.
This lands one month after the Court's decision in Baker v. Van Dolder's Home Team Inc., 2026 ONCA 568, which held that "at any time" and "for any reason" termination language is not, by itself, a violation of the ESA. Hicks Morley's commentary on Baker described the Court as restoring a contextual, objective-intentions approach to interpreting employment contracts. Taylor applies the same discipline to the layoff question. Taken together, the two decisions signal that the Court of Appeal is done rewarding literal readings that strain to find ambiguity.
What it means for Ontario employers
A layoff clause is now a distinct, defensible tool. Most Ontario employment agreements either say nothing about temporary layoffs or bury a vague reference inside the termination section. Taylor confirms that a clear layoff clause stands on its own and survives even where the termination language around it does not. That materially changes the risk calculus of a downturn. An employer with the clause can pause payroll on part of the workforce within the ESA limits; an employer without it generally faces a choice between paying people not to work and risking constructive dismissal claims.
The clause does not create unlimited flexibility. The Court's reasoning depends on the layoff staying inside the statutory definition. Ontario's Employment Standards Act guide sets out the current limits: a layoff is temporary if it does not exceed 13 weeks in any period of 20 consecutive weeks, or if it runs longer than 13 weeks but less than 35 weeks in any 52-week period and specific conditions are met, such as continued benefit contributions or a recall date fixed by agreement. As Norton Rose Fulbright's compliance summary notes, since November 27, 2025, non-unionized parties can also agree in writing to an extended layoff of 35 or more weeks in a 52-week period, provided it stays under 52 weeks in any 78-week period, but only with a fixed recall date and the approval of the Director of Employment Standards. Miss the window, or lose track of the count, and the layoff converts into a termination with full notice and severance consequences.
Contract drafting quality is a business risk, not a legal nicety. Salytics won because its clause was short, explicit, and tied directly to the ESA. As Sherrard Kuzz observed when the lower court decision came out, an enforceable layoff provision "can permit an employer to place an employee on a temporary lay-off" and gives real flexibility to manage a workforce in uncertain times. The same firm's warning applies with equal force: drafting an enforceable agreement is not as easy as the internet suggests.
Existing employees are the hard part. Taylor only helps if the employee signed an agreement containing the clause. Adding a layoff provision to a current employee's contract requires fresh consideration, meaning something of value beyond continued employment, and a process that does not itself amount to a constructive dismissal. This is where most companies stall. The contract template gets fixed for new hires, while the long-tenured workforce most likely to be affected by a layoff stays on the old paper.
What to do now
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Audit every employment agreement template for an express temporary layoff clause. If the clause is missing, add one. If it exists, confirm it references the ESA directly and does not attempt to expand the statutory limits or impose conditions the Act does not recognize. Counsel should draft or review the language; the cost is trivial compared to one contested layoff.
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Separate the layoff clause from the termination section. Taylor says placement is not determinative, but the entire dispute happened because the sentence sat under a "Termination" heading. A standalone provision removes the argument before it starts.
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Plan the roll-out to existing staff as a change-management exercise. Identify what consideration will be offered, sequence the conversations, and document acknowledgement. Rolling out amended agreements badly can create the very constructive dismissal exposure the clause is meant to prevent. Our HR services work covers this kind of contract migration.
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Build a layoff-tracking control before you need it. The ESA's 13-in-20 and 35-in-52 week counts are easy to lose track of across a group of employees with different start dates, partial weeks, and benefit arrangements. Assign ownership, set calendar triggers at week 10 and week 30, and confirm the recall or termination decision well before the clock runs out.
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Read Taylor alongside Hill v. B&B Towing. The Court of Appeal decided both within weeks of each other, and together they map the boundary between legitimate workforce restructuring and dismissal. Hill shows the Court will not let an employer treat an accommodable disability as having ended the contract; Taylor shows it will honour a clear contractual layoff right exercised within the statute. The difference is paperwork done in advance.
None of this is legal advice. Layoff rules, contract enforceability, and consideration requirements turn on the specific wording and the specific facts, and the right move is to have employment counsel review your agreements against the current ESA. What 1205 Consulting does is make sure the operational side, the templates, the roll-out, the tracking, and the manager conversations, is built so that when counsel signs off, the company can actually execute.
Reviewing your employment agreements or planning a workforce change? Our HR services work covers contract template audits, existing-employee migration, and layoff and restructuring process design so the paper matches what the business needs to do. Book a 30-minute consultation or contact us.
