A temporary layoff clause in an Ontario employment contract is a provision that expressly gives the employer the right to impose a temporary layoff. Without it, a layoff, even one that fully complies with the Employment Standards Act, can be treated as constructive dismissal at common law, entitling the employee to sue for wrongful dismissal damages.
That gap is the single most expensive drafting omission in Ontario employment law, and it catches careful employers all the time. You have a legitimate business reason to reduce headcount for a few weeks or months. You know the Employment Standards Act, 2000 (ESA) allows temporary layoffs in Ontario. You follow the ESA rules to the letter. And your employee still treats the layoff as a firing, sues for constructive dismissal, and wins.
This is not a hypothetical edge case. It is the predictable result whenever an employment contract lacks a properly drafted temporary layoff clause. This guide is written for Ontario employers, HR managers, and business owners. It explains the two separate legal regimes that govern layoffs (the ESA and the common law), why satisfying one does not protect you from the other, what a valid temporary layoff clause must do, and how recent 2025 case law has clarified the rules. At Hadri Law, drafting and reviewing employment contracts so they hold up in court is core to our practice.
What Is a Temporary Layoff Under Ontario Law?
A temporary layoff happens when an employer cuts back or stops an employee's work without ending the employment relationship. The intention is that the employee will be recalled. This is what distinguishes a layoff from a termination: on paper, the job still exists and the employment relationship continues.
Under the ESA, a layoff stays "temporary" and therefore does not become a deemed termination, only if it fits within specific time thresholds set out in section 56. There are now three tiers.
Tier 1, short layoff. A layoff of not more than 13 weeks in any period of 20 consecutive weeks.
Tier 2, extended layoff with qualifying conditions. A layoff of more than 13 weeks in any period of 20 consecutive weeks, but less than 35 weeks in any period of 52 consecutive weeks, provided at least one qualifying condition is met. Those conditions include the employee continuing to receive substantial payments from the employer, the employer continuing to make payments for the benefit of the employee under a legitimate retirement, pension, or group insurance plan, the employee receiving supplementary unemployment benefits, or the employer recalling the employee within a time approved by the Director of Employment Standards.
Tier 3, new extended layoff (in force November 27, 2025). A layoff of more than 35 weeks in any period of 52 consecutive weeks, but less than 52 weeks in any period of 78 consecutive weeks, available only if the employer and employee agree in writing and, before signing, the employer informs the employee in writing of the latest intended recall date and that the agreement cannot be withdrawn once entered. This written agreement must also be approved by the Director of Employment Standards using the form approved by the Director.
If a layoff exceeds the applicable threshold and no exception applies, it becomes a deemed termination under the ESA. At that point the employer owes statutory termination pay and, where the employer meets the size and tenure conditions, statutory severance pay.
One point employers often miss: these ESA thresholds are a statutory floor. They apply regardless of what the employment contract says. A contract cannot give an employee less than the ESA provides. See the ESA, 2000, section 56 and the Ministry's Guide to the Employment Standards Act on termination for the governing text.
The Common-Law Trap: Why ESA Compliance Is Not Enough for Temporary Layoffs in Ontario
Here is the insight most employers miss, and it is the heart of the problem. Following the ESA does not protect you from a constructive dismissal claim, because the ESA and the common law are two separate legal regimes that run in parallel.
At common law, employment is presumed to be continuous. An employer has no implied right to reduce an employee's hours, cut their pay, or impose a layoff. When an employer unilaterally imposes a layoff, it makes a fundamental change to a basic term of the employment relationship. That fundamental change is a constructive dismissal, regardless of whether the layoff complies perfectly with the ESA.
A constructive dismissal lets the employee treat the relationship as terminated and sue for common-law reasonable notice. This is the part that hurts financially. Common-law notice is assessed using the Bardal factors (length of service, age, character of the position, and availability of similar employment) and can range from a few months to as much as 24 months depending on the circumstances. That range is far higher than ESA minimums, and it is a range, not a guarantee. The point is that the exposure is large and unpredictable.
The two regimes do not cancel each other out. Courts have consistently held that the ESA does not displace the common law unless it does so in clear statutory language, and they have been reluctant to find such displacement.
The leading authority is Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076. An employee was placed on a temporary layoff during the COVID-19 period, and the employer relied on the Infectious Disease Emergency Leave (IDEL) Regulation under the ESA as a shield. The court rejected that defence. It held that the IDEL Regulation did not displace the common law, and that absent an express contractual term allowing a layoff, the employee was entitled to treat the unilateral layoff as a constructive dismissal. The employer's motion was dismissed.
A separate case, Taylor v. Hanley Hospitality Inc., 2022 ONCA 376, reached the Ontario Court of Appeal. The motion judge below had dismissed the employee's constructive dismissal claim on procedural grounds, and the Court of Appeal found that the motion judge had erred in her procedural approach. The case was sent back to proceed on its merits. As a result, the substantive conflict on whether the IDEL Regulation displaces the common law was never authoritatively resolved at the appellate level. For employers, the practical lesson is clear: do not gamble on an unsettled defence. IDEL was a COVID-specific emergency regulation, not the general rule, and the reliable protection has always been a contractual clause.
The takeaway is blunt. An employee placed on a layoff that complies with every ESA rule can, on day one, elect to treat the layoff as a termination and start a wrongful dismissal claim. Your ESA compliance is simply irrelevant to that claim.
The Solution: A Valid Temporary Layoff Clause in the Employment Contract
The fix is straightforward in concept. The employment contract must expressly give the employer the contractual right to impose a temporary layoff. When the employee has agreed to that term in advance, a layoff within the agreed scope is no longer a unilateral change to the relationship, so it is no longer a constructive dismissal.
A well-drafted temporary layoff clause in an Ontario employment contract generally should:
- Expressly reserve the employer's right to impose a temporary layoff
- State that any layoff will be conducted in accordance with the Employment Standards Act, 2000, which incorporates the statutory thresholds and deemed-termination rules
- Confirm that the layoff is temporary and subject to recall
- Address recall procedures and timelines
- Address what compensation or benefits, if any, continue during the layoff, which ties back to the Tier 2 qualifying conditions
As an illustration only, a clause might begin with language such as: "In the event a temporary layoff is ever required, it may be implemented in accordance with the requirements of the Employment Standards Act, 2000." This is an example to show the concept, not template language to copy. Layoff and termination provisions are technical, and small drafting errors routinely make them unenforceable. Have a lawyer draft or review the clause.
The 2025 decision in Taylor v. Salytics Inc., 2025 ONSC 3461 sharpened the rules in the employer's favour. A senior technical consultant was laid off for roughly six months in 2024. His employment contract contained a temporary layoff clause, but it was located inside the termination section, and the employer conceded that the termination provisions were unenforceable, an increasingly common scenario after the line of cases on defective termination clauses. The court held that a temporary layoff clause is substantively distinct from a termination clause. Its enforceability is not affected by the unenforceability of adjacent termination provisions. A clearly drafted layoff clause that incorporates ESA-compliance language was valid and protected the employer.
There are two practical lessons in Salytics. First, a layoff clause can survive even when a neighbouring termination clause is fatally flawed. Second, and despite that good news, the best practice is still to keep the layoff clause as a standalone, clearly labelled provision so there is no room for argument about what the clause does. You do not want to be the test case for how far the distinction stretches.
One more drafting reality matters for existing staff. If you want to add a layoff clause to a contract an employee has already signed, you generally need fresh consideration, something of value the employee receives in exchange, such as a promotion, a raise, or a signing bonus. Asking an existing employee to sign a new clause for nothing is likely unenforceable. Building the clause into the contract from day one avoids this problem entirely. For broader context on how contract structure affects enforceability, see our guide to fixed-term versus indefinite employment contracts in Ontario.
Recall, Deemed Termination, and When a Temporary Layoff Goes Wrong
A contractual right to lay off is only the start. A complete clause should also address recall: how and when the employee will be brought back, and what happens if recall does not occur within the planned window.
If a temporary layoff is not ended within the ESA's time limits, it converts into a deemed termination. The employer then owes statutory termination pay, and statutory severance pay where applicable. Separately, at common law the employer may owe reasonable notice damages, unless a valid termination clause limits the entitlement to ESA minimums. This is why layoff clauses and termination clauses need to work together, and why a flaw in one can create exposure under the other.
Consider a concrete scenario. An employer lays off an employee for 14 months with no written agreement and no contractual layoff clause. That employee is constructively dismissed at common law from day one, and is also deemed terminated under the ESA once the applicable threshold passes. The employer faces both statutory entitlements and common-law notice damages from a layoff it believed was temporary.
The new Tier 3 extension can help during genuinely long downturns, such as those driven by tariffs or supply chain disruption, but it is not a cure-all. Tier 3 requires a written agreement with a disclosed recall date plus approval from the Director of Employment Standards, and it operates within the ESA. It does not, on its own, supply the underlying contractual right to lay off in the first place. An employer that lacks a layoff clause in the employment contract cannot rely on a Tier 3 agreement to escape a common-law constructive dismissal claim. The contractual right and the ESA timing rules are two different things, and you need both.
Frequently Asked Questions About Temporary Layoffs in Ontario
Can an employer lay you off temporarily in Ontario?
Yes, but only if the employment contract gives the employer that right, or a well-established industry practice of layoffs applies. The ESA permits temporary layoffs in Ontario within set time limits, but ESA permission is separate from the contractual right. Without a layoff clause, imposing a layoff can amount to constructive dismissal at common law even when the ESA rules are followed. Most employees should check their written contract first.
How long can a temporary layoff last in Ontario?
Under ESA section 56, a layoff can run up to 13 weeks in any 20 consecutive weeks (Tier 1), or up to 35 weeks in any 52 consecutive weeks if a qualifying condition is met (Tier 2). As of November 27, 2025, a third tier allows up to 52 weeks in any 78 consecutive weeks where the employer and employee agree in writing with a disclosed recall date, subject to Director of Employment Standards approval.
Is a temporary layoff the same as being fired in Ontario?
Not under the ESA, where the employment relationship continues during a valid temporary layoff. At common law, however, a layoff imposed without a contractual right can be treated by the employee as a constructive dismissal, which has the same financial effect as a firing because the employee can claim reasonable notice damages.
What happens if a temporary layoff becomes permanent?
If a layoff exceeds the applicable ESA threshold and no exception applies, it becomes a deemed termination. The employer then owes statutory termination pay and, where applicable, statutory severance pay. Common-law notice damages may also apply unless a valid termination clause limits the entitlement. The employee does not need to wait for the layoff to formally end before asserting their rights.
Can I claim constructive dismissal if I am laid off in Ontario?
Often, yes. At common law an employer has no implied right to lay off an employee. If your contract does not authorise a layoff, a unilateral layoff is generally a fundamental change to your employment that you can treat as a constructive dismissal, as confirmed in Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076. Seek legal advice promptly, as delay can affect your claim.
Does a temporary layoff clause need to be in writing in Ontario?
Practically, yes. The whole purpose of the clause is to prove the employee agreed in advance to the possibility of a layoff. A clear written clause in the signed employment contract is the reliable way to establish that consent and avoid a constructive dismissal argument. Verbal agreements are difficult to enforce and create exactly the uncertainty a written clause is meant to eliminate.
What benefits must an employer continue during a temporary layoff in Ontario?
The ESA does not require benefit continuation for a short Tier 1 layoff, but for an extended Tier 2 layoff, continuing certain payments is one of the qualifying conditions that keeps the layoff temporary. These can include substantial payments to the employee or contributions to a legitimate pension, retirement, or group insurance plan. Failure to meet a qualifying condition can convert the layoff into a deemed termination.
What is the difference between a temporary layoff and a termination under the ESA?
In a temporary layoff the employment relationship continues and the employee is expected to be recalled, with no termination pay owed while the layoff stays within ESA limits. A termination ends the relationship and triggers statutory termination pay and, where applicable, severance pay. The key distinction is whether the employer intends to recall the employee and whether the ESA time limits are respected.
Sources & Official Resources
Ontario Statutes Cited
Ontario Government Guides 2. Ministry of Labour, Guide to the ESA: Termination of Employment 3. Ministry of Labour, Recent Changes to the ESA (including November 2025 Tier 3 extended layoff)
Case Law Cited 4. Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 (CanLII) 5. Taylor v. Hanley Hospitality Inc., 2022 ONCA 376 (CanLII) 6. Taylor v. Salytics Inc., 2025 ONSC 3461 (CanLII) 7. Bardal v. Globe & Mail Ltd., 1960 CanLII 294 (ON SC)
Talk to an Ontario Employment Lawyer
If you need to draft or review an employment contract so that it includes a valid temporary layoff clause, getting it right before you need to act is the part that protects your business. Hadri Law advises Ontario employers on employment contracts, workplace policies, and the full range of employment law matters facing growing businesses. For related reading, see our analysis of the Working for Workers Acts and recent Ontario employment law updates.
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This article provides general information and is not legal advice. Every situation is different. Contact a lawyer to discuss your specific circumstances.
