Temporary layoffs can be a stressful experience for employees and a tricky legal area for employers. In Ontario, the Employment Standards Act, 2000 (ESA) sets out when a layoff is considered "temporary" as opposed to a permanent termination. However, just because the ESA permits temporary layoffs in certain circumstances does not mean every layoff is automatically allowed. Whether a temporary layoff is legal often comes down to what your employment contract says. In this article, we'll explain how temporary layoffs work under Ontario law, when they're permitted, and what your rights are as an employee.
Under Ontario law, a temporary layoff generally means an employer cuts back or stops an employee's work without officially ending the employment. The ESA allows an employer to do this for a limited period. Specifically, a temporary layoff can last up to 13 weeks in any 20-week period, or up to 35 weeks in any 52-week period if certain conditions are met, such as the employer continuing the employee's benefits or partial pay during the layoff. If a layoff goes beyond those time limits, the law deems it a termination, and the employee becomes entitled to notice or pay in lieu of notice.
It is important to note that the ESA's rules set minimum standards. The ESA itself states that a temporary layoff within the prescribed limits is not considered a termination under that act. However, these rules do not automatically give employers a free pass to lay people off whenever they want. To understand why, we need to look at the difference between the ESA and the common law (court-made law) regarding layoffs, and the role of your employment contract.
At common law, an employer has no inherent right to lay off an employee temporarily. Courts have long held that unless an employee has agreed to layoffs as part of the contract, a unilateral layoff is treated as a substantial change to the terms of employment, essentially a breach of contract. In legal terms, that breach is a constructive dismissal, meaning the employee can consider themselves terminated and seek damages such as severance pay in lieu of notice. This is true even if the layoff is meant to be temporary.
Importantly, the fact that a layoff meets the ESA's definition of temporary does not by itself protect the employer from a wrongful dismissal claim. The ESA provides minimum standards, but it does not displace greater contractual or common law rights that benefit the employee. In other words, an employer can comply with the ESA's timeline and still be liable for constructive dismissal if the employee never agreed to be laid off. Courts have also made it clear that an employer cannot infer an employee's consent to layoffs from the mere fact that the employee continues to work in the hope of being recalled.
An employer can temporarily lay off an employee only if the employee has agreed to that possibility beforehand, usually by way of an explicit layoff clause in the employment contract. Many well-drafted Ontario employment contracts include a term that references the ESA's provisions on temporary layoff. For example, a contract might state: "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." This kind of clause gives the employer the contractual right to impose a temporary layoff within the ESA limits.
A recent case illustrates how crucial this contract language is. In Taylor v. Salytics Inc., 2025 ONSC 3461, an employee was placed on a six-month temporary layoff and claimed it was constructive dismissal. However, the court upheld the layoff because the employment contract explicitly allowed for temporary layoffs in line with the ESA. The judge noted that while a unilateral layoff would normally be a constructive dismissal at common law, that rule applies only when there is no contractual clause permitting layoffs.
On the flip side, if there is no layoff clause in your contract and you have not otherwise agreed to it, a temporary layoff is risky for the employer. The moment you are laid off, you may have the right to treat it as a termination and claim termination pay or sue for wrongful dismissal. You are not obligated to simply "wait out" the ESA's 13 or 35-week period, although some employees choose to wait hoping to be recalled. Every situation can be different, but as a general rule, a non-consensual layoff is grounds for a constructive dismissal claim.
What if an employer realizes they want to add a temporary layoff clause to an employee's contract that did not have one? Employers cannot just impose new terms for free. In contract law, any amendment to an existing agreement requires fresh consideration, meaning each side has to get something of new value out of the deal. Consideration is basically a benefit or payment that one party gives the other in exchange for entering into the new agreement. Without valid consideration, a contract change is not binding.
In the employment context, consideration is especially important when changing a contract for someone who is already on the job. When a person is first hired, the job and its salary are considered adequate consideration for signing the initial employment contract. But once the person is already employed under an existing agreement, the employer cannot simply say, "Here's a new contract with a layoff clause, sign it," without offering anything new. Promising continued employment is not enough because the employee already has that right under the existing contract.
What counts as proper consideration? It can take many forms, as long as it is something of value that the employee is not already entitled to. A pay increase or a one-time bonus is a common form of consideration. Promotions with accompanying salary bumps are also typical. Additional paid vacation days or improved benefits can qualify, as can perks like flexible work arrangements if they represent something new to the employee. The key is that the employee is receiving something new or something above their current entitlements in exchange for agreeing to the contract amendment.
If an employer fails to provide consideration and simply has an employee sign a new contract mid-employment, there is a real risk that the new terms will not hold up in court. In practical terms, employers should always accompany any contract amendment with a clear benefit to the employee, and ideally spell out in the document itself what that benefit is. Likewise, employees should be cautious if asked to sign a new contract or contract addendum. Make sure you understand what you are getting in return. If it's unclear, consider seeking legal advice before signing.
Review your employment contract to see if it contains a temporary layoff clause. If it does, your employer has a right to lay you off temporarily within the ESA limits. If it does not, remember that an unpaid layoff is generally not allowed without your agreement and could amount to a termination in the eyes of the law.
If you are put on a layoff unexpectedly and you never agreed to that, you might have the option to claim constructive dismissal.
If your employer asks you to sign a new contract or add a layoff clause, make sure you are getting something of value in return (proper consideration).
If you want the flexibility to impose temporary layoffs, you should include a clear layoff clause in the initial employment contract. Make sure the clause is well-drafted and follows the ESA's definitions and conditions. The clause should explicitly state that any layoff will be temporary and in accordance with the ESA.
If you are adding a layoff clause to an existing contract, provide proper consideration to the employee, such as a pay raise, bonus, promotion, or added benefits, and document this clearly in the amendment.
Temporary layoffs in Ontario occupy a tricky space between the ESA and common law. The ESA allows these layoffs for a short period, but your contract needs to authorize it to protect the employer from liability. If you are an employee, know what your contract says about layoffs and understand that you have rights if a layoff is not part of the deal. If you are an employer, plan ahead by including clear layoff terms up front, or handle mid-stream changes with care and proper consideration. An ounce of prevention in contract drafting can save both sides from expensive legal disputes down the road.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Every case has its own facts and merits, and the law may apply differently depending on your specific circumstances. You should consult with a qualified employment lawyer before making any decisions based on the issues discussed above.
We are here 24/7 to address your case. You can speak with a lawyer to request a consultation.
905-744-8888