Employment Law: Layoffs in Ontario

Layoffs can raise complex legal issues in Ontario because a “layoff” is not automatically treated as a neutral pause in employment. Depending on the circumstances, a layoff may be a temporary interruption of work, a deemed termination under the Employment Standards Act, 2000 (the ESA), and/or a constructive dismissal at common law. The correct characterization depends on the employment agreement, workplace practice, and how the layoff is implemented and extended.

This page provides an overview of layoffs in Ontario and the issues that commonly drive disputes.

 

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What Is a Layoff?

 

In everyday terms, a layoff is a period during which the employer does not provide work (and typically does not pay wages), often because of operational or economic conditions. In Ontario employment law, however, the key question is whether the layoff is lawful and temporary, or whether it amounts to a termination of employment.

 

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Temporary Layoffs Under the ESA (Statutory Minimum Standards)

 

The ESA recognizes temporary layoffs in defined circumstances and within defined time limits. In general terms:

• A layoff may qualify as “temporary” only if it falls within the ESA’s permitted duration and conditions; and
• If the layoff exceeds ESA limits, the employee may be considered terminated for ESA purposes, which can trigger statutory obligations such as termination notice/pay and, where applicable, ESA severance pay.

Important point: Compliance with the ESA framework does not automatically prevent a constructive dismissal claim under the common law (see Section 3 below). The ESA sets minimum standards; it does not necessarily authorize an employer to impose a layoff where the contract does not permit it.

 

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Constructive Dismissal Risk: When a Layoff Is Treated as a Termination

A central issue in Ontario is that, at common law, a unilateral layoff can be treated as a constructive dismissal unless:

• The employment contract expressly or impliedly permits layoffs; or
• There is an established and accepted past practice of temporary layoffs in that workplace or industry that forms part of the employment relationship.

Where there is no contractual right to lay off, even a layoff described as “temporary” may be treated as the employer repudiating the employment contract—allowing the employee to claim termination-related entitlements.

Common dispute points include:

• Whether a layoff clause is enforceable and sufficiently clear
• Whether the employer relied on a policy/manual that does (or does not) form part of the employment contract
• Whether prior layoffs were truly accepted as a term of employment, or were isolated events
• Whether the layoff was implemented fairly and consistently (e.g., selection criteria, communications, and timeline)

 

 

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Key Practical Issues During a Layoff

(a) Benefit continuation and other support
Whether benefits are continued can be legally and practically significant. Benefit continuation may also affect whether the layoff fits within ESA conditions and how the layoff is viewed in a dispute.

(b) Written communication and recall expectations
Clear documentation often matters, including:

• The reason for the layoff
• The intended duration (if known)
• Whether benefits will continue
• How and when recall will be communicated
• Whether the employee is expected to remain available for recall

(c) Reductions in terms on recall
A recall to materially worse terms—such as lower pay, reduced hours, loss of status, or changed location—can create additional risk of a constructive dismissal claim, even if the layoff itself was intended to be temporary.

 

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When a Temporary Layoff Becomes a Termination

A layoff may effectively convert into a termination where:

• The layoff extends beyond the ESA’s permitted duration;
• The employer advises that recall is not expected;
• The employer permanently replaces the employee; or
• The employer’s conduct indicates that the employment relationship will not be resumed on comparable terms.

When a layoff is treated as a termination, the employer’s obligations may include statutory termination notice/pay, benefit continuation during the statutory notice period, and potentially ESA severance pay (if the statutory criteria are met). Common law reasonable notice may also be in issue if enforceable contractual limits are absent.

 

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What Employees Commonly Ask After a Layoff

Layoff disputes frequently involve practical questions such as:

• Is the layoff permitted under the employment agreement?
• Is the layoff still within ESA “temporary layoff” limits?
• What happens to benefits and pension/RRSP contributions?
• Can the employee take other work during the layoff?
• What is the legal effect of refusing a recall (or accepting a recall to different terms)?
• If termination is triggered, what compensation is owed?

 

 

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Special Considerations: Group Layoffs and Mass Termination

Where an employer terminates multiple employees within a defined period, additional ESA requirements may apply (often referred to as mass termination rules), including enhanced notice obligations and specific procedural steps. Whether a broad reduction in workforce is structured as “layoffs” or “terminations,” statutory compliance can be significant.

 

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Conclusion

In Ontario, layoffs are not merely an administrative step—they can carry significant legal consequences. A temporary layoff that fits within ESA rules may still expose an employer to a constructive dismissal claim if the employment contract does not permit layoffs. Conversely, a layoff that exceeds ESA limits may become a deemed termination, triggering statutory notice and other payments. Careful attention to contractual terms, timing, benefit continuation, and recall communications is often critical in preventing or resolving layoff-related disputes.

 

This information is provided for general informational purposes only and does not constitute legal advice. Reading this page does not create a solicitor-client relationship. Outcomes depend on the specific facts and applicable law.