Layoff — Ontario Employment Law
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About Layoff
Many Ontario workers believe that employers have an inherent right to temporarily lay them off when business is slow. However, this is a significant misconception in provincial employment law. Under Ontario's common law, an employer does not have a unilateral right to lay an employee off, even temporarily, unless that right is explicitly included in a clear and enforceable employment contract. Without such a contractual term or the employee's explicit agreement, any layoff—even one intended to be temporary—can be treated as a constructive dismissal. This gives the employee the right to consider themselves terminated and sue for wrongful dismissal damages.
The Employment Standards Act, 2000 (ESA) complicates this by defining and setting rules for a 'temporary layoff.' Under the ESA, a temporary layoff is one that lasts no more than 13 weeks in any period of 20 consecutive weeks, or up to 35 weeks in a 52-week period if the employer continues substantial benefit contributions. If a layoff exceeds these statutory limits, it automatically becomes a termination under the ESA, triggering entitlements to termination and potentially severance pay. However, it's crucial to understand that even a layoff that complies with the ESA's timing can still be a constructive dismissal at common law if the employer had no contractual right to implement it in the first place. The COVID-19 pandemic brought this issue to the forefront, with many court cases confirming that pandemic-related layoffs, without a contractual basis, were constructive dismissals. Because the legality of a layoff hinges on the specific wording of your contract and the circumstances of your employment, navigating this area can be complex and it's often wise to seek professional legal information to understand your specific rights.
Frequently Asked Questions
Can my employer legally lay me off in Ontario?
Not automatically. In Ontario, an employer only has the right to lay you off if your employment contract contains a clear, enforceable layoff clause, if it's a well-established practice in your industry, or if you agree to it. Otherwise, a layoff is considered a termination at common law.
What is the difference between a temporary layoff and being fired?
A temporary layoff, as defined by the Employment Standards Act (ESA), has strict time limits. If your employer had the right to lay you off and respects those limits, your employment continues. If the layoff exceeds the ESA limits or your employer had no right to impose it, it is legally considered a termination (firing), entitling you to notice or pay in lieu.
Do I have to accept being laid off?
No, you do not. If your contract doesn't permit layoffs, you can choose to not accept it and instead treat it as a constructive dismissal. This allows you to claim termination entitlements, but it is a significant step that ends the employment relationship.
How long can a temporary layoff last under the ESA?
Generally, a temporary layoff can last up to 13 weeks in a 20-week period. It can be extended up to 35 weeks in a 52-week period if the employer continues to make substantial payments for your benefits plan. If it exceeds these limits, it becomes a termination.
What happens if my temporary layoff becomes a permanent layoff?
A permanent or indefinite layoff is a termination of employment. You are entitled to your full termination package, which includes notice (or pay in lieu) under both the ESA and the common law, and may also include severance pay if you qualify.
Is there a time limit to sue for wrongful dismissal after being laid off?
Yes. In Ontario, you generally have two years from the date the layoff began to file a lawsuit for constructive or wrongful dismissal. It's critical to act promptly as this limitation period is strict.
When should I consult an employment lawyer about a layoff?
You should speak with a lawyer as soon as you are notified of the layoff. They can review your employment contract, advise on the legality of the layoff, and explain your options, such as accepting the layoff or treating it as a constructive dismissal and negotiating a severance package.
Common Scenarios
- A long-service employee in the manufacturing sector is placed on a 'temporary layoff' due to supply chain issues, but their employment agreement makes no mention of layoffs.
- A tech company lays off a software developer, citing a downturn in the market, and tells them they will be recalled 'when things pick up' without providing a specific date.
- A retail manager is laid off, and the layoff period is extended beyond the 13-week limit set by the Employment Standards Act without their consent or continuation of benefits.
- An employee is recalled to work after a two-month layoff but is told their previous position is gone and they must accept a junior role with lower pay.
- Following a merger, a new parent company issues layoff notices to several administrative staff, even though their original contracts with the acquired company did not permit layoffs.
What You Should Know
- Before doing anything else, find and carefully read your employment contract. The existence and wording of a layoff clause is the most important factor in determining your rights.
- Be cautious about signing any documents from your employer that 'agree' to the layoff, as this may prevent you from later claiming it was a constructive dismissal.
- Document everything. Keep copies of the layoff notice, emails, and any other communication from your employer about the reason for the layoff and its expected duration.
- Understand that if you have been laid off and recalled in the past and accepted it without objection, your employer may argue that you have implicitly agreed to their right to do so in the future.
- Seek legal guidance promptly. An employment lawyer can help you understand whether your layoff is legal and what steps you can take to protect your right to termination pay and severance.
Featured Cases
Lachapelle v. St. Laurent Automotive Group Inc.
2025 ONSC 1956 (CanLII) · 2025-03-31Constructive Dismissal Case: Temporary Layoff During Pandemic
A constructive dismissal case involving a temporary layoff during the COVID-19 pandemic. The court determined that the temporary layoff without contractual provision constituted constructive dismissal and awarded seven months' notice. The case also addressed the plaintiff's obligation to mitigate damages and entitlement to a construction retention bonus.
Chalmers v. Airways Transit Service Ltd. and Badder Capital Group Ltd.
2023 ONSC 5725 (CanLII) · 2023-10-11Constructive Dismissal: Layoff Without Recall and Punitive Damages Awarded
A constructive dismissal case involving layoffs due to COVID-19 and subsequent claims for reasonable notice and punitive damages. The court ruled that the plaintiff was constructively dismissed due to an indefinite layoff without recall, and awarded 25 months' notice and $30,000 in punitive damages.
Ristanovic v. Corma Inc.
2021 ONSC 3351 (CanLII) · 2021-05-06Constructive Dismissal: Lay-offs and Reasonable Notice During Pandemic
A constructive dismissal case where 17% of the workforce was laid off due to the pandemic. The court determined that the layoffs constituted a material change in employment terms, leading to a 22-month notice period for two manufacturing employees aged 62 and 67 with 30 and 28 years of service, respectively. The Bardal factors were applied, and no reduction in notice period was granted despite the employer's financial challenges.
Muntean v Enablence Canada Inc.
2016 ONSC 923 (CanLII) · 2016-04-07Constructive Dismissal: Lay-Off and Recall to Work Determined
A constructive dismissal case where the court determined that a lay-off notice did not amount to constructive dismissal due to the plaintiff's acquiescence and the subsequent recall to work. The plaintiff was not entitled to damages based on the contractual notice period but was awarded common law damages due to unique circumstances.
McLean v. The Raywal Limited Partnership
2011 ONSC 7330 (CanLII) · 2011-12-09Wrongful Dismissal: Layoff vs. Dismissal Determined in 12-Year Employment Case
A wrongful dismissal case where a plaintiff, employed for over 12 years, was dismissed after 45 years of age. The court determined the appropriate notice period based on Bardal factors and found that the layoff provisions in the employment contract were not enforceable due to lack of consideration. The plaintiff's refusal of a recall offer was deemed reasonable, and ten months of notice were awarded.
Re Northern Electric Co. Ltd. and United Automobile, Aerospace Agricultural Implement Workers Union, Local 1535
1972 CanLII 397 (ON SC) · 1972-06-30Collective Agreement Dispute: Lay-off Determination and Damages Award
A merits decision involving a dispute over whether an employer's cancellation of work due to a strike constituted a 'lay-off' under a collective agreement, and whether an arbitrator erred in awarding full pay without evidence. The court held that the employer's action was not a lay-off and that the arbitrator erred in awarding damages without sufficient evidence.