By OptiVal Editorial Desk
When work dries up, the instinct is to pause, not cut. A temporary layoff feels like the middle path between burning cash on wages you cannot afford and paying out terminations you would rather avoid. But temporary layoffs in Ontario are on a strict clock, and the rules are not forgiving. Go past the limit by a single day and the province treats the layoff as a termination, backdated to the day it started, with termination pay owing. Here is how the clock works, and the one thing your employment contracts need before you ever use it.
What counts as a temporary layoff in Ontario
Under the Employment Standards Act, 2000 (the ESA), a layoff is a temporary period where you stop providing work and pay to an employee but the employment relationship continues. The employee is not fired, and you owe no wages for the time they are not working. The ESA covers employees who work in Ontario, so this applies to your remote staff working from home here just as it does to on-site teams.
Temporary is the key word. The ESA does not let you park someone on layoff indefinitely, and it does not require you to give written notice of the layoff itself. But staying within the ESA’s time limits is only half the battle, as you will see below.
The 13-week rule every Ontario employer should memorize
The ESA (section 56) says a layoff is temporary only if it lasts no more than 13 weeks in any period of 20 consecutive weeks. The 20 weeks are a rolling window, not a calendar quarter. If an employee is on layoff for even one day beyond 13 weeks in any 20-week stretch, the layoff stops being temporary.
What happens then is expensive. The ESA deems the employment terminated, effective as of the first day of the layoff, not the day you crossed the limit. That means termination pay is owed retroactively, and the layoff period after the deemed termination date does not even count toward the employee’s period of employment for calculating how much notice they were owed. For most small businesses, the practical takeaway is simple: 13 weeks is your safe zone, and you should be planning the recall or the termination conversation well before week 12.
How a layoff can stretch to 35 weeks, and the price of admission
A layoff longer than 13 weeks but shorter than 35 weeks in any 52-week period can still count as temporary, but only if you meet one of the ESA’s specific conditions. The main ones for non-union employers:
- You keep making substantial payments to the employee during the layoff;
- You keep paying into their pension or group insurance plan;
- The employee receives supplementary unemployment benefits (a top-up plan); or
- You recall them within a timeframe you agreed with the employee in writing, or that the Director of Employment Standards approved.
Notice what this means in practice. Keeping benefits running is the most common way employers buy the extra time, and it costs real money every month. Let benefits lapse mid-layoff and the extension collapses; the layoff is deemed a termination. For many small businesses the 35-week path is not worth it, but if you need it, set it up deliberately at the start, in writing, and keep every payment receipt.
The clause your employment contracts need first
Here is the part owners miss most often. Complying with the ESA’s time limits does not give you the right to lay someone off. Under the common law, you have no automatic right to temporarily lay off an employee unless the employment contract clearly permits it, a collective agreement covers it, or there is an established industry practice.
If your contract is silent on layoffs, putting an employee on temporary layoff can be a constructive dismissal from day one, even if you respect every ESA deadline. Courts have confirmed this repeatedly, and the Ontario Court of Appeal said it again in a 2026 ruling (Taylor v. Salytics). A constructive dismissal means termination entitlements are owed immediately, which defeats the whole point of the layoff.
The fix is cheap and forward-looking: put a clear temporary-layoff clause in your employment agreement template for new hires. It will not help with contracts you already signed, but it protects every future hire.
When the clock runs out: deemed termination and what you owe
If a layoff exceeds the ESA limits, employment is deemed terminated as of the first day of the layoff (section 56(5)). At that point the regular termination rules kick in:
- Termination pay: one week’s pay per completed year of service, up to 8 weeks, for employees with at least three months of continuous employment.
- Severance pay: one week per year up to 26 weeks for employees with five or more years of service, if your global payroll is $2.5 million or more. (We covered the full severance math in our guide to severance pay in Ontario.)
- Record of Employment: issue one. An ROE is required when there is an interruption of earnings, which includes a layoff; see our ROE guide for remote employees for the filing rules.
Alternatives worth considering before a layoff
A temporary layoff is not always the best tool. If the slowdown will last months rather than weeks, a clean termination with proper notice or pay in lieu is often cheaper than a layoff that drifts past the 13-week limit and becomes a termination anyway. Reduced hours with a written agreement can keep the team intact and avoid the layoff rules entirely.
And for tariff-hit employers, there is a third option: the federal Work-Sharing Program, which lets you cut everyone’s hours instead of cutting jobs, with EI topping up part of the lost wages. For a business facing a temporary dip in orders, it is usually a better fit than a layoff, and the tariff-era special measures run to 2028.
This article is general information, not legal advice. Employment law turns on the facts of each case, so speak with an Ontario employment lawyer before acting on a specific layoff.
Not sure which option fits your situation?
Deciding between a layoff, a termination, or work-sharing comes down to timing, contracts, and payroll math, and getting it wrong is expensive. We help small businesses run clean payroll and stay on the right side of ESA rules. Book a free consultation and we will walk through your options. Our payroll service starts at $29 per employee per month plus a $149 setup (CAD, HST extra), and we are led by qualified professionals with more than 75 years of combined experience, PwC-trained, who have worked at world-leading multinationals in CFO-level positions.
