• Employers may want to review employment contracts, collective agreements, and applicable statutory rules before implementing any workforce restructuring.
• Some restructuring options may avoid or delay permanent job losses, notably through government work-sharing programs or temporary layoffs.
• When permanent layoffs are unavoidable, it is important to have in mind the different rules that may apply to union and nonunion employees to mitigate potential legal liabilities.

Consider Accessing Government Help Programs

Employment and Social Development Canada (ESDC) has established a Work-Sharing Program (WSP) that seeks to help employers avoid layoffs when there is a temporary decrease in normal levels of business activity that is beyond their control. The WSP provides income support to employees eligible for Employment Insurance benefits who are required to work a reduced workweek during a period of economic hardship for the employer. Affected employees must experience, and agree to, at least a 10 percent reduction in their normal weekly earnings to participate. The agreement of the employer, and union if any, is also required to participate in this program.

WSP agreements must be at least six weeks’ duration and can go as long as twenty-six weeks. In some cases, they can be extended up to thirty-eight weeks.

For an employer to participate in the WSP, it must have operated a year-round business in Canada for at least two years. Eligible employers can be for profit or nonprofit, public, or private.

Further information on eligibility requirements and the application process can be found here.

Apart from the WSP, various other federal and provincial programs seek to lessen the impact of mass layoffs due to economic circumstances, notably by assisting affected workers in their search for alternative employment. At the federal level, the Canada Retraining and Opportunities Initiative supports this goal. The federal government also spends over $2 billion per year through Labour Market Development Agreements with provinces and territories, which seek to help affected individuals gain new skills and find new employment, among other things.

Consider Temporary Layoffs

Whether under a WSP or not, some employers may consider temporarily laying employees off. The rules here vary depending on whether the affected employees are represented by a union or not.

For nonunion employees, a temporary layoff may result in claims for wrongful dismissal unless the affected employees’ contracts of employment expressly or implicitly allow for temporary layoffs. Before proceeding with a temporary layoff, existing employment agreements and the contextual circumstances (i.e., is there a history of layoffs at this employer or in its industry?) need to be considered. Even if a temporary layoff may be contractually permissible, employment standards laws may set limits on how long a temporary layoff may last before an employee is deemed discharged and eligible for termination pay and other potential termination entitlements. For example, in the province of Ontario, employment standards legislation generally limits the period of temporary layoff to thirteen weeks, although this may be extended further in certain circumstances.

For unionized employees, the provisions of a collective agreement may require an employer to consult with the union prior to proceeding with a layoff. And a collective agreement may also set rules as to how layoffs must proceed, and what laid off employees’ recall rights are.

Consider Renegotiating Existing Terms of Employment

Although no employee or union will like the idea of a mid-contract reopener, in difficult times this may be the best option as an alternative to ending the employment relationship. This option cannot be forced on employees or unions and is best approached in good faith, supported by genuine hardship that an employer will otherwise be facing. There may also be legal rules that come into play that can have an impact on the enforceability of any renegotiated agreement.

Consider the Applicable Termination Rules

If permanent layoffs cannot be avoided, Canadian law presents a complex web of common law, contractual requirements, and statutory rules concerning employment termination that must be carefully considered before acting. Again, the applicable rules vary by whether an affected employee is represented by a union or not.

In general, when a nonunion employee is dismissed without just cause, the employee is entitled to reasonable advance notice of the employment termination, pay in lieu of that notice, or a combination of both. Employment standards laws establish the minimum termination entitlements for all employees. Some provinces, such as Ontario, require the payment of severance pay and the maintenance of benefits coverages during the period of statutory termination notice. Beyond statutory entitlements, nonunion employees may have further entitlements under an employment contract or at common law.

For unionized employees, the applicable collective agreement may provide for severance or other entitlements above employment standards minimums.

For both unionized and nonunion employees, collective dismissal (or mass termination) rules may also come into play, depending notably on the number of employees discharged in a given period of time. For example, in Ontario, the applicable threshold is “50 or more employees at the employer’s establishment in the same four-week period.” In Québec, the threshold is met in the case of “termination of employment by the employer, including a layoff for a period of six months or more, involving not fewer than 10 employees of the same establishment in the course of two consecutive months.”

Consider Helping Employees Transition to Alternative Employment

For nonunion employees who have a potential contractual or common law claim for pay in lieu of notice, the liabilities can be considerable. Long service and older employees can in some cases assert claims for up to twenty-four months of their total remuneration, or more in exceptional circumstances.

However, these potential claims may be reduced under the legal doctrine of mitigation. Plaintiffs generally must prove their damages, and, practically speaking, this means that they must show that they tried their best to find alternative employment but were unable to do so. As a corollary, if an employer can show that an employee did not take reasonable steps to find alternative work during the claimed notice period, and that the employee likely could have found alternative work with sufficient effort, this can have the effect of reducing the employee’s potential entitlements. Similarly, the sooner that an employee finds reasonable alternative employment, the sooner that a terminating employer’s potential liabilities may cease.

For this reason, it is often a good idea for employers to take active steps to help employees transition to alternative employment. Outplacement services can be offered. Employees can be directed to applicable government programs. And employers can even carry out ongoing job searches for affected employees, bringing job opportunities to their attention. If litigation ensues, employers will be able to rely on proof of such measures in arguing for a reduction or elimination of excessive damages claims that discharged employees may bring.

Other Considerations

Employees who are dismissed for economic reasons while on leave (maternity, disability, etc.) may raise allegations of discrimination or reprisal under employment standards and antidiscrimination laws. Legal proceedings in that context may probe the reasons for selecting such employees for dismissal, as opposed to others. Accordingly, employers may want to ensure they have a properly documented nondiscriminatory selection process to be able to later justify the decision-making process.

Conclusion

The full impact of the United States’ proposed tariffs remains to be seen, but current indicators suggest that the imposition of across-the-board tariffs would have a significant effect on the Canadian workforce. For this reason, employers with Canadian operations may want to undertake impact assessments now and consider the lawful restructuring strategies that may be employed to mitigate the impacts of U.S. tariffs and related and potential legal liabilities.