The threat, uncertainty and financial hardship of U.S. tariffs are causing significant disruption for Canadian businesses – shrinking profit margins, reducing demand, and forcing difficult staffing decisions. If your business is facing economic uncertainty due to tariffs, temporary layoffs might seem like a reasonable solution. However, employment laws in Canada impose strict rules on layoffs, and missteps can result in unintended liability.
Are Temporary Layoffs Legal?
Unlike in the U.S., temporary layoffs are not automatically allowed in Canada unless:
- The employee’s contract or an applicable collective agreement permits layoffs.
- The employer has an established history of using temporary layoffs.
- Provincial employment standards legislation allows for temporary layoffs in certain situations.
If none of these apply, a layoff may be considered a constructive dismissal, entitling the employee to severance.
Key Considerations for Employers
- Length of Layoff: Most provinces cap temporary layoffs at 13 to 16 weeks within a 20-week period, or longer if benefits continue. Exceeding this limit can trigger a termination.
- Notice and Communication: While provincial laws may not mandate layoff notice, providing clear, written communication about the reason, expected duration, and recall rights can help reduce legal risks.
- Employee Entitlements: Employees on temporary layoff may be eligible for Employment Insurance (EI), but businesses should ensure compliance with record of employment (ROE) requirements.
- Recalling Employees: If a recall is delayed beyond the legal time limit, the layoff automatically converts to a termination, triggering severance obligations under employment standards and common law.
Mitigating Legal Risks
- Review Employment Agreements: Ensure contracts include clear layoff provisions to avoid constructive dismissal claims.
- Seek Legal Advice: Consulting an employment lawyer can help you navigate your specific obligations and minimize risk.
Bottom Line
While temporary layoffs can help businesses manage financial pressures caused by tariffs, Canadian employers must proceed cautiously. Failing to follow the proper process could lead to termination liability, wrongful dismissal claims, and reputational damage. Proper planning and legal compliance are key to managing workforce challenges while staying onside with employment laws.
If your business is facing workforce challenges due to U.S. tariffs, seek professional advice before making any decisions. Give us a shout!
