The most recent Business Outlook Survey from the Bank of Canada shows that more employers are planning for a recession in Canada; it is up from 28% of employers to 33%. Recent tariffs from the US have introduced great uncertainty into business here. While this benchmark alone does not guarantee that tough economic times are ahead, it does give some insight as to how the job market will act in the near future. That makes this a good time to review employees’ rights upon termination, especially regarding severance packages.
How a Recession Affects Employees’ Rights in Canada?
Companies that are bracing for a recession tend to slow down growth and investment plans, which causes a ripple effect of slowing down hiring. For some employers, this does not necessarily mean significant layoffs; it could just mean a hiring freeze for the meantime. But for other employers, particularly in more heavily impacted industries like steel and aluminum, the tariff increases are leading to many jobs being lost.
By default, employees who are terminated without cause are entitled to reasonable notice at common law. This is generally above and beyond an employee’s minimum entitlements under the Employment Standards Act, 2000 or the Canada Labour Code. The reasonable notice period is meant to bridge a dismissed employee to their next comparable job. The main factors used to calculate it are age, position, tenure, and salary. While employers can try to limit these entitlements with termination clauses in the employment agreement, these can often be unenforceable and void.
Why a Sluggish Job Market Can Extend Your Notice Period?
Employers will rely on or justify mass terminations by pointing to this depressed economic outlook. However, while the business decision to downsize in this situation might be understandable, the courts have been clear that a poor economy cannot be used to justify a shorter notice period.
To the contrary, there are cases holding that a sluggish economy (whether generally or just in the specific industry of the terminated employee), can actually extend the notice period. Less hiring means less jobs available, and all else being equal, it means that it could take longer on average for an employee to find new comparable work. These factors are considered in tandem with the aforementioned factors of age, position, tenure, and salary.
Losing a job is always stressful, perhaps no more than when the job market is struggling. Dismissed employees find themselves in the unfortunate situation where there are more job-hunters than good jobs to be found. The law will often recognize these difficulties and adjust notice periods accordingly.
What to Do If You’re Terminated During a Recession?
In these uncertain times, it is more important than ever to ensure your severance package covers all elements that are rightfully owed you if your employment is terminated. To find out about the enforceability of any termination clauses in your contract and figure out your entitlements at law, you should speak to an experienced employment lawyer for advice. If you would like to discuss further the next steps after termination of your employment, please contact Whitten & Lublin online or by phone at (416) 640-2667 today.
Author – Sohrab Naderi
Am I entitled to severance if I’m laid off during a recession?
Yes. Employees terminated without cause are entitled to reasonable notice or severance under common law, in addition to statutory entitlements under the Employment Standards Act, 2000 or the Canada Labour Code. Economic downturns do not reduce these legal rights.
Can employers use the economy as a reason to shorten severance?
No. Canadian courts have ruled that a poor economy cannot justify shorter notice periods. Employers must provide severance based on the employee’s individual circumstances, not economic conditions.
Are termination clauses in my employment contract enforceable?
Termination clauses may attempt to limit your entitlements, but many are unenforceable or void. It is important to review these clauses with an employment lawyer to ensure your rights are protected.
Why speak to a lawyer about severance during a recession?
An employment lawyer can ensure your severance package is fair and legally enforceable, account for all factors in common law, and protect you from companies using economic downturns to reduce your entitlements.
