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Termination in difficult economic times

Termination in difficult economic times

By Yosie Saint-Cyr, LL.B., Managing Editor at HRinfodesk.com---Canadian Payroll and Employment Law News, December 2008

As the end of this year approaches, many employers are facing difficult issues related to employee turnover; specifically due to the current economic climate. The economy is an issue for everyone. All businesses have a responsibility to address the recent global financial challenge through the perspective of their business and/or industry or sector. Businesses must be properly aligned for the current economic environment to better protect themselves from the economic downturn. A tough economic climate impacts human resources management and payroll.

The majority of respondents to the December 1, 2008 HRinfodesk Poll on the topic of termination during economic crisis, (71.62% (265)) indicated that they are not planning to reduce their workforce because of the economic downturn. However, there is still much uncertainty about the economy and its impact on several types of businesses and industries. Businesses are facing and navigating through the current uncertainty and still do not know if they will need to take such drastic steps as reducing their workforce to reduce employment costs. I was told through various comments in answer to the poll that HR/employers are trying to find other innovative solutions to get through the impending recession.

The tables below summarize the information received from the 370 organizations that responded to the following poll question: Due to the current economic climate, are you intending to permanently lay off employees before the end of the year?

According to a global survey by The Hay Group, forty-eight percent of organizations globally are decreasing or freezing existing staffing levels, along with base salary increases and HR program. The Global Employee Pay and Staffing Survey of 2,589 organizations from 91 countries found that staffing level cuts and freezes have more than doubled since the last poll was conducted in March 2008, with median staffing level decreases of 7.5%. Only 3% of organizations globally are planning to increase staffing levels. For more information on the Hay Group survey, visit www.haygroup.com/ca/media/press_release.asp?PageID=12708.

What do you need to know?

Whether an employee is retiring, changing employers or being terminated, there are many concerns employers must address to minimize liability risks associated with these departures, while also ensuring a seamless transition for the business. This brief commentary will focus on the legal requirements of terminating employees because of the looming slow-down in the economy.

Decisions to terminate employees for the reason mentioned above require employee consent or adequate notice to the employee. In addition, employers should ensure that they conduct the termination in accordance with all legal requirements and take into consideration the realities and sensitivities of the employees being terminated.

The legal requirements regarding termination are found under employment/labour standards legislation and vary by jurisdiction.

When terminating during economic slowdowns it is generally "without cause." If you are terminating your employees without cause, you must give them written notice of the termination or pay in lieu of notice. In an effort to save on costs, companies will often provide "working notice" where the employee is required to continue working up to the end of the notice period. How much notice usually depends on the length of employment/service with the employer and is specifically outlined under employment/labour standards legislation for each jurisdiction. Generally, the notice period ranges from one to eight weeks.

However, depending on the circumstances, the amount of notice required can also depend on a wide number of other factors, perhaps most importantly, the type of employee being terminated (i.e., executive, age). You need to be aware of both the employment legislation that applies, and the common law obligations established by the courts.

A comparative chart on statutory obligations can be found on HRinfodesk under article number: 22197.

Several other articles deal with the common law obligations and can easily be found by doing an HRinfodesk search with the appropriate keyword.

Once notice is given, you cannot alter the conditions of employment. Furthermore, during the notice period employees are entitled to any benefits they received before the notice of termination. Employees continue to earn vacation during the notice period and that must be paid out at the end of the notice period.

In general, during the statutory notice period, an employer must:

  • not reduce the employee's wage rate or alter a term or condition of employment;
  • continue to make whatever contributions would be required to maintain the employee's benefits plan; and
  • pay the employee the wages that the employee is entitled to, which cannot be less than the employee's regular wages for a regular workweek each week.

In most cases, written notice of termination of employment must be addressed to the employee. It can be provided in person or by mail, by fax or email, as long as delivery can be verified.

An employee who does not receive the written notice required under the law must be given termination pay in lieu of notice. Termination pay is a lump sum payment equal to the regular wages for a regular workweek that an employee would otherwise have been entitled to during the written notice period. In addition, an employee earns vacation pay on the termination pay.

Mass termination

Special rules determine the amount of notice required in the case of “mass terminations”. In general, employment/labour legislation refers to mass termination as 50 or more employees in a four-week period. However, in jurisdictions like New Brunswick, Quebec and Saskatchewan, group termination rules apply when terminating in groups of 10 or more employees in a four-week period at a single location and if the group represents 25 percent of the total employees. In the Yukon and Northwest Territories group termination refers to 25 or more employees.

A comparative chart on statutory obligations can be found on HRinfodesk under article number: 22167.

Employee consent

A severance agreement is, at its core, a contract between an employer and an employee that governs the terms and conditions of the employee's departure. The bottom line is, as with any contract, severance agreements are not enforceable unless there is a valid offer and acceptance, adequate consideration and a meeting of the minds.

In order to be valid, in addition to complying with the requirements of traditional contract law, severance agreements must also be knowing and voluntary to ensure that employees are not signing away potential rights without first understanding their rights and the ramifications of their waivers. Giving employees short review times to consider the agreements and failing to advise employees of their right to consult a lawyer prior to signing the agreements weigh against a finding that the severance agreement was knowing and voluntary.


On the whole, whatever route your organization takes in dealing with the economic slow-down and possible terminations, plan carefully; be aware of the termination requirements in your jurisdiction and apply them fairly.

Communicate your permanent layoff plans effectively to your employees to avoid confusion and misunderstandings.