Layoffs and legal rights: a quick refresher

Between the ongoing trade war, technology advancements, including the rise of artificial intelligence, and generally challenging economic conditions, mass layoffs and corporate downsizing have been making headlines recently. During these tough times, it is important for employees and employers alike to understand their rights, obligations, and options for support.

We have outlined below some key information for impacted individuals and organizations to keep in mind as they navigate these challenging issues.

Temporary vs. permanent layoff

The term "layoff" can be confusing. Although often used interchangeably with "terminated", that's not always accurate. In Canada, there is an important distinction between a "temporary layoff" and a "permanent layoff" as follows:

• Temporary layoff = A temporary layoff occurs when the employer temporarily suspends an employee's work and compensation, but without permanently ending the employment relationship. In order to be lawful, temporary layoffs must adhere strictly to statutory requirements, including with respect to length and benefit continuance. To be lawful, temporary layoffs must also be permitted by the employee's contract, collective agreement, or other implied/express agreement. If you've been temporarily laid off and are unsure if it is lawful, reach out to one of our team members, who can assist.

• Permanent layoff = A permanent layoff is a termination. The employment relationship is terminated, and the employee would usually be entitled to severance.

Termination & severance

If an employee is permanently laid off (a.k.a. terminated) due to business reasons, such as downsizing, restructuring or mass layoffs, that would be considered a "without cause" termination, and severance entitlements would be triggered. The exact amount of severance an employee might be entitled to depends on a number of factors including:

• Statute: Under employment standards legislation, employees are entitled to a minimum amount of statutory termination notice or pay and potentially statutory severance (if applicable), which must be provided unconditionally. The exact amount will vary depending on jurisdiction, length of service, and the size of the employer's payroll, among other factors. If a "mass termination" has occurred, as defined by applicable employment standards legislation and usually requiring at least 50+ employees at the same establishment to be impacted, there may be additional entitlements.
• Common Law: By default, an employee who is terminated without cause is also entitled to receive common law reasonable notice. This is based on our court-made law and should reflect the employee's length of service, age, nature of role, and the availability of comparable employment. Common law notice entitlements are inclusive of statutory entitlements and may be limited or impacted by contractual provisions or the employee finding new work (mitigation).
• Contract: An employee's termination entitlements can also be impacted by the terms of any contract with the organization. A contractual termination provision might limit common law entitlements, guarantee a certain amount of termination notice or severance, or otherwise speak to an employee's rights and entitlements on termination. However, not all contractual provisions are enforceable. Legal advice is recommended when dealing with contractual termination provisions.

Severance entitlements are multifaceted and not always straight forward. Employees and employers alike are encouraged to seek legal advice regarding their rights and entitlements when dealing with terminations.

Government support & resources

The government also has supports and measures in place to assist employers and employees in navigating these challenging times.

Employees who are temporarily or permanently laid off may be eligible to apply for Employment Insurance (EI) benefits. EI provides financial compensation to eligibles employees who are out of work due to no fault of their own. Currently, temporary changes to EI rules in effect until October 10, 2026, make it easier for employees to collect EI, including waving the usual rule that separation earnings (e.g. termination/severance pay) will be deducted from EI benefits. Employees are encouraged to also check with the federal and provincial government to see what other support measures may be available. Find out more here.

Employers may also be able to avail themselves of governmental initiatives. For example, the federal work-share program allows employers that are experiencing temporary downturns in business to avoid layoffs by reaching agreements with employees to reduce their hours of work while also being eligible to collect EI. Temporary measures in effect until March 31, 2028 have expanded coverage and extended duration. Additional resources may be available through provincial and federal government programs. Find out more here.

Takeaways

Layoffs and terminations are stressful. However, arming yourself with the right information can help. It is important to take the time to carefully understand your rights, entitlements and obligations before making any final decisions.

We encourage all employees and employers to seek legal advice when navigating these tough matters. Contact the team at Lee Workplace Law for more information and to see how we may assist.