Employers should be aware of a few key issues since many, including former Bank of Canada Governor Mark Carney, have predicted that Canada will experience a recession in early 2023.
Because recessions are unpredictable, they inevitably cause fear. Nobody can predict the extent, duration, or effects of a recession. Fortunately for Canada, several experts—Mr. Carney included—appoint that Canada’s recession may be milder and shorter than that of some of our international allies. The robust employment market in Canada, the country’s trade agreements with the G7 and Pacific Rim nations, and the Emergency Wage Subsidy, which kept large job losses from the pandemic in Canada, are some of the elements that support this prognosis. These elements set the Canadian economy apart from other nations’ economies.
Even if the pandemic’s effects are still being felt by businesses, the prospect of an approaching recession is undoubtedly frightening. In general, cost reductions take precedence in the minds of businesses during a recession. Some human resource choices, such as reducing payroll obligation by a reduction in the workforce, through layoffs or terminations, may be taken into consideration. Even though terminations may lower payroll liabilities, when an employee is let go during a weak economy, severance expenses may go up in tandem.
Courts, such as the British Columbia Supreme Court in Moore v. Instow Enterprises Ltd., 2021 BCSC 930, have determined that when employees are let go in weak economies, such as recessions, there are fewer job opportunities available, which means that the amount of notice that is reasonable—i.e., enough to give the employee enough time to find another job—may very well increase. Before taking any action, employers—especially those whose workers are not protected by legal notice of termination—should carefully assess the financial effects of staff reductions in order to alleviate the burden on cash flow caused by a recession.
Employers are also reminded that temporary layoffs may be considered constructive dismissal, which is the same as termination if there is no valid contractual provision allowing for them, no established past practice, the employee’s agreement, or a collective agreement.
Therefore, all of the liabilities that are present on termination may still be triggered by a brief layoff.
Lastly, the costs of recruiting and orienting new hires are brought to the attention of employers. When determining whether to carry out terminations as a cost-saving measure during a recession, careful consideration should be given to these potential costs.
Whether or not a termination is well-founded, it could still result in a claim for wrongful dismissal. Before beginning any terminations, a thorough cost-benefit analysis should be carried out in order to minimize the risks and potential expenses related to layoffs, terminations, and rehiring.
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