Canada might be heading towards a recession: Issues employers should keep in mind

February 9, 2023 | Veronica S. C. Rossos, Matthew E. Wray

With many, including former Bank of Canada Governor Mark Carney, predicting that Canada will enter into a recession in early 2023 there are several important factors employers should keep in mind.

Recessions inherently spark anxiety due to the inability to forecast.  None of us knows what will be the depth, timeframe, or impact of a recession. Fortunately for Canada, certain experts, Mr. Carney among them, are predicting that this recession could be less severe and shorter for Canada than for certain of our global partners. Several factors supporting this prediction include: Canada’s strong job market; Canada’s international trade agreements with G7 and Pacific Rim countries; and Canada’s Emergency Wage Subsidy which prevented significant pandemic-related job losses in Canada. These factors differentiate the Canadian economy from the those of other countries.

While businesses are still feeling the effects of the pandemic, the threat of an impending recession is certainly daunting. Generally, when companies encounter an economic downturn, cost savings become top of mind. Certain human resource options may be considered, including reducing payroll liability through a reduction in the workforce, through layoffs or terminations. While terminations may result in a reduction in payroll liability, corresponding severance costs may increase when an employee is terminated in a poor economy.

Courts, including the British Columbia Supreme Court in Moore v. Instow Enterprises Ltd., 2021 BCSC 930, have found that when workers are terminated during poor economies, including recessions, the number of job possibilities available is reduced such that reasonable notice–which is meant to provide the employee adequate time to secure a new position–may well be increased. Employers, especially those whose employees are not subject to valid express termination provisions, should carefully consider the financial consequences associated with reducing staff to address cash-flow strain occasioned by a recession before proceeding.

Additionally, employers are reminded that in the absence of a collective agreement, an established past practice, the employee’s agreement, or a valid contractual provision which permits temporary layoffs, temporary layoffs may be a constructive dismissal, tantamount to termination.  Therefore, a temporary layoff could still trigger all of the liabilities that are present on termination.

Finally, employers are reminded of the costs associated with hiring and onboarding new employees. Some thought should be given to these prospective costs when deciding whether to conduct terminations as a cost savings measure during a recession.

Any termination has the potential to be met with a claim for wrongful dismissal–whether well-founded or not. A full cost-benefit analysis should be conducted before terminations are undertaken, in order to avoid the risks and potential costs associated with terminations, layoffs, and rehiring.

Should you have any questions or concerns, please do not hesitate to contact a member of Miller Thomson’s Labour & Employment team.


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