The recent economic uncertainty and looming trade war (Are we being tariffed or are we not?!) are likely to impact the financial outlook and viability of many businesses in Canada. As a result, many employers will look to trim their bottom lines and consolidate or reorganize their workforces. Unfortunately, an increase in temporary layoffs and terminations is foreseeable. The question arises: If an employee is terminated during an economic downturn, assuming the termination is without cause, will they still be entitled to severance?
In Canada, assuming an employee does not have an employment agreement with an enforceable termination clause, typically an employee’s right to severance pay is governed by the judge-made law. Canadian courts assess severance on a case-by-case basis, considering the employee’s individual circumstances. In each case, the court applies the Bardal factors (named after a court case), including the employee’s length of service, age, nature of the position, and chances of finding comparable employment.¹
However, this is not an exhaustive list. The Court may consider additional factors, such as the employee’s education, the job market conditions where they live, and the general economic climate in which the employee will be searching for new employment. The reason general economic conditions may be considered is that if the employee is looking for work in an economic downturn, it is more likely that it will take them longer to find work than it would in a strong economy. In this sense, being terminated in an economic downturn can increase the amount of severance a terminated employee is entitled to.
What happens if my employer is struggling financially and says they can’t pay my proper entitlement?
If an employee is terminated without cause, they have a right to reasonable notice or severance pay, regardless of economic conditions. BC Courts have found that an employer’s ability to pay is not a legitimate justification for not paying severance.² In fact, directors of a company can face up to three (3) months’ liability for employee wages under the Employment Standards Act (BC).
Despite this, if an employer is struggling financially to the point that they file for creditor protection or bankruptcy, this can cause major issues and significantly reduce an employee’s likelihood of recovering severance from that employer.
Key takeaways for employees:
- Just because your employer is struggling financially, do not excuse them from paying severance.
- An employer facing financial challenges may offer you a salary continuance or a period of working notice instead of a lump sum severance. This can be beneficial but comes with its own risks.
- It is important to seek professional legal assistance if you have been terminated to determine your legal entitlements.
Key takeaways for employers:
- BC employment law requires you to provide adequate, actual working notice or pay in lieu of notice to employees terminated without cause (whose employment is not governed by a termination clause), regardless of your organization’s financial health.
- A proactive approach can prevent costly wrongful dismissal lawsuits.
- Organizations can manage the risk of paying severance through the use of professionally-drafted employment agreements.
Talk to an employment lawyer
If you are a non-unionized employee in B.C. that has been let go or experienced significant changes to your employment during an economic downtown, and have questions about your entitlements, consult with an experienced employment lawyer at Ascent Employment Law today.
¹ Bardal v. Globe & Mail Ltd., 1960 CarswellOnt 144 (Ont HC).
²See for example, Collins v. Canadian Forest Products Ltd., 1985 BCJ No 842 (BCSC) at para 8.
