Canadian Manufacturing

Consider these factors to reduce the legal risk and costs when cutting jobs in manufacturing

by Lai-King Hum (she/her), Principal of Hum Law Firm   

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If your process is well managed, you should be able to avoid most disputes and litigation, there are a number of missteps to avoid, and benefits to engaging legal counsel early.

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Cutting jobs is not easy. Any missteps may add legal disputes and substantial costs on top of an already stressful situation. Here are some factors employers should consider to reduce legal risk exposure and potential costs. As the process of cutting jobs is governed by the collective agreement in unionized workplaces, this article will only focus on non-unionized environments.

Temporary Layoff vs. Termination

First, consider whether you will temporarily lay off employees and call them back later or terminate them. Where employment agreements permit, temporary layoffs can help employers defer an actual termination until operational needs are better determined. It also gives employers the ability to recall workers quickly when needed without having to recruit new workers. Without a written agreement that expressively grants the right to temporary layoffs, employees being laid off may be entitled to claim constructive dismissal against an employer.

Triggering Mass Termination Rules

After determining how many employees will be terminated, verify whether you need to comply with mass termination rules requiring mandatory reporting to the government and minimum termination notice for all employees being terminated. Failure to do so will result in unnecessary costs and possible fines.

Avoiding Human Rights Disputes

When selecting employees to terminate, have proper and objective criteria for the selection, such as level of pay, length of service, positions, discipline records, skill sets, etc. Subjective or improper criteria may create risks of human rights claims. For example, a company’s restructuring plan provides for all employees on any kind of medical leave to be terminated from employment while other employees are retained. This would be considered discrimination.  Using past performance as a selection factor could also cause some risk, particularly where it is known to the employer that an employees’ past performance might be impacted by their needs protected by human rights legislation. For example, employers may rank their salespersons by the overall revenue they bring in each year and terminate the last spot. However, if that last person has been accommodated for elder care of her parents and her workload was reduced accordingly, terminating her would be problematic. Terminating these employees could lead to human rights disputes. If an employee proves their human rights claim, in addition to costly damages, the employer may have to reinstate the employee, effectively reversing the job reduction, and also be liable for lost pay from the date of termination to the date of reinstatement.


Termination Pay

Consider termination costs as different employees are entitled to different termination pay. Without an enforceable termination clause in employee agreements which limits your liability, termination pay will likely be significantly higher. Additionally, employees terminated without an enforceable termination clause may communicate to see how much they can get from their employer. Without a coherent strategy, you may end up bidding against yourself.

Succession Planning and Security

To avoid chaos and negative public perception, consider how to carry out the termination. If ongoing work needs to be handed over to remaining employees, you may want to give working notice to allow for a smooth transition. You may also need to reassure job security for remaining employees to avoid negative workplace interactions and employees jumping ship. If there are concerns about intellectual property or trade secrets being copied and taken away by departing employees, immediate termination and pay in lieu of notice would be prudent. In this scenario, employee access to the company’s systems and property would be shut down immediately.

Prepare For Disputes and Litigation

If your process is well managed, you should be able to avoid most disputes and litigation. If not well managed, you can expect to be receiving demand letters and even claims.

As such, employers should engage legal counsel early on to help manage the entire process. Legal costs incurred to reduce risks will likely pay off by reducing the overall costs (and headaches) of the whole process.


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