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Downsizing due to economic hardship

November 10, 2004
by Kirtaner

Question: I run a small internet company in Ontario and have about 20 employees. The company is currently experiencing financial difficulties, and I am looking into the possibility of reducing some of my costs by terminating the employment of several junior employees. Would I be able to do so without running into any legal problems?

Answer: Canadian courts have generally held that employers who dismiss employees for financial reasons are not able to claim frustration as a way to relieve them of their contractual duties.

Furthermore this is not a factor an employer can rely on in asserting just cause. Essentially, if you were to dismiss the junior employees for this reason, you would be repudiating the employment contract and therefore be required to provide the employees with the requisite period of reasonable notice.

It should be noted, however, that in Ontario it is possible to temporarily layoff these employees for a period of less than 13 weeks for any period of 20 consecutive weeks, without contravening the Employment Standards Act, 2000. It is also possible for the employees to be temporarily laid off for a period of more than 13 weeks in any period of 20 consecutive weeks if the layoff is less than 35 weeks in any period of 52 consecutive weeks, and the employer continues to give the employees substantial benefits and payments.

If, however, the layoff extends beyond these periods the employment contract will be deemed to be terminated and the employer will be required to provide the minimum statutory notice requirements set out in the Employment Standards Act, 2000. In this case each employee’s individual entitlement would depend on how long she worked for the company.

It is also possible that certain employees could sue for wrongful dismissal, in which case the employer would also have obligations to provide them with common-law notice.

Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@israelfoulon.com. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today

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Legal Disclaimer

This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation. Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.