
The introduction of tariffs by U.S. President Donald Trump has left many Canadian businesses evaluating their financial stability and long-term workforce needs. Employers across various industries may find themselves considering temporary workforce reductions to navigate the uncertainty. However, before taking any action, it is critical to understand the legal implications of layoffs in Manitoba, particularly the risks associated with constructive dismissal.
The Temptation to Lay Off Employees in Uncertain Economic Times
In response to economic pressure from tariffs, businesses may look for ways to cut costs without incurring the costs associated with employee termination. One option some employers might consider is implementing temporary layoffs reducing staff numbers without permanently terminating employees to assess the economic landscape before making final decisions.
However, in Manitoba, an employer’s ability to lay off an employee is not automatic. A temporary layoff is only legally permissible if the employment contract explicitly grants the employer that right. If there is no such provision, an employer who lays off an employee risks triggering a constructive dismissal claim.
Understanding Constructive Dismissal and Its Risks
Constructive dismissal occurs when an employer unilaterally makes a fundamental change to an employee’s terms of employment without their consent. A layoff, particularly one that is not contractually permitted, can be considered just such a change.
If a layoff is deemed a constructive dismissal, the employer is responsible for providing the employee with termination entitlements, including notice of termination. This means that the very financial liability an employer seeks to avoid by implementing a temporary layoff may arise regardless, potentially leading to legal disputes and increased costs.
What About the Employment Standards Regulation?
Manitoba’s Employment Standards Code and accompanying Employment Standards Regulation do set out when a temporary layoff becomes a termination.
However, this regulation does not grant employers the right to lay off employees in the first place. It simply sets the rules for how long a layoff can last before it legally becomes a termination. If an employer lays off an employee without the contractual right to do so, the layoff itself may still be considered a constructive dismissal, entitling the employee to claim damages immediately.
Key Takeaways for Employers and Employees
1. Employers Cannot Unilaterally Lay Off Employees Without a Contractual Right: A layoff is usually only legal if the employment contract explicitly allows for it.
2. Layoffs Can Trigger Constructive Dismissal Claims: If there is no contractual right to lay off, employees may be able to treat the layoff as a termination and seek compensation.
3. The Employment Standards Regulation Does Not Create a Right to Lay Off: It only sets limits on how long a temporary layoff can last before it becomes a termination.
4. Businesses Should Carefully Assess Workforce Reduction Strategies: If cost-cutting measures are necessary due to economic uncertainty from tariffs, employers should explore alternative strategies such as voluntary exits, reduced hours (with consent), or severance packages.
5. Employees Should Understand Their Rights: If you are laid off and your contract does not contain a layoff clause, you may have a valid claim for constructive dismissal and should seek legal advice.
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