In British Columbia, both employers and employees are navigating an unpredictable economic landscape. Trade wars, inflation, interest rate hikes, and global supply chain disruptions have all led to cost-cutting measures across industries. One example that continues to ripple through the Canadian economy is the impact of former U.S. President Donald Trump’s tariffs on Canadian goods, a policy shift that significantly disrupted manufacturing and export sectors and continues to influence employer decisions to this day.

So, what happens when a company faces economic strain or a downturn in demand? Can an employer fire an employee because of a shortage of work? The short answer is yes, but with conditions.

Employers Can Terminate for Shortage of Work, But Must Follow the Law

Under British Columbia’s Employment Standards Act (ESA), employers are allowed to terminate an employee without cause, including for reasons like restructuring, downsizing, or shortage of work. This includes situations where:

• Sales have declined due to tariffs or trade restrictions.
• Input costs have risen, forcing businesses to cut staff.
• Global events have disrupted contracts or customer demand.

However, the ESA requires that employers provide written notice or compensation in lieu of notice, unless the employee is being terminated for cause (which is a much higher threshold to prove and rarely applies to economic terminations).

How Much Notice or Severance Is Required?

Under the ESA, the minimum notice period is based on the employee’s length of service, up to a maximum of 8 weeks.

But under the common law, which courts use when there’s no valid employment contract limiting severance, employees are often entitled to much more generous notice periods, sometimes months or even a year of pay, depending on factors like:

• Age of the employee
• Length of service
• Position and level of responsibility
• Availability of similar employment

This means that if a company terminates or lays off an employee due to a shortage of work caused by U.S. tariffs or any other economic issues, it may still owe a significant severance package.

The number of employees terminated or laid off at once can impact this as well.  If more than 50 employees are terminated within a two-month period, under the ESA an employer must give additional written notice to affected employees, and it can impact severance rights.

Employees: Know Your Rights

If you’ve been terminated and handed a severance offer, it’s important not to rush into signing. What may seem like a fair offer based on the ESA might fall far short of your common law entitlements. Even during economic downturns, courts have been clear: employers must comply with legal notice obligations, regardless of their internal financial struggles.

Even in a downturn, employers do not get a free pass. Employers cannot terminate for discriminatory reasons contrary to the BC Human Rights Code (e.g., because of disability, family status, age, religion, etc.). They also cannot retaliate against employees for exercising ESA rights. “Shortage of work” language won’t shield a termination that is, in substance, discriminatory or a reprisal.

Similarly, imposing drastic unilateral changes, like slashing pay or hours outside a lawful temporary layoff, can amount to constructive dismissal, triggering the same notice or pay-in-lieu analysis as a without cause termination or lay-off.

Employers: Protect Yourself with Clear Contracts

If you’re an employer facing financial strain from issues like Trump-era tariffs or supply chain slowdowns, it’s wise to review your employment agreements. A properly worded termination clause can limit severance liability and provide certainty during turbulent times. But beware, many termination clauses are unenforceable if they don’t meet strict legal standards, including providing consideration and complying with the ESA.

Experienced Employment Lawyers

Whether you’re an employee facing sudden job loss or an employer making tough choices in a strained economy, understanding your rights and obligations is essential. Termination due to shortage of work may be legal, but it doesn’t mean severance can be avoided.

If you’ve been let go, or you’re considering letting someone go, our employment lawyers can help you assess your rights and risks. Contact the experienced employment lawyers at Taylor & Blair LLP today to schedule a consultation.