Toronto, ON — May 27th, 2026 — Role eliminations and reorganizing a workforce are daunting tasks. Restructurings are among the most challenging actions an employer can take. While often necessary for business continuity and long‑term viability, they require careful navigation of employment standards, human rights obligations, and practical risk considerations.
Today’s article will provide a few broad areas a business should consider when planning for a reduction in force.
Leaves of Absences
Employment standards and human rights legislation prohibit employers from terminating an employee because they have taken a protected leave. However, a leave of absence does not insulate an employer from pursuing lawful termination that is unrelated to the leave.
If your business is restructuring or eliminating roles, these can be legitimate, non-discriminatory reasons for ending employment – provided the decision is genuinely tied to business needs. Employers should ensure proper decision making is undertaken to avoid future claims of bad faith terminations or human rights claims.
Courts and tribunals will scrutinize whether the reorganization is legitimate or merely a pretext. They examine the employer’s business operations, the business context, and the circumstances necessitating the restructuring.
To establish a bona fide reorganization, it must at least be demonstrated that the guiding mind had, at the beginning, a rough sense of what the organization would look like at the end of the process, the approximate timeline, and the general route that would be followed. Unexpected adjustments along the way will not undermine the legitimacy of the reorganization[1].
Under the Canada Labour Code, the two-step test in section 242(3.1)(a) requires both the decision to lay off federal employees for lack of work and the selection of affected employees be made in good faith. This is not a stringent test. The Code recognizes an employer’s right to organize and reorganize its business. An employer may lay off employees, and choose which employees to lay off, as long as there is a valid business reason for both the layoff and the selection. Similarly, in the provincial context, so long as no part of the decision to terminate is discriminatory, employers can proceed with terminations of employees on leave.
Indefinite Employment Agreement versus Fixed-Term
When reviewing your workforce, it is prudent to consider the types of employment agreements in place.
Short‑term or fixed‑term contracts may offer a cleaner exit strategy, particularly where contracts are naturally expiring or up for renewal. Employees may hope for an extension, but unless contract language guarantees one, the end of a fixed term is typically a low‑risk separation point.
For long service employees, terminations can be significantly more costly – especially where there are challenges with enforcing termination provisions in employment agreements. Beyond financial exposure, there may be negative repercussions in losing knowledge and on employee morale for those who remain.
Employers should be aware that reasonable notice awards for long service and retirement aged employees are steadily increasing. We are recently seeing awards increasing to 26 – 28 months of notice based on long service alone. The “24-month cap” can no longer be counted on as a predictable ceiling.[2]
We recommend conducting a severance costing analysis early when designing a reduction in force.
Timing
While business considerations may dictate small reorganizations or unforeseen imminent market changes, employers should be thoughtful about the timing of implementing a reorganization.
We advise that the winter holidays between December 1 – January 30 as well as the summer holidays June 15 – September 15 should be minimized where possible. While many employees may have family commitments and travel plans, this timing may also impact the employee’s ability to mitigate and thereby increase notice periods.
Final Thoughts
Reductions in force and reorganizations can be necessary, but they require careful planning, legal compliance and thoughtful execution to avoid unintended claims for bad faith damages or human rights claims.
This article discusses a few key themes to start the conversation, but the Protea team is here to assist and guide you with your specific questions and business needs.
Don’t let a RIF cause a rift in your workplace! Start early and start with us.
[1] Navistar Canada Inc. v. Ontario (Superintendent of Financial Services), 2015 ONSC 2797.
[2] See: Currie v. Nylene Canada Inc., 2022 ONCA 209 and Panchbhaya v. Vulsay Industries Ltd., 2025 ONSC 5370
