On July 15, 2016, we wrote about the Supreme Court of Canada’s recent decision in Wilson v. Atomic Energy, 2016 SCC 29 (“Wilson”). In that case, the SCC held that most federally-regulated, non-union employees with 12 or more consecutive months of service can only be dismissed for “just cause”. See our earlier blog post here.

Following the Wilson decision, many federal employers were left wondering whether they still have the right to downsize or impose layoffs in response to a decline in their business. Such employers will be happy to learn that “downsizing” imposed for legitimate business reasons is still possible (subject to certain restrictions). Under s. 242(3.1)(a) of the Canada Labour Code, RSC, 1985, c L-2 (the “Code“), an adjudicator will not consider the complaint of an employee who has been laid off due to a “lack of work” or “discontinuance of a function”.

The legal test under s. 242(3.1)(a) is well-established. Federal employers must show a compelling economic justification, and provide a reasonable explanation for the choice of employee to be laid off. Employers who satisfy these criteria can rely on s. 242(3.1)(a) for temporary or permanent layoffs, as long as they are acting in good faith, abiding by the terms of the particular contract in issue, and complying with the Canadian Human Rights Act.

From a business perspective, the scheme makes sense. Employers should be free to restructure and reorganize their businesses to satisfy market demands. Indeed, most collective agreements provide employers with the right to impose layoffs when business declines, and the SCC’s commentary in Wilson confirms that the purpose of the Code‘s unjust dismissal provisions is to mirror the arrangement that has developed in the collective bargaining context.