Temporary layoff or Work-Sharing: what to choose when orders drop?

REF. 01Situation

Monday morning: 40 employees and 30% less work

It is 7 a.m. on a Monday. Your production manager puts the order book on your desk. A U.S. customer is cutting its volumes because of U.S. tariffs. For the next three months, you only have work for about 70% of the usual hours.

You have 40 production employees, and two ideas are on the table. The first is to lay off 12 people. The second is to keep all 40 employees, but have them work 28 hours a week instead of 40.

Either way, you remove the same number of work hours. Yet the two options do not have the same effects on your employees' income, on the paperwork you must produce, or on the timelines you must meet.

REF. 02Layoff

A temporary layoff: what it sets off

A temporary layoff means stopping an employee's work for a while, with the plan of recalling them. The employee does not lose their job. Their continuous service, meaning the time they have worked for you without a break, keeps counting during the layoff.

The Record of Employment. When an employee's pay stops, this is called an "interruption of earnings". You must then issue their Record of Employment (ROE), the document that shows, among other things, their insurable hours, meaning the paid hours that count for Employment Insurance (EI). When filed electronically, the deadline is generally 5 calendar days. It runs from the end of the pay period in which the pay stopped. The employee needs this record to establish their right to EI.

The employee's Employment Insurance. The laid-off employee applies for EI regular benefits themselves. The basic rate for these benefits is 55% of their average insurable weekly earnings, meaning their average pay that counts for EI. In 2026, the benefit cannot exceed $729 a week. The first week is a waiting period: EI pays nothing for that week. After that, depending on their region and the number of hours they worked, the employee can receive benefits for 14 to 45 weeks.

The written notice required in Quebec if the layoff lasts. If the layoff lasts more than 6 months, Quebec's Act respecting labour standards requires you to give written notice in advance. This notice is owed to each employee with at least 3 months of continuous service. The number of weeks of notice depends on the employee's seniority:

• 3 months to 1 year of continuous service: 1 week of notice;
• 1 to 5 years of continuous service: 2 weeks of notice;
• 5 to 10 years of continuous service: 4 weeks of notice;
• 10 years of continuous service or more: 8 weeks of notice.

If you do not give the notice in time, you must pay the employee an indemnity equal to their regular wages for the missing weeks of notice. A notice given during the layoff is not valid: it must be given before. It also happens that a layoff planned for less than 6 months ends up lasting longer. In that case, the indemnity must be paid no later than 6 months after the date of the layoff. You do not owe it if you recall the employee before that date and they then work at least as long as their notice would have lasted.

Collective dismissal. A second Quebec rule covers layoffs that affect many people at the same time. There is a collective dismissal when 10 or more people at the same establishment lose their job, or are laid off for 6 months or more. The count is made over a period of 2 consecutive months. You must then send a notice to the Ministère de l'Emploi et de la Solidarité sociale (MESS), Quebec's employment department. You must also post this notice in the business, or share it by email or on the intranet, and send it to the union if there is one. The notice period depends on the number of people affected:

• 10 to 99 people affected: 8 weeks before;
• 100 to 299 people affected: 12 weeks before;
• 300 people affected or more: 16 weeks before.

If the notice is missing or late, you must pay an indemnity, called an indemnity in lieu of notice, to the employees affected. If your plant is unionized, also read the collective agreement. It may provide for recall rights, meaning rules on the order in which employees are called back to work.

REF. 03Work-Sharing

Work-Sharing: what it requires

Work-Sharing is a federal Employment Insurance program. It helps avoid layoffs when work drops for a while, for a reason beyond your control. Instead of sending part of the team home, a whole group of employees works fewer hours, and they share the work that is left. This group is called the Work-Sharing unit.

The employee's income. You keep paying for the hours worked. For the hours they no longer work, the employee receives part of their EI benefit, in proportion to those missed hours. EI pays it to them directly. The one-week waiting period is deferred: the employee does not lose that week during the agreement. The waiting period will only apply if the employee later receives other EI benefits: regular benefits, for example after a layoff, or special benefits, for example for illness or parental leave. During the agreement, the employee does not have to look for another job.

What you must do, in order.

• You get the agreement of the employees in the unit, and of the union if there is one. The application is signed by you and by the employees' representatives.
• You file the application with Annex A, the Employee Annex, which lists the employees in the unit (form EMP5101, on canada.ca). You must file everything at least 10 business days before the start date. That date always falls on a Sunday, and the agreement cannot be retroactive: it cannot start on a date that has already passed.
• In the application, you describe your recovery plan. Despite its name, this is not a bankruptcy procedure: it is the list of actions you will take to get back to normal hours. These actions must be measurable, realistic and verifiable.
• If Service Canada approves the application, you have 60 calendar days to sign the agreement, then 60 more days to put it in place.
• You issue a Record of Employment for each participant, after their last shift before the agreement starts.
• Every week, you send Service Canada a utilization report, which shows the hours worked and the hours missed.
• For the whole length of the agreement, you keep employee benefits in place: insurance, pension plan, vacation.
• You do not add, remove or replace any employee in the unit without Service Canada's prior agreement.

The limits. The reduction in hours must be between 10% and 60%, on average over the whole agreement. On a 40-hour week, that means 4 to 24 fewer hours a week. An agreement normally lasts 6 to 26 weeks. It can be extended by 12 weeks, for a maximum of 38 weeks.

The federal government has also set up special measures for businesses affected by tariffs. These measures apply until March 31, 2028. With them, an agreement lasts at least 4 weeks and can run up to 152 weeks, almost 3 years.

Watch out: an employee in the unit who refuses to take part, or who is not entitled to EI, must still reduce their hours like the others. Service Canada also compares what temporary layoffs would cost with what the agreement costs. That is why the application must state how many people you would lay off if you did not have Work-Sharing. A 30% drop in hours corresponds to about 30% of the workforce, for example 12 people out of 40.

Our guide to Work-Sharing explains the eligibility conditions in detail.

REF. 04Side by side

The two options, point by point

• Who works?

  LayoffPart of the team stays home. The other employees keep their usual hours.

  Work-SharingThe whole unit keeps working, but each employee works fewer hours.

• How much does the employee receive?

  LayoffThe laid-off employee no longer receives wages. They receive EI benefits equal to 55% of their average insurable earnings, up to $729 a week in 2026.

  Work-SharingThe employee receives their wages for the hours they work. EI also pays them a benefit for the hours they no longer work.

• What happens in the first week?

  LayoffThe employee receives no benefit, because it is the waiting period.

  Work-SharingThe employee receives their benefit from the first week, because the waiting period is deferred.

• Who decides?

  LayoffYou decide, while respecting the collective agreement if there is one. Then each employee applies for EI themselves.

  Work-SharingYou, your employees and, if applicable, the union sign the application. Then Service Canada approves or refuses it.

• How much lead time do you need before starting?

  LayoffIf the layoff lasts less than 6 months, Quebec law requires no written notice. If it lasts more than 6 months, each employee must receive written notice of 1 to 8 weeks, depending on seniority. If it affects 10 or more people for 6 months or more, you must also send a collective dismissal notice of 8 to 16 weeks.

  Work-SharingYou must file the complete application at least 10 business days before the agreement starts, which is always on a Sunday. You must also wait for Service Canada to approve the application.

• What documents must you produce?

  LayoffYou issue a Record of Employment for each laid-off employee. If the layoff goes beyond 6 months, you also give the required written notices.

  Work-SharingYou fill out the application, Annex A (form EMP5101) and the recovery plan. Then you issue a Record of Employment for each participant and send a utilization report every week.

• How long can it last?

  LayoffThe employee can receive EI benefits for 14 to 45 weeks. If the layoff lasts more than 6 months, you must have given the written notice required in Quebec, or pay the indemnity that replaces it.

  Work-SharingAn agreement lasts 6 to 26 weeks. It can be extended by 12 weeks, so it can last up to 38 weeks in total. With the tariff special measures, it can last 4 to 152 weeks.

• Who can use it?

  LayoffAny employer can lay off employees, with no application to make. To receive benefits, each employee must be entitled to EI.

  Work-SharingYour business may qualify if its volume of work has dropped by at least 10% over 6 months, for a reason beyond its control. It must also have been operating in Canada for at least 2 years, or at least 1 year under the tariff measures.

REF. 05Worked example

The example: 40 employees, 30% fewer hours for 12 weeks

Let's go back to the plant from the start. It has 40 production employees, who work 40 hours a week at $25 an hour. So each one earns $1,000 a week. The plant must cut its hours by 30% for 12 weeks.

To keep the math simple, we assume each employee has average insurable earnings of $1,000 a week. Their EI benefit would therefore be 55% of $1,000, or $550 a week, which stays under the $729 maximum. In reality, Service Canada calculates this average from each employee's 14 to 22 best weeks of pay, depending on their region. So the real amounts will be different.

Option 1: you lay off 12 people.

• 28 employees keep working 40 hours a week and earn $1,000 a week.
• The 12 laid-off employees receive nothing in the first week, because of the waiting period. After that, they receive $550 a week in EI.
• So each of these 12 employees loses $1,000 in the first week, then $450 a week.
• Since the layoff lasts less than 6 months, Quebec's Act respecting labour standards requires no written notice. If it were to last 6 months or more, these 12 layoffs would be a collective dismissal. You would then have to send a notice to the MESS 8 weeks in advance.

Option 2: you put all 40 employees on Work-Sharing.

• The 40 employees work 28 hours a week and earn $700 in wages.
• Each one misses 12 hours out of 40, or 30% of their hours. So EI pays them 30% of $550, or $165 a week.
• Each one receives $865 a week in total, starting from the first week, since the waiting period is deferred.
• So each of the 40 employees loses $135 a week.

What is the same in both cases. In both options, the plant pays for 1,120 hours of work a week, or $28,000 in wages before payroll costs. But in option 2, all 40 employees keep their benefits. All these amounts are before tax, because EI benefits are taxable.

same hours paid, not the same loss per person

REF. 06Deciding

Before you decide, ask yourself four questions

In short, Work-Sharing reduces each employee's loss when three conditions are met: the drop is temporary and beyond your control, you have at least 10 business days ahead of you, and your employees agree. Otherwise, a temporary layoff remains possible. The four questions below help you decide.

• Is the drop temporary, and does it come from a cause beyond your control? If so, your situation fits what Work-Sharing is for. It is ruled out if the drop comes from a labour dispute, or from a business decision, for example cutting staff to be more profitable.
• Do you have at least 10 business days ahead of you? The agreement cannot be retroactive, so this lead time is needed. If you cannot wait, a layoff made in the meantime does not stop you from moving to Work-Sharing afterwards. Recently laid-off core staff can join the unit if they are recalled to work. Core staff are your permanent employees, full-time or part-time, who are needed for day-to-day work.
• Will your employees and your union agree to sign? Without their agreement, there can be no Work-Sharing agreement.
• Do you know how long the slowdown will last? Make your best estimate before choosing, because the rules change with the length. If a layoff lasts more than 6 months, Quebec law requires you to give written notice or pay an indemnity. Work-Sharing, for its part, can last up to 38 weeks, or up to 152 weeks under the tariff measures.

If layoffs still become necessary during or after the agreement, each employee concerned asks EI to convert their claim to regular benefits.

The decision is yours. For any human resources question, Service Canada recommends consulting a legal advisor.

REF. 07Questions

Frequently asked questions

REF. 08Vocabulary

Key terms

Temporary layoff

The employee stops working for a while, without losing their job. Their continuous service carries on.

Record of Employment (ROE)

The document the employer issues when pay stops. Among other things, it shows the employee's insurable hours and is used to establish their right to EI.

Waiting period

The first week of unemployment, for which EI pays nothing. It works like the deductible on an insurance policy.

Insurable earnings

The pay that counts for EI: wages, tips, bonuses and commissions, up to $68,900 a year in 2026.

Continuous service

The time spent without a break with the same employer, even if work was stopped by a layoff. It sets the length of the notice.

Collective dismissal

In Quebec, the end of employment, or a layoff of 6 months or more, of 10 or more people at the same establishment. The count is made over 2 consecutive months.

Core staff

Permanent, year-round employees, full-time or part-time, who are needed for day-to-day work. Only they can be part of a Work-Sharing unit.

Work-Sharing unit

The group of at least 2 employees with similar duties who reduce their hours and share the work.

Recovery plan

The part of the application where you explain how the business plans to get back to normal hours. It is not a bankruptcy procedure. Its actions must be measurable, realistic and verifiable.