What is a furlough?

A furlough is a temporary, unpaid leave of absence from work. In Canada, furloughed employees remain employed, but they do not actively work or receive wages during the furlough period. They’re typically brought back once business conditions improve.

Employers can use furloughs to:

• reduce payroll costs without permanent terminations
• adjust staffing levels during downturns
• retain key employees without ongoing pay obligations

In some cases, employers may offer partial schedules instead of full furloughs, reducing work hours or shifts rather than removing them altogether.

Key details about furloughs in Canada:

• employees often retain health benefits and insurance coverage during the furlough
• the leave is typically short-term (several weeks to a few months)
• employers cannot ask employees to perform work without pay during a furlough
• furloughed workers may be eligible for Employment Insurance (EI), depending on the province and past earnings

Example:

A retail chain facing low sales in Q1 furloughs 50 staff for eight weeks while keeping them on the group benefits plan. Once revenue improves, employers can recall employees back to work.

What is a layoff?

Unlike a furlough, a layoff typically ends the employment relationship. It may be temporary (with an expected return date) or permanent. In Ontario and other provinces, layoffs must comply with employment standards legislation. For example, under the Ontario Employment Standards Act (ESA), temporary layoffs can last up to 13 weeks (or 35 weeks in some cases) within 20 weeks. Anything beyond that is considered a termination. The following can trigger a layoff:

• lack of available work
• plant or branch closure
• long-term financial pressures

Laid-off employees may be entitled to severance pay or termination benefits, depending on their length of service and applicable provincial rules. Important to know:

• laid-off employees may qualify for EI benefits
• a layoff can become a termination if the employee is not recalled within the allowable period
• employers should provide written notice or pay in lieu of notice, where applicable

What is a leave of absence?

A leave of absence occurs when an employee temporarily steps away from work, with or without pay, to return to their position at a later time. Types of leave in Canada include:

• sick leave
• parental leave
• bereavement leave
• family caregiver leave
• voting leave
• emergency leave

These leaves are typically protected by law, and employers are required to maintain the employee’s position or a comparable one upon return. Leaves may be voluntary, such as taking time off for medical recovery or involuntary, such as being placed on leave during a government-declared emergency

Key differences between furlough, layoff and leave

Here’s how these workforce changes compare across several factors:

Employment status

• Furlough: Remains employed
• Layoff: Employment paused or ended
• Leave: Remains employed with legal protections

Pay

• Furlough: Unpaid (but may retain benefits)
• Layoff: No pay unless required by notice or severance rules
• Leave: May be paid or unpaid, depending on the type

Benefits

• Furloughed employees often keep their benefits
• Laid-off employees typically lose access unless specified in their severance packages
• Employees on protected leave usually retain full benefits

Duration

• Furlough: Temporary, often 1–3 months
• Layoff: Temporary or permanent
• Leave: Varies by type (some up to 18 months)

Rights of furloughed employees in Canada

Employees on furlough retain certain rights. Even though they are not actively working, their employment contract remains intact unless stated otherwise. During a furlough:

• No work means no pay: Employers cannot require the employee to perform any duties
• Benefits may continue: Companies often maintain health coverage for employees even during short furloughs
• EI eligibility: Workers may qualify if the leave is unpaid and meets other federal criteria
• Recall expectations: Employers should clearly communicate the expected return date or conditions for return

Legal considerations:

• Salaried (exempt) employees cannot perform any work during furlough without being paid for the full workweek.
• Employers should document furloughs in writing, including duration and benefit status.
• Companies may offer top-ups or partial pay at their discretion, though this is uncommon.

Why companies use furloughs

Furloughs are typically a stopgap to preserve jobs without the finality of a layoff. For example, a company facing a seasonal drop in demand, such as a manufacturer that slows production during summer months, may temporarily furlough employees until business picks back up:

Advantages:

• preserves jobs and talent
• reduces payroll costs temporarily
• enables a faster return to normal operations
• maintains cultural awareness and goodwill (when communicated properly)

Disadvantages:

• complex to manage
• requires legal compliance and written documentation
• may damage morale if workers feel insecure or unsupported

The pros and cons of laying off employees

Layoffs are sometimes unavoidable, but they come with both operational and legal implications:

Advantages:

• immediate cost savings
• simple to execute if the business needs are clear
• may include severance or support packages to help departing staff

Disadvantages:

• potential for wrongful dismissal claims if not handled properly
• risk of losing skilled workers
• future rehiring and retraining costs
• lower morale among the remaining employees

Why employers may choose leave instead

A leave of absence is often voluntary or tied to personal circumstances rather than business needs. While it may not resolve a company’s financial issues, it ensures compliance with employment law and can help retain staff in the long term. Benefits of offering leave include:

• supports employee health and well-being
• complies with labour laws, such as parental or caregiver leave
• maintains continuity without terminating the employment relationship

How to decide between a furlough, layoff or leave

Choosing the right option depends on your business goals, legal requirements and the needs of your employees.

Consider a furlough if you:

• expect the business disruption to be short-term
• want to reduce labour costs without severing employment
• can maintain employee benefits during the furlough

Consider a layoff if:

• there is no foreseeable return to work
• you need to reduce headcount permanently
• severance or notice obligations are transparent and manageable

Consider a leave if:

• the employee qualifies under provincial or federal leave protections
• the absence is due to health, family or personal issues
• you want to retain the employee, but support their time away

Understanding the difference between furloughs, layoffs and leaves can help employers make informed decisions and protect employee rights. Each option carries legal, financial and operational impacts. Choosing the right path depends on your long-term goals, current business conditions and your responsibility to staff.