The unemployment rate is low and the labour market is tight in Canada right now, suggesting it is an employees’ market. But with interest rates and recession fears on the rise, those who switch positions now could find themselves in a precarious employment situation because of the “last in, first out” principle.
According to a recent survey conducted by human resource consulting firm Robert Half, 31 per cent of Canadian workers are currently looking for a new role, or plan to in the next six months. At the same time, however, the Bank of Canada Governor Tiff Macklem is bracing Canadians for more interest rate hikes to quell rising inflation, and that has many fearing a recession could be lurking around the corner.
Should the economy take a sudden turn, experts warn those switching jobs now could be the first on the chopping block.
“The people that joined the latest are the most at risk,” said Alan Kearns, the managing partner and founder of human resources specialists Career Joy. “They’re the most unknown, they don’t have the same amount of experience, they don’t have the same amount of knowledge, and they don’t have the same amount of what I call ‘organizational credit.’”
Mr. Kearns said that when organizations are forced to restructure as a result of changing economic circumstances, they typically look to the most recent hires for potential termination.
“It’s never a formalized policy, it’s not in your employee handbook, but it’s understood as a reality,” he said. “When managers are restructuring, they can and should do their best to protect people that are loyal and that they know and that have been good contributors.”
Not only do more tenured staff have more opportunity to prove their worth and develop closer connections with managers and colleagues, it is often more cost-effective for organizations to cut their newest staff members first. That is because unless they’ve signed an employment agreement that states otherwise, their employer is required to provide severance pay that is calculated in part based on how long they’ve been with the company.
“The longer you work [at that company], the older you are, and the more senior a position you have, generally the greater severance you’re owed,” said Lior Samfiru, the national co-managing partner of Samfiru Tumarkin LLP, a Toronto-based employment law firm. “Employees that have been with the company for a long time will have substantial severance entitlements – as much as two-year’s pay.”
As a result Mr. Samfiru said when difficult decisions need to be made it’s often a matter of simple economics, as some employees are much more expensive to let go of.
“If I have two decent employees and I need to let one of them go, it often comes down to who is going to be more expensive, and that has to do with seniority,” he said. “It is definitely something employees have to consider; if you’re a newer employee and therefore cheaper to let go, you may be the first on the chopping block.”
Mr. Samfiru said the ‘last in, first out’ principle shouldn’t prevent employees from considering new opportunities. At the same time he encourages them to take severance into consideration when making employment decisions, especially if they’ve been with their current employer for a long time.
“It would be a very bad situation for someone to leave a job where they’re senior and would be owed a significant amount if they loose their job to take one where they’re essentially going to be owed almost nothing if they lose their job,” he said. “That’s risky.”
Mr. Samfiru also warns that employers are increasingly including language in employment contracts that limits the amount of severance they owe staff upon termination. Some are even asking current employees to sign similar agreements. He explains that such documents might seem relatively inconsequential at the time of signing, but could have significant implications in the event of restructuring.
“Even before you get to the point of negotiating, review the offer, and ask questions, because you need to know what the whole offer is before you can start negotiating,” said Kathryn Meisner, a career and salary negotiation coach.
Ms. Meisner said her younger clients are often the least likely to take severance into consideration when making career decision, as they typically switch jobs more frequently. “Older generations tend to take a longer-term view of staying at companies.”
Those who are concerned about changing economic circumstances while pursuing new career opportunities should consider how a recession would affect the role, employer or industry they’re applying to, said Ms. Meisner.
“In times of recession, job searching is always harder, landing a job is always harder, but a fear of ‘last in, first out’ isn’t necessarily a reason to postpone your job search,” she said. “Always keep in mind that the market is a factor, but it’s only one factor.”
Stay ahead in your career. We have a weekly Careers newsletter to give you guidance and tips on career management, leadership, business education and more. Sign up today.