We currently have two employees on lay off. The lay off was due to shortage of work however, there has been a discussion of termination for them both. Neither employee is working up to our standard and we have various complaints from other employees.
Can we terminate those employees while on lay off? Can we hire a replacement for them while they are on lay off?

You are entitled to terminate the employees. The only question is the notice and severance (if any) the subject employees are entitled to. Various factors go into assessing the employees' potential entitlements including their contracts of employment (if applicable), their age, position, and tenure. There are various strategies that can be employed in order to limit the financial exposure of the company. I would recommend that you contact our office to discuss this matter prior to taking any steps towards termination.