The credit crisis and the recent downturn in the economy means
many businesses are facing an economic squeeze that leads them to
look for ways to save money, including reducing labour costs. But
no one wants to terminate valued employees. This update provides
some practical suggestions that may reduce costs in respect of
active employees and suggests certain cost minimization strategies
if it is necessary to terminate.
Reducing Costs Of Active Employees
There are options to reduce labour costs that your business can
consider prior to and/or in conjunction with terminating or
temporarily laying-off employees. Most employers will want to avoid
drastic unilateral changes without advance notice that could result
in the affected employees having successful constructive dismissal
claims. Non-union employers who are not bound by a collective
agreement will have greater flexibility to modify terms of
employment. Depending on the specific terms of the employee's
contract, without constructively dismissing the employee, it may be
possible to take some or all of the following steps:
Asking your employees if they have any cost-saving suggestions.
Employees may be more understanding if the employer first takes
reasonable steps to reduce costs other than labour costs.
Reducing travel and expense costs (e.g., require
greater use of technology such as video-conference and conference
calls in substitution of airline travel).
Permitting employees to take voluntary unpaid leaves to pursue
further education, complete skills building programs or do
Directing an employee to use accrued vacation time at a time
convenient to the employer. This can delay or avoid needing to
place employees on temporary lay-off and reduces an accrued
Ensuring proper steps are taken to limit or reduce the need for
overtime pay. In the absence of work restrictions in a collective
agreement or contract this may include temporarily re-assigning an
employee's duties to ensure there is an efficient use of
Eliminating or reducing discretionary bonus payments.
Reducing (slightly) hours of work in a day or week
(e.g., 40 to 37.5 hours).
Reducing (slightly) salary or wage rates (e.g.,
Investigating enrollment in the federal government's
Work-Sharing Program which permits certain types of employees to
receive a "top-up" of wages from Employment Insurance
while they work a temporarily reduced work-week.
Amending benefit plans to require employees to pay an increased
portion of benefit premiums.
Implementing a hiring freeze on all resignations and
replacements for employees on statutory leaves.
Ensuring any new hires enter into written employment contracts
that limit or define entitlements on termination of
Reducing Severance Costs
If your business needs to permanently reduce on-going labour
costs, it may be necessary to terminate the employment of several
employees without cause. In such case, we suggest that you
Implementing a voluntary separation program which could provide
for payments less than reasonable notice at common law because the
employee is leaving voluntarily.
Staggering terminations to avoid the mass termination
provisions of the applicable minimum standards legislation.
Providing working notice of termination to reduce the actual
compensation in lieu of notice paid for which no services are
Reviewing applicable employment contracts to confirm if there
is an enforceable termination provision which may limit exposure to
damages for reasonable notice.
Offering discounted lump sum severance offers instead of longer
periods of installment payments.
Ensuring severance offers of installment payments clearly state
that they are subject to mitigation (e.g., payments cease
or employee only receives 50 percent of remaining payments).
Avoiding claims for bad faith damages by unconditionally paying
statutory amounts if working notice is not provided and by issuing
the Record of Employment in a timely manner.
With effective planning and the guidance of counsel, one or more
of the above options may be an appropriate way to reduce costs
during these tough times. Please contact one of our employment
service lawyers to discuss the options that may be right for your
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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