Canada: Employment Law @ Gowlings - March 30, 2009

We have been receiving many calls as of late from employers who must cut costs in order to keep the doors open. Regrettably, cost cutting measures typically involve reducing employee remuneration, either through pay reductions, reduced work weeks, lay-offs, or terminations. This bulletin is meant to provide some guidance in dealing with the staffing issues faced by employers everyday, but certainly magnified in these tough economic times.

Lay-Offs

Many employers who are experiencing financial difficulty, and need to reduce staffing costs, do not want to take the drastic, costly, and often irreversible step of terminating employment. Instead, they come to us asking how they can go about putting some of their employees on a temporary lay-off until things turn around. It has become apparent that many employers are under the understandable misconception that they have the right to put any and all employees on lay-off at will. This is, for the most part, untrue.

A lay-off constitutes a fundamental change in the terms of the employment contract. Absent a contractual right to do so, laying off employees without their consent constitutes constructive dismissal for which the employees can sue.

There is, however, some flexibility in the law. If the employer has a known practice of laying off employees, it may be found that it is an implied term of the employment contract. Similarly, the right to lay-off may be an implied term of the employment contract in certain positions and industries, such as labourers in the construction or manufacturing industries.

Reduced Work Week

Some employers are considering the option of a reduced work week to avoid laying off or terminating employees. Reducing an employee's work week, and necessarily, his or her compensation, once again constitutes a change in the employment contract. However, the number of days per week and the period over which this occurs impact on whether the change is so significant that it constitutes constructive dismissal.

For example, if an employer wishes to reduce an employee's work week from 5 days to 4 for an indefinite period of time, this may constitute constructive dismissal because it necessarily results in a 20% reduction in pay. Reducing an employee's work week to 4 days one week, and 5 the next, may be permissible without constituting constructive dismissal as it would result in a 10% reduction in hours and compensation during the period. Similarly, if an employer institutes a reduced work week for a specific period of time, say 2 or 3 months, the reduction in compensation spread out over the year, would be less than 10%.

When it comes to changing the terms of an employment contract absent consent of the employee, employers must be mindful of case law which provides that if an employer wishes to unilaterally alter the terms of an employment contract in the face of objection from the employee, it must give sufficient notice to the employee that his or her employment is being terminated, coupled with an offer of reemployment on the new terms. Simply giving reasonable notice of the proposed changed term is not sufficient.

If an employee is willing to agree to a reduced work week, there would be no constructive dismissal because it would not be a unilateral change to the employment contract. Employers would be wise to get the employee's agreement in writing and provide adequate consideration to ensure enforceability of the changed term.

Employees also have an obligation to mitigate their loss in pay. Last year, the Supreme Court of Canada ruled that employees have an obligation to remain in employment, essentially under protest, while looking for other work. Accordingly, even if an employee refuses to agree to the reduced work week and elects to sue for constructive dismissal, he or she is likely to be required to remain in employment at the reduced schedule until reasonable alternative employment can be found, resulting in a reduction in liability to the employer.

Another solution for some employers who wish to implement the reduced work week is the Work-Sharing Program through the Government of Canada. For employers who qualify, employees who have their work week reduced by 1 to 3 days of work per week will receive Employment Insurance benefits for the days not worked, and there is no usual waiting period. Both the employer and employee must agree to the arrangement in writing, and it must last for more than 6 weeks up to 26 weeks, with extensions granted in some cases to a maximum of 38 weeks. The Federal Government announced in 2009 that it will be increasing the maximum number of weeks to 54; however, that increase has not yet received Royal Assent.

There is no risk to employees in accepting this program as regular Employment Insurance benefits are unaffected in the event that the employees still become laid off or lose their jobs. To qualify, an employer must have been in business for at least two years, show that the need to reduce its employees' hours is "temporary, unavoidable and not seasonal in nature," and that the employer has a recovery plan with a reasonable expectation of success within 26 weeks. The tricky part of the application for many employers is the recovery plan which requires the implementation of a number of recovery strategies that are not reliant on an upturn in the economy.

Set out below this article, please see the summary of the Work Share Program requirements and important information.

Reasonable Notice in Poor Economic Climates

In some cases, termination of employment is regrettably unavoidable. Absent a contract of employment, employees are entitled to notice of termination in accordance with both the applicable employment standards legislation and the common law.

One of the factors that courts will consider in determining common law reasonable notice is the likelihood of the employee finding re-employment, and how long that might take. In a poor economic climate, it will likely take most employees a longer period of time to find alternative employment, and therefore, many would argue, the notice period should be extended. This issue, being the impact of an economic downturn on reasonable notice, has been dealt with by the courts. A review of the case law makes clear only that the courts will consider the economic climate as one of many factors, but will not give it any greater weight.

Conversely, employers have argued in some cases that the period of reasonable notice ought to be reduced during an economic down turn because having to give usual amounts of notice or pay in lieu thereof may result in substantial financial hardship, and even ruin. The courts are relatively unsympathetic to the plight of the employer in this regard, particularly those who have parent or subsidiary companies with assets, and typically hold employers fully accountable for the "usual" period of reasonable notice, whatever that may be depending on the facts of the case.

Voluntary Retirement or Voluntary Severance Packages

Employers may also consider offering employees voluntary retirement packages. It goes without saying that this option must be treated very carefully in order to avoid human rights complaints. Older employees or other employees who may be protected by the applicable human rights legislation, such as visible minorities or disabled workers, should not be made to feel that they are being targeted. Releases are a must if an employer is going to follow this course of action.

Contracts of Employment

Now would be an ideal time to consider implementing written employment contracts if you do not already have them in place for ALL employees. Comprehensive employment contracts will assist with reducing your financial liability to employees. Even if you presently have existing employees not subject to written contracts of employment, there are ways to introduce them, and we would be happy to assist you through that process.

Although there will be casualties during this economic down turn, there are options. Employers are encouraged to seek advice in order to avoid losses where possible while remaining fully apprised of their respective rights and obligations.

WORK SHARE PROGRAM SUMMARY

Employer Qualifications for Program

  • Employer must have been in business for 2+ years
  • Show that the need to reduce hours is unavoidable, unexpected and temporary
  • Work share unit must be 2+ employees
  • Employers who are presently involved in a labour dispute may not apply
  • Outside sales staff, managers, and those who assign work load are generally not allowed to participate in the program
  • Must reduce the work week by at least one day per week, but no more than 3 days per week
  • Work share program period must be at least 6 weeks and must end at 26 weeks, unless the employer applies and receives approval for an additional 12 (currently waiting for a further extension to receive Royal Assent)
  • Employees must have between 420-910 hours of insurable employment
  • Employers must fill out and file an application and recovery plan
  • Employees must agree, and sign agreement prepared by the Commission

Information for Employees

  • Employees must work extra days when requested to do so, and amounts will be deducted from EI benefits
  • There is no 2 week waiting period, though the first cheque is likely not to be received for 28 days
  • If the employee is laid off or terminated during the work share period or after, regular EI benefits are unaffected

Employer Requirements During Work Share Period

  • Provide employees with ROE
  • Assist employees with the preparation of bi-weekly report cards (regarding hours worked, income received, etc.)
  • Prepare utilization reports for every 2 week period which include: hours worked by employees and how employees spent their time (codes are provided)
  • Advise Commission of lay-offs or terminations
  • Lay-offs must be pre-approved by the Co-ordinator, and the workers remaining on the work share program must also agree and agree to remain in the program
  • Make work share information available to employee
  • Maintain all benefits (including perks) through work share period, though some may be reduced due to change in gross pay, and employers must advise employees that these benefits may be reduced
  • May not hire during work share period unless the employer needs to replace existing employees, and the hire must be on approval of Commission
  • Pay statutory holidays (EI will not cover this)
  • Report progress on recovery plan
  • Report overtime hours worked by employees
  • Advise Service Canada of any changes to work schedules or the agreement

Content of Recovery Plan

  • Description of the business
  • Description of the employees i.e. union or non-union
  • Description of the plan for recovery, including:
    • Expected duration, and cause of work shortage
    • Outline of steps to be taken to generate business (objectives, activities, timeframes, milestones, expected outcomes, cost cutting measures, new types of business sought, new technology being utilized, new markets, scheduled shows/fairs, customer incentives, readjustments of current products)
    • Description of employer initiated skills enhancement/upgrading for employees
    • Future sales/business projections
    • Measures taken to overcome downturn in business before applying for work share program
    • Work force adjustments made before or after work share program
    • Identified alternatives to the work share program
    • Risks that may hinder recovery, and any alternative plans

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions