Our Workplace Law Group is regularly receiving questions about employers needing to reduce their workforce during this difficult time. These questions tie into several of our recent blog posts about the different options available to employers. Here is a quick summary of those questions and our condensed/summary answers.
Question 1- what are my options for reducing my workforce/payroll costs because my business has declined during this COVID-19 crisis?
Option 1 - Keep people employed using the Canada Emergency Wage Subsidy (CEWS) program.
Even if employers have significantly reduced revenue, or have virtually shutdown during the COVID-19 crisis, they can keep their employees on the payroll and apply for the Canada Emergency Wage Subsidy (CEWS). Basically, the government is trying to provide incentives for companies to keep their employees on the payroll rather than everyone being laid off or terminated and applying for EI. The applications can be made starting on April 27. The full criteria are noted in our other blog posts, but employers qualify for the subsidy if they have suffered at least a 15% loss of revenue for March, and then a 30% loss of revenue for April and May. The subsidy allows employers to keep paying their employees and the government will pay them for 75% of the wages up to a maximum of $847 per week for each employee.
If an employer qualifies for the wage subsidy, employers can still choose whether to continue paying 100% of their employees' wages even though the government will only subsidize 75%. Employers can implement or ask employees to agree to a reduction from 100% to 85% or 75%, etc. If an employee does not agree, it may be considered a constructive dismissal if an employer unilaterally imposes the reduction. However, the employee would have to give up their employment and commence a legal action to pursue the constructive dismissal argument before the courts.
The subsidy is less helpful for employers trying to address employees who earn well over $60,000 per year. Even with the subsidy, there is a large portion of their salary that will not be subsidized. As above, employers can choose whether to pay the remainder of their salary to top them up to 100%. If that is not a realistic option due to decreased revenue/cashflow, employers can ask the employees to agree to reduced hours/rates on a temporary basis as a means of keeping them employed. If the employee does not agree to the reduction and the employer imposes it unilaterally, it may be considered a constructive dismissal. As above, the employee would have to give up their employment and commence a legal action to pursue the constructive dismissal argument before the courts.
Option 2 - Reduce salaries
If an employer has not (yet) suffered a sufficient loss of revenue to qualify for the CEWS, the employer can still consider the option of temporarily implementing a reduction in employee compensation and/or hours of work to conserve cashflow (e.g. 5%, 15%, 25%). This option would allow employers to reduce its costs temporarily while waiting to see if its revenues decline to qualify for the CEWS and while trying to avoid layoffs of some employees. As above, there is a potential constructive dismissal risk in this scenario.
Option 3 - EI Programs (Workshare/SUB)
The employer and the employee could apply for the federal "EI Work Share" program if they have reduced hours available for several of their employees to share. This program allows employees to receive payments from EI to "top-up" their reduced workload and salary. For further details about this program, see our March 23, 2020 blog post and the official website (https://www.canada.ca/en/employment-social-development/services/work-sharing.html).
Similarly, the employer and employee could apply for the federal EI "SUB" program. This program applies where an employee is not working (e.g. laid off due to lack of work) and the employer wants to provide some payments to the employee in addition to their EI compensation (without triggering a repayment obligation). For further details, see our March 23, 2020 blog post and the official website (https://www.canada.ca/en/employment-social-development/programs/ei/ei-list/ei-employers-supplemental-unemployment-benefit.html).
Practically speaking, both of these EI program options are less attractive now that the Canadian government has announced its 75% CEWS. However, there may be some unique circumstances where these programs still apply. For instance, not all Canadian businesses will qualify for the CEWS even if their revenues are reduced.
Option 4 - Temporary Lay-off
Technically speaking, there are only a few circumstances where a temporary layoff is allowed and not considered a termination. If there is no explicit right to a temporary layoff in the employment contract, often the only applicable scenario is if the employee agrees to the temporary layoff. In that scenario, the employer would issue a Record of Employment and the employee would then likely apply for EI. As noted, the maximum EI entitlement is $573 per week, which will be far less than many employees will have been earning.
Practically speaking, temporary lay-off may not be the best option for employers who qualify for the CEWS.
Option 5 - Termination (frustration or without cause)
If none of the above options apply, the other option is to terminate the employment relationship. Some employers may attempt to rely on the doctrine of frustration due to the intervening COVID-19 crisis; this may negate the employer's obligation to provide notice or payment in lieu of notice.
If frustration does not apply, the termination would likely be a termination without cause due to shutdown or lack of work and notice or payment in lieu of notice would be owed to the employee. As usual, for employers who are terminating employees without cause, the first question is whether the employee has an enforceable written agreement with an enforceable termination clause. If not, the employee will be entitled to reasonable notice at common law. There is significant uncertainty about how the courts will assess the reasonable notice period during this economic climate. Employees expect the courts will provide longer notice periods because it will generally be harder for many employees to find new employment. Employers are optimistic that the courts will not lengthen the notice period because the significant economic shutdown caused by COVID-19 is extreme and completely outside of their control.
Question 2 - What if I have already reduced my workforce due to the COVID-19 crisis? Can I re-hire my employees?
Now that the CEWS is available, employers who qualify for the wage subsidy program can re-hire their employees who were recently laid off or terminated. This will then provide the employees with 75% of their wages (up to the maximum of $847 per week). This should be more than they are receiving from EI (55% of their wages up to a maximum of $573 per week).
The government options available for employers and employees are changing rapidly, and the above options will also change rapidly as a result. The answers also depend on the circumstances for each employer. We encourage employers to seek legal advice about the rapidly changing landscape and the best option for their circumstances.
Changes to Provincial and Federal Covid-19 Benefits happen rapidly and often. We update our helpful Benefit Chart just as frequently. Stay current on the most essential benefits available by visiting our Chart. We'll be posting on LinkedIn whenever it is updated. Or you can find it on the Harper Grey COVID-19 Resource Hub - check it out here.
Originally published 27. April 2020.
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.