We are still feeling the effects of COVID-19. On top of that, inflation is rising and interest rates are up. Faced with these challenges, some employers have started to announce downsizings.
This resource discusses the non-COVID-19 options available to employers to manage the unexpected downturns and, if necessary, to reduce their labour force. All of these options are subject to restrictions in any collective agreement in unionized workplaces, and in any employment agreement in non-unionized workplaces. All options should be considered carefully in light of potential risks discussed below.
Voluntary and Involuntary Temporary Layoffs
Provincial employment standards legislation has provisions dealing with situations of temporary lay-offs. Some have specific requirements. Others are more permissive. Ontario, for example, has provisions dealing with temporary leaves up to 35 weeks in a 52 week period (with a number of conditions) and up to 13 weeks in a 20 week period (with significantly fewer conditions). Temporary layoffs that adhere to the statutory provisions will not violate employment standards legislation. Generally, if a layoff lasts longer than permitted under employment standards legislation, termination of employment will be deemed to have occurred.
Collective agreements typically contain layoff provisions. These provisions will generally apply for unionized employee temporary layoffs and recalls. For non-union employees, an unpaid layoff may be considered to be a constructive dismissal unless the employer has a contractual right to layoff or that right is implied by past practice.
Other Voluntary Measures for Employees
Employers may be assisted by voluntary measures accepted by employees. These can include:
- a voluntary agreement to reduce pay;
- a voluntary agreement to reduce weekly hours, or implementation of rotating shifts (e.g., one week on, one week off, etc.);
- a voluntary agreement to take an unpaid leave of absence (furlough);
- a voluntary work sharing agreement (see below for more information); or
- a voluntary separation agreement.
All of these voluntary measures should be reduced into written agreements. Employers should consider what, if anything, they may be able to provide employees in exchange for these agreements (e.g. compensation, etc.).
Other Involuntary Measures for Employees (Short of Termination)
In addition to a temporary layoff, employers may have the following measures at their disposal, without employee consent if the change is not substantial:
- a reduction in pay; and
- a reduction in hours.
Employers should seek specific legal advice before making any unilateral changes of this nature.
The federal government has a work sharing program available for employers and employees. Under the program, if employers and a specific unit of employees agree, those employees may “share” the work being performed by reducing each employee’s work week by as much as 60%.
Under the program, if an agreement is in place between these employers and employees and accepted by Service Canada, Service Canada will provide employment insurance benefits to employees to make up some or all of their lost income.
Work sharing arrangements are subject to an employer application, agreement from employees, acceptance by Service Canada and other qualifying criteria. There are also reporting requirements.
Termination of Employment (Non-Unionized Employees)
Employers continue to have the right to terminate employees’ employment as a result of economic circumstances. Contractual or common law rights, equal to or in excess of employment standards rights, will apply.
For employees who are entitled to common law notice, the economic environment may impact the common law notice period. If there is a scarcity of work, this may, in particular, have the impact of lengthening the common law notice period - the theory being that it will take longer for the employee to find alternate work in a downturn.
Employment Insurance Benefits, ROEs and Top Ups
If an employee is put on a temporary layoff, is starting a Service Canada-approved work sharing agreement, or has their employment terminated, a Record of Employment (ROE) is required. In many cases, employees may qualify for employment insurance benefits.
Employers may wish to provide employees top up payments while on layoff or during any period they are receiving employment insurance payments. To ensure these top-ups are not subject to employment insurance claw backs or other deductions, it is recommended that the employer review requirements for supplemental unemployment benefits (“SUB”) registration with Service Canada and apply to register their SUB.
Employers have many options available to manage their workforce and plan for temporary or sustained economic downturns. The options set out above may create circumstances where an employee can, and may, allege constructive dismissal and claim termination entitlements, among other risks.
It is highly advisable for employers to obtain legal advice on their options, and an assessment of related risks before taking any steps. In all cases, it is advisable for employers to develop clear communications to employees, and to update those communications as situations change.