In the wake of the Covid-19 tsunami, businesses are looking at all options for reducing overheads. They are talking to landlords, lenders, suppliers, other creditors and investors to extend their runway in these extraordinary times. Reluctantly, entrepreneurs are also looking at reducing their headcount. My suggestion is that you revisit your financial projections going forward – 3 months, 6 months and longer term to determine where you can cut costs, including identifying what human resources you will need and what you can afford. You should put your employees into 3 categories – 1) services no longer required; 2) short term layoffs and 3) mission critical people.
1. Termination – People who fall into the “services no longer required” category can be terminated immediately. The traditional employment rules will apply. You will have to look at the termination provision in your employment agreements, if any. If you have no such provision (or if it is not enforceable for one reason or another), then you will need to consider both Employment Standards legislation and the common law. The bottom line is that you will have to provide notice or payment in lieu thereof. If there is no enforceable termination clause, the amount of notice will depend on each employee’s individual situation, based upon their job, years of service with the company, their age and other factors. If you have an employment agreement, you should seek advice as to its impact and enforce-ability.
2. Layoffs – For people who you don’t need now, but who you can envision coming back to work when the crisis abates, you can temporarily lay them off. In this instance, the employment relationship is maintained during the period of the layoff. In the case of unionized businesses, the collective agreement will determine your rights. In all other cases, the Employment Standards rules will apply. If you lay off employees for the limited period of time provided by employment standards legislation, no notice or payment in lieu of notice is required. Laid off employees are entitled to the Canadian Emergency Care Benefit (CERB), the $2,000 per month program recently announced by the Federal government, and will eventually be entitled to collect EI benefits once that program expires. However, it is important to know that some employees may resist a temporary layoff, and consider themselves to have been “constructively” dismissed. There are ways to mitigate those risks, and you should seek advice in that regard.
3. Federal Work-Sharing Program – This is another option for employees who you want to keep within the fold. Under the Federal Work-Sharing Program, two or more employees can share a job, each with reduced hours. The company and the employees enter into a 3 way agreement with Service Canada, entitling the employees to apply for EI benefits to compensate them for the reduced hours. This saves the company some of the cost of keeping their employees working, with the federal government paying out EI benefits to employees with reduced hours.
4. Critical People – The Federal government announced the Canada Emergency Wage Subsidy (CEWS), which provides a wage subsidy of 75% of an employee’s salary up to $847 per week per employee, for eligible companies. As you consider which employees to keep on payroll and who to terminate and/or layoff, be sure to take this program into account.
Companies are also coming up with other ways to reduce their costs, including soliciting the support of their employees in accepting reduced compensation, reduced weekly hours or rotating shifts with corresponding salary reductions, leaves of absences, and part-time work.
Many companies have been hit hard by the Covid-19 crisis. Some will be casualties, others will survive and even thrive in this environment. In either case, it will be critical to review your headcount and make some hard decisions into order to survive. My colleagues and I would be pleased to talk to you about your individual situation and provide details on your options.
Thank you to Christian Paquette, a partner in Fasken’s Labour, Employment and Human Rights Group, who provided valuable advice to me in writing this blog post.