Layoffs and alternatives - Curtailing operations in response to COVID-19

06 April 2020

The COVID-19 pandemic continues to have rapid and far-reaching effects on Canadian workplaces.

One of the unfortunate realities facing employers is the state of their businesses and the economy. Everyone is feeling the financial impact and sometimes this results in tough circumstances where there is not enough work available for employees, or segments of a business must be shut down temporarily. This can be a scary thought. What happens then? How can employers notify employees? Do employers have other options?

In this article, we answer those questions for Ontario, British Columbia, Alberta and Quebec. In all cases, please be advised that different considerations may apply under the terms of a collective agreement, if applicable.

Before we effect a layoff, what other options do employers have?

If the concern is about employees being present in the workplace due to a risk of transmitting the COVID-19 virus, or providing flexibility for employees as they handle personal and family matters, one of the first considerations should be to have employees work from home where possible. Depending on an employee's personal circumstances, they may prefer to use this time to voluntarily work a reduced schedule, while using accumulated sick days, personal days or vacation to supplement their income.

If it is necessary to reduce hours, employers should also consider the flexibility inherent in some employment and collective agreements. Consider whether there is an option to reduce hours while not breaching the applicable agreement. For example, if employees are paid hourly and subject to fluctuations in hours of work, is it possible to work within those parameters? This requires assessment on an individualized basis.

Funding Announced from the Federal Government

The Federal Government announced a coordinated package of measures to support Canadian businesses. This includes but is not limited to the Canada Emergency Response Benefit.

To prevent layoffs, the Federal Government will also provide a temporary wage subsidy for many employers. A comprehensive analysis of the new Canada Emergency Wage Subsidy Program is available.

Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees' remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.

Full details of all initiatives by the Federal Government in response to COVID-19 is available on the Canada Economic Response Plan webpage.

The Work-Sharing Program

The Work-Sharing (WS) Program, offered through the Federal Government (specifically Service Canada), allows eligible employers to reduce employees' workweeks while employees receive employment insurance (EI) benefits for the days they are not working. It is designed to help employers avoid layoffs when there is a reduction in normal business activity.

The Government of Canada enacted special temporary measures in response to COVID-19. A WS agreement has to be at least 6 consecutive weeks long. The Government of Canada has extended the maximum duration of WS agreements from 38 weeks to 76 weeks for businesses affected by COVID-19. These temporary special measures are effective March 15, 2020 to March 14, 2021.

The employer and the employees (and the union, if applicable) must agree to participate in the WS agreement and apply together. The Government of Canada has waived the standard waiting period so that employers with a recently expired agreement may immediately apply for a new agreement. There is now a streamlined application process in place for the COVID-19 special measures, which aims to reduce processing times of new applications from 30 days to 10 days. Therefore, an employer must submit its application a minimum of 10 days prior to the requested start date. The Government of Canada has also eliminated the requirements for a recovery plan for the duration of the WS agreement.

Which employers are eligible for temporary special measures?

  1. Unlike the standard work-sharing application, businesses no longer need to evidence a decline in business activity and may have only one-year of continuous business activity instead of two. The employer must be a private business, a publicly held company or a not-for-profit organization.

Which groups of employees are eligible to participate in a WS program?

Employees that are not eligible include:

  1. seasonal employees and students hired for the summer or a co-op term;
  2. employees hired on a casual or on-call basis, or through a temporary help agency;
  3. employees who are needed to help generate work and/or who are essential to the recovery of the business; and
  4. employees who hold more than 40% of the voting shares in the business.

A WS unit is a group of employees with similar job duties who agree to reduce their hours of work over a specific period of time. The unit generally includes all employees in a single job description. A WS unit must have at least two employees. A WS agreement may include more than one WS unit.

A WS unit must reduce its hours of work by at least 10% to 60%. The reduction of hours may vary from week to week, so long as the average reduction over the course of the WS agreement is from 10% to 60%.

Please refer to the WS Applicant guide for the temporary special measures for more information on how to complete an application, or contact a member of Gowling WLG's Employment, Labour & Equalities Group for assistance.

Layoffs and Work-Sharing Programs

Employees can be on a temporary layoff before a work-sharing application is approved (i.e. an employer may convert layoff to work-sharing). Conversely, employees can be participating in a work-share program and subsequently laid off if the work-sharing program is not effective. In either case, an employer should issue a new Record of Employment. Time spent participating in the work-sharing program does not reduce an employee's eligibility for regular EI.

Record of Employment

A Record of Employment (ROE) must be provided to each employee who will be participating in the WS program. A ROE cannot be issued until the employees have completed their shifts up to the start date of the agreement. The reason for issuing the record should indicate "Code H, Work-Sharing".

Consider Statutory Leaves of Absence

Before an employer considers laying off any employees, it is critically important that they consider whether some or all of their workforce is subject to a form of statutory leave. Statutory leaves provide employees with a job-protected leave of absence, which in some provinces will involve a continuation of benefits during the leave. Employers may not be able to effect a layoff in those cases unless the legislation specifically enables them to.

If an employer is planning a layoff, and employees are subject to a form of statutory leave, employees should first be given the option of commencing an available leave.

Our company may need other options to curtail operations. Can we temporarily lay off workers?

In some circumstances, a temporary layoff may be the best (or only) option. But it requires careful consideration of the risks and context of the decision.

The main risk to employers in effecting a layoff is that, unless there is an express provision allowing a temporary layoff in the applicable employment or collective agreement, there is a possibility that it could be deemed to be a constructive dismissal under the common law. Of course, it is yet to be determined how courts will interpret the scope of an implied right to layoff in the context of the COVID-19 pandemic. It is possible that courts and tribunals will be more lenient when it comes to providing flexibility to employers trying to do their best in the circumstances. Unfortunately, this will be determined only months after the worst of the pandemic is over, and with the ability to consider the issues when the dust is more settled and with the benefit of hindsight.

If the employee is found to have been constructively dismissed, they will be entitled to claim all termination entitlements as if they had been terminated without cause, including possibly common law reasonable notice (subject to their requirement to mitigate their damages).

While the discussion in Québec as to whether a temporary layoff constitutes a constructive dismissal has been subject to some debate, a 2016 decision of the Court of Appeal confirmed that it does not. Moreover, to the extent that the Québec Government continues to enforce the closure of non-essential businesses, this may constitute a force majeure such that the layoff may not be a constructive dismissal in this context.

If effecting a temporary layoff, it is important to first consult with an employment lawyer about the availability and impact of this option.

Do employees receive some form of partial pay during a temporary layoff?

For details regarding employment insurance benefits and other possible options, please refer to our post on employment insurance and other supplemental benefits. It is important not to make any definitive representations to employees about their eligibility for EI benefits or any other source of government assistance in response to COVID-19.

To learn more about workplace strategies for communicable illnesses and handling COVID-19 in your workplace, please contact a member of Gowling WLG's Employment, Labour & Equalities Group.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.