I started my legal career in September 2008, which coincided with an unprecedented economic collapse. I received a crash course in recession-related legal advice. I advised clients about everything from quick fixes to Hail Mary attempts to support their workers and save their businesses.
In the years since, I have told my younger colleagues war stories from the first year of my practice. But it wasn’t until the last few weeks that I had to dust off my old playbook and again discuss these urgent, drastic measures with my employer clients.
Some of these measures include:
- Temporary layoffs: Many people misuse the phrase “laid off.” Technically, under the ESA, a layoff is temporary. In contrast, a termination is a permanent end to employment. A temporary layoff can become a termination if the employer does not follow certain rules or does not recall an employee to work within the prescribed periods. In a true layoff situation, an employer expects to recall an employee (i.e. tell them to return to work) and then does so at a future date.
Layoffs are not common outside of manufacturing settings, and without prior authorization (in a written contract or collective agreement) or current consent, many courts have found that a temporary layoff is a constructive termination. (My sense is that the “constructive termination” approach will not be strictly followed given COVID-19.)
- Work-sharing: Employers who can still operate during an unexpected downturn but with reduced capacity should consider this program as an alternative to layoffs. Upon agreement between the employers and certain groups of its employees, and with approval from the government, employers can reduce the employees’ hours and have them share work. In exchange, the government will provide partial EI benefits to the employees with respect to the time that they are not working. In effect, the employees share jobs so that everyone keeps working, but at reduced hours and with some income support from the government.
- Consensual salary reductions: If an employer unilaterally reduces an employee’s wages, it could be considered a constructive termination, even in unforeseen circumstances like COVID-19. However, if the employee consents to a reduction, then there is no constructive termination. Some employers ask their executive team to waive their salaries for a period or to take a significant pay cut. Others will ask all their employees to accept reduced salaries (with or without a corresponding reduction in hours). These requests should be made with forethought and advice and must be papered properly.
Although it feels like it’s been forever, we are still early in the pandemic. We do not yet fully appreciate what the fallout will be.
But based on my experience in 2008, I know what we could be dealing with the following in the months to come:
- Terminations: I’m not talking out of school by saying that some employers will have to terminate the employment of some of their employees.
- Mass terminations: When a provincially-regulated business in Ontario is shutting down permanently or terminating the employment of more than 50 employees in a specified period, there are additional termination obligations and payments.
- Receiverships and bankruptcies: Despite all of the government assistance, there will be companies that cannot weather the storm, and are (or will become) insolvent. They or one of their creditors may seek to appoint a receiver, or they may apply for bankruptcy. This will leave employees with uncertainty and facing potential or actual terminations.
- WEPPA claims: The Wage Earner Protection Program Act provides protection to workers whose employers have filed for bankruptcy or are subject to a receivership. If the employer has failed to pay wages, vacation pay, termination pay or severance pay, the employee can make a claim to the government. WEPPA covers “eligible wages up to an amount equal to 7 times the maximum weekly insurable earnings under the Employment Insurance Act ($7,296.17 for 2020).” I suspect that WEPPA will be adjusted or enhanced in response to COVID-19. And, of course, WEPPA does not impact the potential personal exposure of directors for unpaid wages (see below).
The nature of the disruption caused by COVID-19 is much greater than that of the 2008 recession. There are a few issues that did not come up in 2008 that I’m anticipating this time around:
- Wage subsidy: The government has announced two wage subsidy programs – the Canada Emergency Wage Subsidy and the Temporary Wage Subsidy. These subsidies will be a game-changer for some businesses that still have revenue or resources to retain and/or top-up employees. For others that are closed and have no available cash to spare, the Canada Emergency Wage Subsidy will not be useable.
- Constructive termination: Many employers may act out of haste, and either:
- implement temporary layoffs improperly; or
- reduce employees’ hours or wages improperly.
Many employees will not object in the hopes that they can remain employed. Others may take the position that they did not consent or that the layoff/reduction was not genuinely related to COVID-19. I anticipate that there will be a new body of case law starting in 2021 regarding these claims.
- Frustration of employment: Certain employees may see their employment end due to “frustration” rather than a conventional termination. Frustration is when a “fortuitous or unforeseeable event or circumstance” causes one or both of the parties to a contract to be unable to honour it – i.e. performance becomes “impossible.”
In the context of COVID-19, this could mean that the employer is forced to shut down because it is not on the essential workplaces list and will not be able to open for a significant period. Another example is an employee who is hired for a short-term contract but is unable to provide services because they have full-time caregiving obligations due to school or daycare closures. These employment relationships may be deemed frustrated, in which case the employer does not owe the employee any termination entitlements under the ESA.
- Workplace safety and refusal concerns: To the extent that employers are permitted to remain open, there will be more complaints by employees about workplace safety. As employers start to recall employees and re-open, they may face work refusals by employees. It is our hope that the Ministry of Labour will provide more guidance to employees about when and how they can refuse to work despite reasonable COVID-19 precautions. Employers should be open to permitting unpaid leaves of absence to employees who are not willing to work, despite their investigations, so long as the concerns raised are genuine.
- Directors’ liability for unpaid wages: Although the 2008 collapse seemed fast, it was nothing compared to the speed with which COVID-19 has hit the Canadian economy. Businesses were able to manage a more coordinated slowdown in 2008, such that they were able to pay employees their outstanding regular wages (although not necessarily their termination pay and severance pay).
Now, there are many organizations that may not be able to fulfil their most recent payroll – i.e. they can’t pay employees for hours actually worked. Under the ESA and the Ontario Business Corporations Act, directors of the organization are jointly liable with the organization for up to six months of employees’ wages. As compared to 2008, when most “back wages” were paid up, there may be many organizations that owe wages to employees for hours worked.
- Challenges to “independent contractor” characterizations: Although the government has improved EI and other benefit protections because of the pandemic, there are still greater entitlements and protections due to employees than to contractors. There are many workers in the gig economy who may have been happy to be characterized as independent contractors pre-pandemic, but now that they are facing long-term revenue income loss, lack of safety protections, and outstanding payments, I suspect more will seek to characterize themselves as employees through claims to the Ministry of Labour and the courts. (That being said, the shutdowns affecting those institutions means that any adjudications and remedies will be delayed.)
The changes to public health recommendations and government directives and support are moving quickly. Employment lawyers and employers alike should look to their 2008 playbooks for guidance, but also consider the new legal landscape as they make significant decisions about their workforce in the months to come.
By Jennifer Heath, Partner & Co-Founder
 However, if the “frustration” is due to the employee’s illness or injury, they are entitled to their ESA minimum termination entitlements. Further, if the employee is entitled to a leave of absence, this may interfere with or delay the determination of a frustration.
- Heigh ho, heigh ho, it’s back to work we go – Employer return-to-work considerations in the post-COVID-19 era - May 19, 2020
- Dusting off the 2008 playbook to deal with COVID-19 and the workplace - April 14, 2020
- Sick with worry:An employer’s guide to managing coronavirus concerns in the workplace - March 17, 2020