6. Cost-Reduction Strategies
To what extent can employers implement the following cost-reduction strategies as a result of COVID, and what are the primary limitations on each?
In Canada, the terminology furlough is not commonly used. Instead layoffs are, by nature, temporary. For a full discussion on temporary layoffs, see section “Redundancy - layoffs” below.
- Salary reductions.
When an employer unilaterally reduces an employee's wages it risks a claim of constructive dismissal from the employee.
In determining if the reduction constitutes constructive dismissal, the courts will consider:
- A wage reduction that is not significant in relation to the employee's overall income and is accompanied by other increases will not likely result in a constructive dismissal.
- Whether the employment contract allows the employer to make unilateral changes to the employee's wages.
- Whether the reduction is temporary or permanent. There must be a valid, good faith, business justification for the change and the employee must also be told the change is temporary. The shorter the change, the less likely that the change will be considered constructive dismissal.
When COVID-19 effects begin to impact supply chains, employers may be considering temporary layoffs to save costs, or even permanently terminating members of its workforce.
- In unionized workplaces, collective agreements typically anticipate temporary layoffs and terminations, permitting employers to impose them within a negotiated framework that preserves seniority and job security.
- In non-unionized workplaces, layoffs are considered a constructive dismissal unless there is an express or implied term in the employment contract permitting their use. It remains to be seen whether a layoff in the context of mandatory COVID-19 workplace closures would be treated as a constructive dismissal by courts. It is possible that courts may find that an implied layoff term exists in the employment contract for such circumstances.
Where layoffs are permitted, they must be temporary. Minimum standards legislation dictates minimum requirements regarding notice, compensation during the layoff and the maximum duration of the layoff.
When the employer terminates:
- A unionized employee, the collective agreement will dictate seniority rights, bumping rights and termination entitlements.
- A non-unionized employee, the terminated employee will be entitled to statutory notice of termination (or pay in lieu), statutory severance pay (in some jurisdictions) and common law or contractual notice. Some jurisdictions have statutory termination notice exceptions where the termination is due to a business closure or unforeseen event. Statutory unjust dismissal protections may not apply where the termination or layoff is due to lack of work.
Mass/Group Terminations or Layoffs.
In both the unionized and non-unionized setting, if the layoff or terminations affects a group of employees, statutory group or mass termination obligations may arise. These obligations can include: advance notice of the group termination to the government; a few jurisdictions require the employer to implement a joint planning committee with its workers to address issues arising out of the group termination; and the employer will be required to provide its affected employees with group termination notice and/or individual notice in advance of termination.
Reprisals. Some jurisdictions are implementing job protection legislation during the COVID-19 pandemic. For example, Ontario has implemented a Declared Emergencies and Infectious Disease Emergencies Leave which prohibits reprisals against employees who take COVID-19 related leaves. Laying off or terminating an employee who takes such a leave may constitute a reprisal exposing the employer to potential liability.
Discrimination. Human rights claims can arise if the employer terminates the employment of an employee who has (or is assumed to have) contracted COVID-19.
- Facility closure.
All Canadian jurisdictions have declared a state of emergency or a public health emergency forcing the closure of certain businesses during the COVID-19 pandemic. Each jurisdiction has a unique list of mandatory business closures. To determine whether a business is permitted to open, employers must monitor the government websites for the provinces and territories in which their businesses operate. Where a business decides to remain closed, employers must comply with their duties with respect to layoffs and the accompanying obligations if those layoffs exceed the permitted statutory layoff period and are deemed to be terminations.