Our Workplace Law Group is regularly receiving questions about employers needing to reduce their workforce during this difficult time.  These questions tie into several of our recent blog posts about the different options available to employers.  Here is a quick summary of those questions and our condensed/summary answers.

Question 1- what are my options for reducing my workforce/payroll costs because my business has declined during this COVID-19 crisis?

Option 1 – Keep people employed using the wage subsidy program. 

Even if employers have significantly reduced revenue, or have virtually shutdown during the COVID-19 crisis, they can keep their employees on the payroll and apply for the employer subsidy that was announced by the Canadian government on Friday March 27, 2020.  More details were announced on March 30 and summarized on our blog.  More details are expected on April 1st and will be summarized on our blog.  Basically, the government is trying to provide incentives for companies to keep their employees on the payroll rather than everyone being laid off or terminated and applying for EI.  The full criteria (so far) are noted in our blog posts, but employers qualify for the wage subsidy if they have suffered at least a 30% loss of revenue.  The wage subsidy program means that employers keep paying their employees and the government will pay them for 75% of the wages up to a maximum of $847 per week for each employee.

If an employer qualifies for the wage subsidy, employers can still choose whether to continue paying 100% of their employees’ wages even though the government will only subsidize 75%.  Employers can ask employees to agree to a reduction from 100% to 85% or 75%, etc.  If an employee does not agree, it may be considered a constructive dismissal if an employer unilaterally imposes the reduction.  The employee would have to give up their employment and commence a legal action to pursue the constructive dismissal argument before the courts.

The wage subsidy is less helpful for employers trying to address employees who earn well over $60,000 per year.  Even with the wage subsidy program, there is a large portion of their salary that will not be subsidized.  As above, employers can choose whether to pay the remainder of their salary to top them up to 100%.  If that is not a realistic option due to decreased revenue/cashflow, employers can ask the employees to agree to reduced hours/rate on a temporary basis as a means of keeping them employed.  If the employee does not agree to the reduction and the employer imposes it unilaterally, it may be considered a constructive dismissal.   As above, the employee would have to give up their employment and commence a legal action to pursue the constructive dismissal argument before the courts.

Option 2 – EI Programs (Workshare/SUB)  

The employer and the employee could apply for the federal “EI Work Share” program if they have reduced hours available for several of their employees to share.  This program allows employees to receive payments from EI to “top-up” their reduced workload and salary.  For further details about this program, see our blog post on March 23, 2020 and the official website (https://www.canada.ca/en/employment-social-development/services/work-sharing.html) .

Similarly, the employer and employee could apply for the federal EI “SUB” program.   This program applies where an employee is not working (e.g. laid off due to lack of work) and the employer wants to provide some payments to the employee in addition to their EI compensation (without triggering a repayment obligation).  For further details, see our March 23, 2020 blog post and the official website (https://www.canada.ca/en/employment-social-development/programs/ei/ei-list/ei-employers-supplemental-unemployment-benefit.html).

Practically speaking, both of these EI program options are less attractive now that the Canadian government has announced its 75% wage subsidy program.  However, there may be some unique circumstances where these programs still apply.  For instance, not all Canadian businesses will qualify for the wage subsidy program even if their revenues are reduced.

Option 3 – Temporary Lay-off

Technically speaking, there are only a few circumstances where a temporary layoff is allowed and not considered a termination.  If there is no explicit right to a temporary layoff in the employment contract, often the only applicable scenario is if the employee agrees to the temporary layoff.  In that scenario, the employer would issue a Record of Employment and the employee would then likely apply for EI.  As noted, the maximum EI entitlement is $573 per week, which will be far less than many employees will have been earning.

Practically speaking, temporary lay-off may not be the best option for employers who qualify for the wage subsidy program announced by the Canadian government.

Option 4 – Termination

If none of the above options apply, the other option is to terminate the employment relationship.  Some employers may attempt to rely on the doctrine of frustration due to the intervening COVID-19 crisis; this may negate the employer’s obligation to provide notice or payment in lieu of notice.  Otherwise, if frustration does not apply, the termination would likely be a termination without cause due to shutdown or lack of work and notice or payment in lieu of notice would be owed to the employee.

Question 2 – What if I have already reduced my workforce due to the COVID-19 crisis?  Can I re-hire my employees? 

Now that the Canadian government has released some details of the wage subsidy program, employers who qualify for the wage subsidy program can plan to re-hire their employees who were recently laid off or terminated.   This will then provide the employees with 75% of their wages (up to the maximum of $847 per week).  This should be more than they are receiving from EI (55% of their wages up to a maximum of $573 per week).

The government options available for employers and employees are changing rapidly, and the above options will also change rapidly as a result.  The answers also depend on the circumstances for each employer.  We encourage employers to seek legal advice about the rapidly changing landscape and the best option for their circumstances.


Have more questions about Canada’s COVID-19 pandemic and how to manage it in the workplace? Contact Scott Marcinkow at smarcinkow@harpergrey.com or anyone else from our team listed on the Authors page.