How to Prepare Your Business For the Second Wave

Canada’s labour market is soon to experience the impact of the second wave of COVID-19. For many employers, this requires a delicate balance between their obligations as employers and as business owners. Given the likely shifts in the labour market that the second wave will cause, we thought we would respond by reviewing some key terms of the employment relationship and how businesses can prepare.

Firstly, and for those employers who are employing a workforce without properly drafted employment agreements, we strongly encourage you to get in touch with us to discuss the exposure the business may incur. Our firm has written about the importance of properly drafted employment agreements in our latest resource, “The Document That Could Save You Thousands: Employment Agreements 101”.

Specifically, and below, we address certain circumstances employers may be facing now, or soon into the future, with the second wave of COVID-19.

1. Rules related to temporary layoffs

Often used interchangeably, “layoffs” and “terminations” are two distinct legal concepts when it comes to employment law in Ontario. A layoff is a mere temporary cessation of work, which occurs when an employer reduces or stops an employee’s work without terminating their agreement. A layoff exceeding the applicable temporary layoff period will be deemed a termination of employment. A termination, on the other hand, is where an employer irrevocably breaks its contract of employment with an employee, which invokes the obligation of the employer to provide the employee with severance pay.

Given the expected spike of temporary layoffs into the second wave, employers should be reminded of the rules.

In Ontario, a temporary layoff can last for a maximum of 13 weeks in any period of 20 consecutive weeks, or 35 weeks in any period of 52 consecutive weeks where certain conditions are met (i.e. where the employee receives supplementary unemployment benefits or remains on the group benefits plan).

One aspect that many employers and employees are surprised to learn is that employers do not have an automatic right to lay off employees, either under the common law or the Ontario Employment Standards Act, 2000 (the “ESA”). Accordingly, if an employer is forced to layoff an employee, two options may be available:

Option 1: Provided the employer has made certain temporary layoffs are included within the employment agreement, and such has been brought to the attention of the employee, the employer may rely on the employment agreement and invoke the temporary layoff provision;

Option 2: If the employer has failed to include a temporary layoff provision within the employment agreement, something which is fairly common, the employer will have to seek the employee’s consent to the layoff, or else risk constructive dismissal (subject to recent legislation discussed below).

2. Legislation impacting temporary layoffs

Based on the surge of temporary layoffs during the first wave of COVID-19, Ontario enacted legislation, specifically Regulation 228/20: Infectious Disease Emergency Leave (the “Regulation”), which made a number of changes to the ESA – most notably freezing the ordinary 13-week layoff. In effect, this Regulation has taken away some of the financial pressures facing employers while allowing laid off employees’ the opportunity to access emergency funding such as the Canadian Emergency Response Benefit (“CERB”).

The Regulation established that neither a COVID-19 hours reduction nor a COVID-19 wage reduction will constitute a layoff or a constructive dismissal under the ESA. Originally set to expire in September 2020, the Regulation has been extended to January 2, 2021. One caveat to point out for employers is that employees who have been laid off, or had their hours/wages reduced, still maintain rights under common law, and the Regulation does not prevent employees from making wrongful dismissal claims. Additionally, and while the Regulation provides statutory protection to employers who seek to impose hours and/or wage reductions as a result of COVID-19, it may not entirely eliminate the risk of common law constructive dismissal claims. Employers should be prepared that following the expiration of the Regulation in early January 2021, workers will be entitled once again to claim constructive dismissal should they not be returned to their pre-pandemic hours and salary.

For employers who are contemplating temporary layoffs within their workforce, we strongly encourage you to reach out to experienced employment counsel so as to avoid common mistakes and pitfalls.

3. Bracing for potential financial impact

Following Ontario’s lockdown measures instituted in March, approximately two-thirds of businesses reported some sort of interruption to their supply chain and/or unexpected hit to their revenue. If Ontario moves back into a modified lockdown – or even back into full lockdown – businesses will need to have their contingency plans ready.

Employers should assume that a modified lockdown scenario may happen and plan for the necessary financial implications. This could include finding additional revenue streams, increasing online services or store front pick-up arrangements, developing relationships with alternative supply chains, and unfortunately, considering staff reductions if necessary.

4. Prepare for the second wave

Preparations for the second wave are key to any successful and forward-thinking business. What preparations are necessary will depend on the nature of the business, the industry in which it operates in, and the impact of any future COVID-19 lockdowns. Employers should take steps now to make sure they can mobilize quickly and make necessary decisions in the event of another shutdown. Employers may want to consider designating a primary lead for COVID-19 response and communication to ensure a consistent and comprehensive message is delivered.

Immediate steps business owners/employers should discuss with their legal counsel:

1. Review business contingency plan;
2. Review compliance with the latest COVID-19 health guidance and occupational health and safety legislation;
3. Discuss the appropriate laws and procedures related to layoffs should they be necessary (avoid common pitfalls and constructive dismissal claims);
4. Discuss updating employment agreements to include temporary layoff provisions; and
5. Discuss recent case law developments impacting the enforceability of termination and bonus clauses and review how these changes in the common-law might impact existing employment agreements.

Conclusion

Considerable uncertainty remains as to what the final months of 2020 and the beginning of 2021 will bring, however, one thing remains certain – businesses must continue to adapt and remain flexible to incoming changes and unexpected turns in the labour market. If businesses take heed of the above considerations, they will be better positioned when the next inevitable challenge comes knocking.

Get in touch with us today for a complimentary consultation to discuss your business.