Key legal considerations for managing the fallout from COVID-19

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By Barbara Green and Philip Holdsworth
Robins Appleby LLP

COVID-19 is causing the largest disruption to the Canadian economy, potentially in a century, with millions of individuals and companies applying for the various government programs. Business owners across Ontario are looking for ways to temporarily cut costs to protect the long-term viability of their business as customer demand has weakened and supply chains have dramatically slowed. Here are four high-level tips covering the legal issues employers will face over the coming weeks and months:

1 Obligations and best practices for keeping employees safe

Employers in Ontario have a legal obligation to take every precaution, reasonably available in the circumstances, to protect their employees, their customers, and the broader public. When dealing with COVID-19, and pursuant to the advice and direction of the Chief Medical Officer of Ontario, this involves employees self-quarantining if they have exhibited symptoms, have been in close contact with someone exhibiting symptoms, someone diagnosed with COVID-19, or someone recently arrived from international travel, particularly countries hard hit by the virus.

Canadians have also been instructed to self-quarantine for 14 days following arrival from international travel, and employees returning from business or personal travel will be under this same obligation.

Employee privacy rights permit an employer to collect information from employees that is reasonable in the circumstances. To ensure the health and safety of all employees, in the context of COVID-19 an employer can reasonably require an employee to disclose the above information, and direct employees to take the appropriate steps to protect the health and safety of employees, including taking emergency sick leave.

The Ontario government amended Section 50.1 of the Employment Standards Act on March 19, 2020 changing the scope of the Emergency Leave provisions. The amendments permit an employee to take unpaid leave in situations where they are under medical investigation for COVID-19, are acting in accordance with an order under the Health Protection and Promotion Act, are self-isolating in accordance with public health information and direction, or at the direction of their employer. It also permits employees to take unpaid leave to care for a family member in such situations.

If an employee is refusing to work or perform particular tasks because they believe the work constitutes a danger to their health and safety, an employer cannot force the employee to continue working. Where an employee exercises this right, the Occupational Health and Safety Act prohibits employers from disciplining or terminating the employee.

In the context of the COVID-19 pandemic, best practice supports employers taking a transparent and collaborative approach with employees, identifying risks with and to employees, and putting in place operating procedures and practices to keep employees and customers safe.

2 An employer’s ability to temporarily lay off employees

If you are directed to, or independently make the difficult choice to drastically reduce business operations, or close entirely, requiring you to temporarily lay off employees, here is what you need to consider.

The terms of your employment contract with your employee, if there is one, will govern. If the contract includes provisions permitting the employer to temporarily lay off the employee, the terms and specific language of that provision will be determinative. You should speak with a lawyer to discuss how such a provision applies in the current circumstances.

The Ontario Court of Appeal has held that a unilateral layoff by an employer is, absent a provision in the employment contract, a substantial change in employment, and that it therefore constitutes a Constructive Dismissal.

While the Employment Standards Act includes provisions for temporarily laying off employees, these provisions function as limits on the right of employers to contract with employees to be able to temporarily lay them off. An employer has no right to impose a layoff either by statute or common law, unless that right is specifically agreed upon in the employment agreement. The fact that a layoff may be conducted in accordance with the ESA, does not generally mean a court will not find Constructive Dismissal. This lack of a right at law, absent a contractual right, to layoff an employee, applies even where the employer does not mean to repudiate the contract.

As a practical matter, the provisions of the ESA mean that a temporary layoff in accordance with the temporary layoff provisions under the legislation will not trigger statutory termination of the employee, and will not immediately require the employer to pay applicable statutory severance pay.

An employee’s right to claim Constructive Dismissal in response to a temporary layoff due to COVID-19 is a common law right. This means it must be exercised by initiating a proceeding in Superior Court. Any employee choosing to pursue this right also has an ongoing obligation to mitigate the damages they suffer from being laid off, which will include accepting recall to their existing position. Employees also have an obligation to notify their employer that they are treating a notice of temporary layoff as a Constructive Dismissal. From an employee’s perspective, pursuing a Constructive Dismissal claim is likely to be expensive and risky, given the unprecedented economic circumstances.

Best practices support taking a cooperative approach with employees, to weather the economic downturn caused by COVID-19. While employers can obtain the agreement of employees, to a temporary layoff, such agreement is not required. Communicating to employees your intention to recall them as soon as possible, committing to giving them notice of a return date when available, and informing them of the employment support available will all help avoid these difficult decisions turning into litigation disputes.

If your business is remaining open, various work schedule arrangements can be reached with employees to temporarily lay them off, including rotating the maximum 13 layoff weeks under the ESA within the 20 consecutive weeks permitted (or the longer period as permitted), and maintaining various supplementary benefits.

3 Agreeing to a federal workshare program with employees

The federal government has announced changes to the federal Work-Sharing program as part of its COVID-19 response.

Work-Sharing is an adjustment program designed to help employers and employees avoid layoffs when there is a temporary reduction in the normal level of business activity that is beyond the control of the employer.

The new changes allow employers and employees to temporarily reduce their hours to cover downturns caused by COVID-19 for up to a total of 76 weeks and waive the mandatory waiting period for eligibility.

To qualify for the Work-Sharing program, employers must have been in business in Canada for at least two years; show that the work shortage is unavoidable, temporary and unexpected (and not related to a seasonal downturn); prepare a recovery plan showing how the business will be maintained for the duration of the agreement; not be undergoing a labour dispute; and have the agreement of the employees.

The reduction in work hours can vary from week to week, but must be between 20 and 60 per cent on average, meaning from one to three days a week, for the duration of the agreement, which can last from six to 76 weeks.

Employees being proposed for a Work-Sharing agreement must:

  • Be “core employees” (that is, year-round permanent full-time or part time employees who are required to carry out the everyday functions of normal business activity);
  • Be eligible to receive Employment Insurance benefits, and;
  • Agree to a reduction of their normal working hours in order to share the available work.

Eligible employees can receive regular EI benefits for the days they are not working, and do not have to serve a waiting period.

On March 27, the federal government announced it would expand the temporary wage subsidy for businesses it had previously announced, from 10 per cent of employee wages to 75 per cent, on the first $58,700 of an employee’s pay. This means eligible employers could receive up to $847 per week per employee, retroactive to March 15, 2020, to keep employees on payroll.

4 What support is available to employees?

Employees who are eligible can claim Employment Insurance during this period of temporary layoff. In response to COVID-19, requirements for EI eligibility are continually being changed.

Employers should be aware that earnings paid by an employer while they are collecting benefits under a federal employment insurance program can be deducted from the benefits they receive.

Ottawa has also introduced the Canada Emergency Response Benefit (CERB), which will provide $2,000 a month for up to four months for workers who lose their employment due to COVID-19, regardless of eligibility for EI. Employees that have already applied for EI or are already receiving benefits do not need to reapply, and eligible employees can still apply for EI.

If you are considering making substantial changes to your business operations and workforce arrangements, you should review the provisions of your employment contract and speak with an employment lawyer about best practices for managing your legal obligations with employees.

Barbara Green is a commercial litigator and partner at Robins Appleby LLP, specializing in compensation packages for C-level executives.

Philip Holdsworth is an associate at Robins Appleby LLP, specializing in civil and commercial litigation.