Wage Cuts, Layoffs and Covid-19
It is becoming a cliché to say that the economic freeze brought on by the coronavirus pandemic has been hard on Ontario businesses and employers. Mandatory closure of many businesses, social distancing and decreasing demand for many products and services is bringing many businesses to their knees.
Employers are facing herculean challenges in order to keep their businesses afloat during this pandemic and have only scarce and difficult options for doing so. Many employers simply do not have the cashflow to keep their staff employed at pre-pandemic levels and see their only option to avoid shutting down their business as laying off staff or reducing their wages. However, many employers are rightfully uncertain if they have the right to lay staff off or to reduce their wages.
Generally speaking, unilaterally choosing to reduce and employee’s wages would be considered constructive dismissal. If an employer independently decides to make a significant change to one of the fundamental terms of an employee’s contract – such as reducing their wages – the employee has the option to regard their contract as being terminated and sue for wrongful dismissal.
However, under the difficult circumstances brought on by COVID-19, employers can consult with their employees to see if they would be willing to take a temporary wage reduction so that they can continue to be employed instead of laid off or terminated if the business does not have the financial resources to continue paying them.
Laying Off Employees
Absent an enforceable clause giving your employer the right to temporarily lay off employees in your employment contract, most employers do not have the right to temporarily lay off their employees, even during the coronavirus pandemic. Generally speaking, a temporary layoff is considered a serious breach of contract that an employee may take as a constructive dismissal if the right to lay off an employee is not stated in their employment contract.
Takeaway for Employers
While it is possible that some employees might accept a temporary reduction in their wages or even a temporary layoff, employers should be weary of pursuing either option without a clause in their employee’s contract that gives them the explicit right to do so. It is difficult to say how a court would take into consideration the extreme circumstances of the pandemic in the event that an employee should bring forth a constructive dismissal suit, however, employers should know that the odds would not be in their favour.
Fortunately, the Canadian Government is offering some support to businesses in the form of the Canada Emergency Wage Subsidy (CEWS) program as well as a 10% wage subsidy. CEWS covers 75% of an employee’s wages up to $847/week for all employers who have seen a loss of revenue of at least 15% in March and 30% in April and May. The 12-week program runs from March 15 – June 6. Additionally, CEWS eligible employers are entitled to a 100% refund for certain contributions to filings such as EI and CPP.
The temporary 10% wage subsidy is also a three-month program but it is for individuals, partnerships, non-profits, registered charities, Canadian-controlled private corporation that are eligible for the small business deduction. You can find more information about the wage-subsidy programs here.
If you have questions about your rights as an employer to lay off or reduce and employee’s wages in relation to the ongoing COVID-19 pandemic, call the employment law experts at KCY at LAW today: 905-639-0999 or book your consultation online.