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COVID-19 workforce planning and temporary reductions

As a result of COVID-19, many early stage employers will experience significant impact to their sales forecasts and revenue will stall. It may be difficult to focus on the recovery period that will be sure to follow this challenging time, but it’s critical to do the work to forecast and run scenario analysis before making decisions. If you do determine that temporary workforce reductions are absolutely necessary, be clear on your options and carefully plan the path forward. It is all too easy to trigger constructive dismissal claims or make other costly mistakes which will further negatively impact employees and damage your employer brand. 

This guide is intended to help you make smart decisions quickly and provide additional considerations for you and your leadership team to determine the best course of action for your business. 


Are reductions necessary? 

This is the most difficult question you will have to answer. Before making the call, consider all the potential alternatives and do the math on short-term and long-term impacts on payroll. Remember, reductions come at a price and it’s not certain yet how quickly you may be in a position to ramp back up. 

  • Involve the team in cost reduction measures. You hired smart people, ask for their input. 
  • Reduce or eliminate contractors before considering any impact to permanent employees. Bring all the work in house. 
  • Re-negotiate with vendors and suppliers where possible. What non-essential services and related expenses can you cut?
  • Contact creditors to find out if it’s possible to reduce interest or other fees. 
  • Are there any cyclical expenses you could postpone or cancel? i.e. membership or subscription fees, ongoing office costs.
  • While you cannot ask an employee to take unpaid leave, you can put the idea out there that you would be open to having people take voluntary unpaid leave / sabbatical if they would like to do so. 
  • Any salary reductions being considered need to take place at the very top. Is your founder or CEO willing to volunteer for a temporary pay cut? (Note, you cannot reduce wages of employees without risking a constructive dismissal claim)

Are temporary layoffs an option?

The Employment Standards Act addresses layoffs, however it is important to understand that in many cases employers cannot temporarily layoff an employee unless their employment contract stipulates conditions that are agreed to by the employee at the time of hire. So if you are thinking about a temporary layoff, chances are you are going to need to go in a different direction or risk legal fallout that will end up costing you far more than you hoped to recover. Check in with your legal counsel as a first step. 

If you are able to conduct a temporary layoff, keep in mind the requirements around the length of layoff period, which vary provincially. If the lay off goes any longer, the employee will be entitled to termination entitlements. Issue a Record of Employment right away so your employee can apply for EI. 

Work-Sharing 

The Government of Canada has enacted special measures to help mitigate layoffs due to COVID-19. If your business is experiencing a temporary reduction in the normal level of business activity that is beyond your control, you can apply for work-sharing, which enables your team to share the available work and access EI benefits as a result of the reduction in work hours while still being paid part of their salary. Please consult the full details online

Terminations 

Unfortunately, some employers will be left with no other options but to terminate employees due to this sharp economic downturn.  It’s not an option to simply stop paying employees temporarily. Termination provisions outlined in your provincial Employment Standards Act must be adhered to, so make sure you are meeting the minimum requirements (if not more).

If it is your intention to bring these employees back when you are able, say so. Offering guarantees is not advisable, but let people know that you want to see that happen. While it is especially difficult to consider performance or redundancy related terminations in times like these, consider any tough people related decisions you were planning on making in advance of the pandemic. If you were already planning to act on these situations and are now forced to reduce payroll, perhaps this is where to start. 

Please note: MaRS has assembled this information to provide general guidance.The authors are not rendering legal advice or services and this should not be used as a substitute for consultation with your legal advisors. 

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