Torys Business Brief: Employment issues in the COVID-19 crisis

| Rudyard Griffiths

Torys Business Brief focuses on key issues and actionable knowledge for businesses to emerge from the COVID-19 crisis resilient and well-positioned for the future. Each episode of Torys Business Brief features in-depth, accessible interviews with Torys lawyers, moderated by Munk Debates convener Rudyard Griffiths. These episodes are accredited for CPD purposes.

Having now moved through the early stages of managing the COVID-19 crisis, business leaders are confronting ongoing issues around employment. In this podcast, udyard and partner Lisa Talbot discuss aspects of Canada’s framework of relief and support for employers during the crisis, options for reducing payroll and how businesses can position themselves now ahead of recovery from the pandemic.

A full episode transcript follows.

Rudyard Griffiths (00:02): Hello, and welcome to Torys Business Brief, I'm Rudyard Griffiths. You may know me as the convener of the Munk Debates, where we bring together the world's sharpest minds and brightest thinkers to debate the top issues of the day. As the moderator of Torys Business Brief, my role is to provide you, the listener, with compelling conversation about the legal challenges that COVID-19 pandemic presents for businesses and business leaders.

We're all just now beginning to take stock of the effects the coronavirus pandemic is having on a global scale. As the world continues to respond, businesses have wide-ranging issues to consider.

Clip of Prime Minister Justin Trudeau (00:39): Over the past weeks, you've had to get creative to keep money coming in. And in some cases, you've had to make the difficult decision of letting your employees go.

RG (00:49): The broad social and economic impacts of the coronavirus pandemic cannot be understated. With that in mind, we are launching this podcast. This program will equip you with actionable knowledge your business can use to emerge from the crisis resilient and ready to thrive. To do this, I'll be drawing on the expertise and insights of the partners working at the firm named Corporate Law Firm of the Year by Chambers and Partners, Torys LLP.

(01:17): On today's Torys Business Brief, we focus on employment law for businesses and individuals as Canada braces for the economic fallout of the pandemic.

RG (01:53): We should start, then, with Lisa Talbot. Lisa is a partner in Torys’ Employment, and Litigation and Dispute Resolution practices. She has extensive experience in all aspects of employment law, and is the co-author of the recent Torys discussion paper, “COVID-19 And The Workplace: Reducing Payroll, Responding To A Positive Diagnosis, And More”.

Hi, Lisa, welcome to Torys Business Brief.

Lisa Talbot (02:18): Hi, how are you?

RG (02:19): Well. I'm looking forward to our call today. This is a nice distraction and opportunity to dig into some issues with you, that are certainly top of mind for many, and including myself. So, I appreciate this chance to talk.

LT (02:22): Absolutely. Thanks for the opportunity.

RG (02:35): Well, Lisa, one of the things that I certainly have been thinking about is what's similar and what's different from, from 2008? And you have that perspective, vis-a-vis your career. What are you seeing that's similar and maybe in some cases, why is that analogy not the right one?

LT (02:54): You know, in 2008, we were certainly dealing with the economic impacts. We, as a firm, were giving advice and guidance on workforce reductions, and ways to manage and plan around the economic downturn. And those were certainly very difficult times. But what we're living through with our clients now is, how do you plan when the impact to your business may be temporary, and when you don't know how long to plan for?

And, you know, when governments at all levels are pouring unprecedented monetary and fiscal stimulus into the system, and yet the details of those programs are being worked out as businesses are trying to plan in real time. That's a challenge that we were not facing for the vast majority of our clients in 2008. And then heaped on top of all of that is the fear of getting sick amongst people within the workplace, social distancing, isolation, it's transformed the way we're all doing work almost overnight. And it can also leave people feeling isolated, which is a reality that leaders have to manage right now. So, from my perspective, this situation really has no precedent and it really does require thoughtful decision making and really good communication by leaders.

RG (04:10): Well, you're also in an interesting position, in terms of the conversations that you've been having with business leaders and executives across the country as they confront these first weeks of the pandemic. What's the feeling that you're getting from those conversations? Is there a sense of panic? Is there, instead, maybe a sense that this is something they can manage through? Give us a kind of temperature check on the sentiment that you're getting back from Canada's corporate leaders?

LT (04:40): Well, we have some very talented corporate leaders in Canada, and I think that this is a moment in time when one may be inclined to panic. That would be understandable. But I've seen, in terms of the mood and the style of leadership, a real sense of, "Let's try to get our arms around what the impacts are, what our government's going to do. Let's not try to rush to judgment." And yet at the same time, they're seeing, or a lot of companies are seeing really significant challenges, principally, with respect to cashflow but also watching the bottom line.

(05:26): And I think, you know, the pandemic will hurt the bottom line of most companies. But right now, as we are in early days, as you and I are talking, it's the cashflow and liquidity issues that are really keeping people up at night. And that's after we've been through the initial stages of ensuring you've got health and safety measures put in place. That was the first issue. And, you know, then it was how do we get people set up to work from home effectively? We've gotten through all of that and now the concern, and what people are trying to solve for is cashflow and liquidity.

RG (06:03): Well, in terms of that conversation around cashflow and liquidity, a lot of what, no doubt, you're having to advise people on is payroll.

LT (06:11): Yep.

RG (06:11): So, what I thought we could do, Lisa, is spend a little time just exploring some of the options around kind of payroll management. I mean, this podcast is all about trying to position Canadian businesses now to make choices that prepare them to benefit, hopefully, from that big rebound that we think is coming. It may be a while. It maybe six months, it may be a year.

(06:36): But as you said, with all this monetary and fiscal stimulus pouring into the system, there is going be an upside. And, it's how do we position ourselves in terms of our workforce as to take advantage of that? So, let's clear the deck, so to speak, and start with termination. I mean it's a scary word, but a lot of people are thinking about it. What advice are you giving, and what are you seeing out there, in terms of the companies that you're dealing with, about how they're thinking about termination as a strategy to manage payroll?

LT (07:06): Well, there can be a natural tendency to go directly to thoughts of terminations, and that's understandable in certain circumstances. But, for the most part, what we're seeing is that that's not really where businesses are putting a lot of emphasis. Terminations are suitable when there is a long-term business issue. And certainly, for some businesses, they already know they've got a long-term business issue.

(07:36): But for a lot, as we were discussing at the outset, there's this question mark with respect to the length of the temporary situation that we may be in, and what life might look like when we go back to normal, so to speak. So, terminations don't help to preserve short-term cashflow. What I'm seeing, for the most part, is companies recognizing that the extent they're trying to solve for cashflow and liquidity, you're not going get an immediate cost savings because of severance obligations. And then you also have to be careful that you're not running offside human rights legislation. You know ensuring that terminations can't be perceived to be based on disability for employees who may be sick or based on discrimination for family status.

(08:23): If there may be an argument that an employee who is terminated has been dismissed because of requests for family status, accommodation to care for kids, and so on. So, there's all these legal issues and risks that need to be worked out, and yet, yet you're not getting the short-term cashflow assistance that companies are really looking for right now.

RG (08:42): That makes a lot of sense. Well, I want to spend some time on layoffs, because that is probably an option that most companies are thinking about, or possibly moving towards. But before we do that, let's jump into maybe some ideas that aren't widely circulated out there as tactics and strategies to respond. And one of them is the Federal Work-Sharing program for non-executive staff. I think that's a not well-understood initiative here, that could provide some interesting flexibility to employers, in terms of retaining workforce talent. Could you unpack a little bit for us just about how that Federal Work-Sharing program functions and frankly, some of the pros and cons associated with it?

LT (09:28): Sure, I'd be happy to. So the federal Work-Sharing program is an existing program. It's not a new program, but the length of the program, or the length of the availability of the program has been lengthened as part of the Government's COVID response. It serves as an alternative to temporary layoffs. The Work-Sharing program effectively allows for a three-party agreement between an employer, a group of employees who are similarly situated within an organization, and then the Federal Government through Service Canada.

And the way it works is that eligible employees would agree to reduce their normal working hours by the same percentage. So, you've got a group of employees, say you've got 10 employees who are all doing the same job. They all agree to reduce their normal working hours by say 20%, and then to share the available work. And then they also agree to share in the same decrease in their salary as a result of the reduced working hours.

(10:32): What it allows for is employers can continue to employ individuals who they might have thought they would need to lay off. They don't have to make those tough decisions, so they can reduce their costs and keep the staff on. Which allows businesses as well, who are expecting a pickup when things go back to normal to manage more effectively for that. But in the meantime, the benefit to employees is that they can collect employment insurance benefits in addition to their salary, albeit at a reduced level. The program has to have a minimum duration of six weeks, but because of COVID-19, can last for up to 76 weeks. So, an agreement, once in place between employer, employee and the Federal Government can allow for these reduced working hours, and then reduced salary payments, and the employees collecting EI at the same time for up to 76 weeks.

RG (11:36): Lisa, have you seen examples of these types of programs being put into place in an actual company that you've worked with? It sounds complicated. It sounds like this is something that may take a bit of time to get the pieces together, both with the employees, but then also with the respective government agencies that are going to kind of guide those agreements and provide the funding.

LT (11:59): Not yet, and for precisely those reasons. It's a program that I have alerted our clients to as they're talking through their options. And we've talked about the considerations with respect to the program. One of them being that there is an administrative cost, effectively, to this. And I don't mean a financial cost, but you have to identify a group of employees who are similarly situated. They all have to agree. And the big question mark is how quickly Service Canada is approving these programs that are allowing them to go forward with the benefit of employees collecting EI. And that's a question mark that we don't know yet based on anecdotal experience. On the pro side of the ledger, it does address the cashflow and liquidity issues. It does provide for a salary expense reduction which could be a great relief to employers right now. It allows for the employment relationship to be preserved. You can rely on it for up to 76 weeks, so the length of time is attractive. It avoids the layoffs. So, it's good for morale.

(13:20): And, you know, some of the legal risks that might be associated with layoffs, for instance, a potential constructive dismissal risk. Although the general feeling on that front is that that risk is lowered in these circumstances. But you eliminate that risk by entering into one of these agreements through the Federal Work-Sharing program. So, there are lots of good things about entering into one of these agreements.

RG (13:43): Okay, great. Well, to sum up our conversation so far, you're seeing a conversation around terminations, but not a movement on it. People are very conscious, obviously, that when you terminate employees, you incur real costs, in terms of severance. And, and those really don't go to fixing the challenge that a lot of the clients that you're working with are facing, which are liquidity and cashflow issues at this point. Something like the Work-Sharing program could be interesting to explore as a kind of part of the toolkit but there are some questions around that, in terms of how quickly Service Canada can deliver on this, and the extent to which those programs could be put into place.

(14:24): So, with that kind of summation, let's move on to what is the traditional technique that we use in businesses when we're faced with a sharp economic turndown. And that is layoffs proper. What's some of the best practices that you've seen over how people are starting to think about this, in the context of the last few weeks? Because we both acknowledge that this is an exceptional circumstance. And that you can't look at layoffs in terms of the normal kind of parameters, or lens that you might put on that. That there are some reputational risks here that executives need to consider for their businesses around layoffs.

LT (15:06): I would start by saying, and this is all unfolding in real time as you and I are talking, that the federal government is rolling out a federal wage subsidy program with the specific purpose of having companies avoid layoffs. A lot of companies are in the process of working on layoff programs, rolling out layoffs, as we speak, as the federal government is rolling out details with respect to this wage subsidy program. And so, this has made for a complicated week for a lot of companies. The news coming out of Ottawa is certainly welcome, but there are a lot of details that are yet unknown at the time that you and I are speaking that make it difficult for companies to really plan.

(16:00): But with respect to layoffs, if companies are not looking at the federal wage subsidy program as an alternative to layoffs and they are looking at layoffs, on the plus side, you're getting an immediate expense reduction in relief, employees can apply for EI. And employers, in an effort to address the morale issues that are associated with layoffs, which I can come back to, can apply for a supplementary unemployment benefits plan through the government.

RG (17:03): I want to be conscious of our time, but this podcast is really designed to provide business leaders with insights into how to manage for, as we say, not just the crisis but the opportunity, hopefully, that lies ahead in terms of the economic rebound.

(17:28): What are you seeing in terms of kind of best practices amongst the CEO groups that you're working with, the senior executives, in terms of how they're having these conversations internally, and some of the initial steps that they've taken. I think it's remarkable to see the number of corporate leaders that have come forward and voluntarily accepted pay cuts for executives, just showing leadership in the face of this crisis.

LT (17:56): I agree with that. I think that in considering layoffs, you want to set the stage through communication. And through demonstration that the business has considered and put into place other cost savings options first. On the communication side, my observation is that businesses that are communicating really openly about the impact of this pandemic on their business are getting greater buy-in to the tough decisions that they're having to make.

(18:26): Everyone knows that certain sectors and industries are being hit especially hard. There's no way to sugar coat that. You're not going to reduce the anxiety of your workforce by holding cards close to your chest. And we're seeing really honest and open communications where they're being very clear about the financial health of the company, what goals they're prioritizing, and avoiding empty statements that they can't live up to. Like, "We're going to put employees first." First of all, what does that mean? And secondly, we don't know what we could actually deliver here.

(19:00): That can be confusing and counterproductive. So, I find that companies that are avoiding that kind of empty statement, are getting better buy-in and they're being more specific. So, if the goal is, "We're going to make a series of changes swiftly to shore up job security," say that. It's important right now to be authentic, not to use spin, not to use fancy words. Speak the truth. If you don't know the answer, say you don't know. And then also providing support to employees who may ultimately be laid off. You know, "If we are laying people off, we're going to help our people navigate the system to claim government benefits." And making it easy for people to get the help that they need through government services.

RG (19:48): So, Lisa, what are the key kind of takeaways here for that senior executive, in terms of showing leadership around this crisis and managing that employment conversation within his or her enterprise?

LT (20:05): Well, first and foremost, executives need to lead by example here. There's just no way that leaders can have tough conversations with their people and say, "Look, we, we're looking to you to take a hit," without themselves taking a hit first, and without themselves taking, honestly, a bigger hit. It's an important precursor to either layoffs or salary deductions for staff that the leaders are taking a reduction in pay. So, most of the companies that I've been helping have been putting into place, really, a kind of declining scale, where the greatest hit is at the top.

(20:47): There are ways to soften the blow of compensation reductions for senior people. You could consider putting into place a retention bonus program that's tied to recovery goals, post-pandemic. So, there are ways to allow for that. But that's really key to have the more senior people taking the hit. And there are other ways that companies can look at payroll cost savings. And I think in order to have buy-in to some of these tougher decisions, whether they are layoffs, or salary reductions, or what have you, within a workforce, companies need to be able to demonstrate to their staff, "Look, we've looked at this from many angles, and we've looked at lots of different and creative ways to manage costs at this time."

(21:44): So, a number of things that companies can do: hiring freeze on non-income generating roles, salary increase freeze, ban over time to the extent that's possible. There may be certain sectors within, or certain parts of a workforce where they will need to work overtime. But otherwise put a ban on the working of overtime right now. You can look at vacation days, and people who are underutilized right now, have people take vacation days so that you're reducing your vacation pay costs later in the year. And then bonuses as well. Most of the companies that I've been speaking to in the last couple of weeks are reversing accruals for discretionary bonuses given their financial modeling. Some companies are also reversing accruals for production bonuses if they already have a good sense of the implications. For other companies, it's too early yet to do that. But being able to speak to a workforce after you have looked very carefully at all of the ways that you can manage payroll costs, before doing something that could have a real impact on people's livelihood is important.

RG (23:06): Yeah, critical. You know, Lisa, I get a sense, talking to you, of some cautious optimism there. That you feel that people are managing up to this challenge. That there are options before companies consider termination. And that maybe there's a reason to be hopeful.

(23:24): That in the face of a very exceptional fiscal and monetary response here, that while you're still no doubt going to be very busy in the weeks to months to come. That maybe it isn't 2008, to kind of go back to the beginning of our conversation, that there are some very different dynamics at play here.

LT (23:41): There are absolutely very different dynamics at play here. And what I'm seeing is really impressive leaders who are very compassionate, who care about the workforce. Who are transparent, communicative, they're leading by example. And they're also, as hard as it is to do right now, taking a deep breath and letting some time unfold, to really understand what is it that we're living through right now, and what do we need to do as an organization to allow us to be successful.

(24:17): And I also see some really inspiring moves from companies that are in difficult times. One is looking at the Four Seasons opening their hotel in New York to medical workers. Those types of initiatives aren't reducing their payroll costs, but really have a huge impact on morale for their employees. And terrific, I think, for brand association, because they're doing good in the face of crisis. And that's when leaders can really distinguish themselves. So, I'm seeing that kind of distinction in leadership. And I think there is, generally, a cautious optimism that we will get through this and get to better days. And it's not like 2008, things will roar back again. And in the meantime, just some very tricky decisions that need to be made so that we're prepared for when things do hopefully go back to relative normalcy.

RG (25:22): Well, Lisa, thank you for an insightful and hopeful conversation. I really enjoyed this time with you. And I know you've got not a lot of it between a busy practice, and an eight and a 10-year-old to manage there with your husband on the home front. So, thank you for coming on Torys Business Brief and sharing your wisdom with us. I greatly appreciate it.

LT (25:48): Thanks so much, Rudyard. It's been a pleasure.

RG (25:53): Well, that wraps up this episode of Torys Business Brief. For more of Lisa's analysis and insights into employment law and the pandemic, visit torys.com. Here you will find her discussion paper, “COVID-19 and the workplace: reducing payroll, responding to a positive diagnosis and more.”

(26:12): Our next podcast will be on managing contractual risk as an organization during the pandemic. We'll explore a host of issues, including force majeure, or the unforeseen circumstances that prevent someone from fulfilling a contract. My guests will be Torys lawyers, David Outerbridge and Jessica Lumière.

(26:54): Thank you for listening to Torys Business Brief. I'm your host, Rudyard Griffiths.
 
 

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