Northern Exposure

It’s not you, it’s the economy: making difficult employment decisions during a downturn

by Kyla Stott-Jess and Claire Himsl

In the face of an economic downturn, some employers across Canada are being forced to tighten their belts and make hard choices about workforce downsizing. However, what may initially begin as a cost-cutting exercise can quickly turn into a legal quagmire if the process is not executed properly and with sufficient advance planning.

The following provides a brief overview of some of the issues employers should consider when contemplating a downsizing. The bottom line, however, is this: A bad economy doesn’t provide employers with an excuse to ignore their legal obligations.

Mass terminations

The termination of multiple employees within specific time frames may trigger reporting obligations to federal or provincial authorities as well as enhanced notice requirements to the affected employees under the applicable employment standards legislation. Some of the specific circumstances that trigger these requirements are as follows:

British Columbia: 50 or more employees at a single location terminated within any two-month period.
Alberta: 50 or more employees at a single location terminated within a four-week period.
Ontario: 50 or more employees at the employer’s establishment terminated within a four-week period.
Quebec: 10 or more employees terminated within an eight-week period.
Federal: 50 or more employees terminated within a four-week period.

Employers that are contemplating actions that will trigger a mass termination in their jurisdiction are advised to seek legal advice well in advance to ensure they meet all applicable legal requirements. Failure to meet notification requirements or enhanced notice obligations can result in costs and penalties in an already tight economic situation.

Rollbacks and constructive dismissal

When budgetary constraints get tighter, employers are often faced with a choice between terminating employees or requesting that they take voluntary reductions in salary, benefits, or hours. The biggest risk in asking an employee to accept a rollback is that the employee will refuse the rollback and will instead file a legal claim for constructive dismissal. In such a claim, an employee would seek damages similar to those available in a without-cause termination scenario.

While it’s difficult to completely avoid the risk of a constructive dismissal claim when implementing rollbacks, the risk can be lowered if the rollbacks are spread around. For example, if everyone at the company is asked to accept a 10 percent rollback and the universal nature of the requested rollback is widely communicated, there may be less risk than if an employer asks only the employees of one department to accept a larger 30 percent rollback.

In addition, employers can benefit from providing employees with advance notice of any rollbacks and asking them to accept the changes in writing. Even if an employee fails to sign off on the changes, if he or she continues to work for the employer without protest for a period of time post-rollback, a court may find that the employee acquiesced to the changes.

Mass terminations and protected leaves of absence

If an employer is proceeding with a mass termination, is it prevented from considering the termination of employment of employees who are on maternity or disability leave? While human rights legislation in every Canadian jurisdiction prohibits employers from discriminating against employees on certain protected grounds, such as sex and disability, the mere fact that an employee belongs to a protected group doesn’t necessarily insulate the employee from termination.

Maternity/parental leave: Generally speaking, employers may not terminate or lay off an employee who has started his or her maternity or parental leave or is entitled to take such a leave. There are certain exceptions, however, and employers should contact their legal adviser for details.

In Alberta, for example, if an employer undergoes restructuring while an employee is on leave and the employee’s position no longer exists at the end of the leave, the employer isn’t required to create a new position for the employee when he or she is ready to return from leave. Rather, the employer can terminate the employee as long as it provides the appropriate notice or pay in lieu of notice.

Employers should keep in mind, however, that if operations resume and the employee’s former position is again required prior to the expiration of the employee’s leave, the employee on leave will be entitled to return to it.

Disability leave: As with maternity and parental leave, employees who are on disability leave are not immune from mass terminations. However, when an employer is eliminating the position of an employee on a disability leave, certain precautions must be taken. In particular, the employer must consider the potential for a human rights complaint.

To best protect against a human rights complaint, employers should ensure that the reasons for the employee’s termination are in fact due to the restructuring or elimination of the employee’s particular position. Further, the employer should ensure that the employee isn’t being selected for downsizing in any way that is connected with his or her disability. Given that the analysis to be applied in these cases can become quite complex, employers are advised to seek legal advice on a case-by-case basis.

Takeaway

Even when times are tough, employers must continue to meet their legal obligations to employees. Careful analysis and advance planning relating to any workforce downsizing or restructuring can help to avoid legal issues and keep costs contained.