Temporary Lay Offs are Not a Problem Free Solution

Signing Your Will in a Pandemic World
May 19, 2020
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Temporary Lay Offs are Not a Problem Free Solution

It’s no secret COVID-19 has drastically changed the business world. Self-isolation, self-quarantine, and social distancing are impacting revenues and with them, staffing needs. Many employers have resorted to unpaid temporary layoffs to keep the lights on but, lay-offs are not a problem-free solution.

Sections 62-64 of Alberta’s Employment Standards Code (Code) set out the rules for temporary lay offs. The rules allow employers to lay an employee off work without pay for up to 120 days (or potentially longer) without terminating the employment relationship. A temporary lay-off puts the employment relationship on “pause” until it is either terminated for good, or the employer “recalls” the laid off employee to work.

Temporary lay offs make sense for a lot of employers and employees. They preserve employment relationships, save employers’ cash, and laid-off employees are eligible for benefits programs like employment insurance (EI) or the Canadian Emergency Response Benefit (CERB). It is understandable why an employer would choose to lay someone off rather than terminate them, but that decisions exposes the employer to risk.

First, even though temporary lay-offs are permitted under the Code, the common law may view a “temporary lay-off” as a termination. That means a laid-off employee could sue his or her employer for constructive dismissal and seek damages or reinstatement. No one can say for certain how the courts and other decision-makers will view lay-offs in the context of COVID-19; it’s possible they will view them as dismissal.

Second, the Code sets strict time periods and deadlines for the duration of the lay-off period and recalling employees. Employers should be careful not to break the rules, because a misstep may expose them to a wrongful dismissal claim.

To make matters more uncertain, the Feds recently announced the Canada Emergency Wage Subsidy (CEWS). The CEWS program is intended to reimburse businesses for up to 75 percent of employees’ wages to a maximum of $847.00 per week, per employee. The goal of CEWS is to get people off EI and the CERB, and governments are encouraging employers to recall or rehire employees, including those who have been temporarily laid off. This begs the question: Does CEWS require employers to rehire laid off workers?

Laid off workers would almost certainly receive more benefit through CEWS than EI or CERB, but the program may not work for all businesses. CEWS is a reimbursement program. In other words, businesses are expected to pay employee wages from revenues, loans, or some other source of funds, and then receive reimbursement at some point down the road. Not all employers have the cash flow or revenue to absorb those costs.

Repayment of benefits is another complicating factor. Employees who have received EI or CERB benefits, are recalled, and then retroactively receive CEWS support, will be required to repay any “duplicated” benefits they have received. That may put some employees in a precarious position. For now, it is unclear how such repayments will work, and it remains to be seen what system the government will put into place.

Unfortunately, until we get more clarity on CEWS and from the courts, we won’t truly know the extent of employer risk due to COVID-19 related lay offs.

Staffing decisions are unlikely to get any easier in the coming weeks but, there are a few steps employers can take to be proactive. Most employers, regardless of size, can apply for CEWS provided they meet eligibility requirements. Employers should conduct a year-over-year review to confirm whether they have experienced a 30% decline in monthly revenue and therefore qualify for support. If the business qualifies for support, and it can afford to pay the 25% employee wages not covered by CEWS, the business should apply and start considering who to recall. It remains to be seen whether employers will be liable for failing to recall employees if they could have, so err on the side of caution.

At the same time, employers should review their staff compliment and obtain legal advice on their exposure to wrongful dismissal claims. It may not be possible to recall all staff, but employers can make strategic decisions on who to recall in order to preserve relationships and limit liability.
All employers should also implement a system for tracking dates to recall employees or end the temporary lay-off. Employers should avoid inadvertently terminating employment relationships merely by missing an important deadline. Employers should record the first day of each employee’s lay-off, the 60th day of the lay-off, and schedule reminders that give them enough time to issue recall notices or communicate with employees about extending the lay-off period. If employers want to extend the time period of the temporary lay-off, they should immediately consider developing a package or proposal for laid off employees that will lawfully extend the lay-off period without resulting in termination.

COVID-19 has given employers and employees a lot to think about. If there is a silver lining here, it’s that many of us now have more time than usual to consider options, prepare plans, and strategize. Given the risks associated with temporary lay-offs, I do not recommend employers become complacent and take a purely “wait and see” approach. Review the benefits available to you and make the decisions that minimize legal exposure.