Some employers have benefitted from COVID and others have not. The federal government has supported the “have not” employers with a 75% wage subsidy. But it is scheduled to come to an end in September.
So I have been getting calls from employers who cannot maintain their workforce without these subsidies. Some owners have decided to shut down the business, some are selling the business, and others are planning to extend “temporary”layoffs or permanently layoff employees. This blog discusses some employment law issues in relation to each of these scenarios.
Closing a business
This usually involves terminating all employees which can be very expensive. In fact, the termination costs sometimes exceed the value of the business’ assets. In any event, termination costs reduce the amount of money the owner gets out of the business. One way to reduce or eliminate termination costs is to provide working notice to all employees. Some of my clients have provided up to 2 years working notice to their employees. A variation of this approach is to provide the employee with working notice of termination and a financial incentive to resign before the end of this notice period.
Selling a business
If the shares of the business are sold, then the purchaser steps into the seller’s shoes and the seller is generally not required to pay any termination costs, unless the seller is required to terminate employees before closing. Many businesses however, are sold by way of an asset purchase, which triggers a termination at common law on closing. Accordingly, issues that are almost always negotiated in an asset sale are (i) which employees will the buyer take on and (ii) whether the seller is responsible for any of the termination costs that are incurred after closing for these employees. The seller wants the buyer to take on all employees and any termination costs that are incurred after closing.
I think most employers will opt for layoffs when the wage subsidies end for various reasons.
At the moment, it is unclear whether a “temporary layoff” is a termination at common law. Before the COVID pandemic, the courts generally considered a temporary layoff under the Employment Standards Act to be a termination at common law unless the employee agreed to a temporary layoff as a term of employment or an exemption applied. This year however, trial judges have disagreed on whether this law applies to COVID related layoffs. According to the Ministry of Labour, special rules apply to layoffs which took place during the COVID period (ie. March 1, 2020 to September 25, 2021) within the meaning of the Employment Standards Act. Thereafter according to the Ministry of Labour website: Beginning on September 26, 2021: … The ESAs regular rules around temporary layoff will also resume. For practical purposes, an employee’s temporary layoff clock re-sets on September 26, 2021.
If this interpretation is correct, then an employer can continue a temporary layoff for up to 35 weeks in a 52 week period after September 25, 2021, under the ESA if the employer, among other things, continues to make payments for the benefit of the employee under a legitimate group or employee insurance plan.
A permanent layoff is usually a termination at common law and under the ESA, which triggers the requirement to provide the employee with notice of termination (or pay in lieu of notice).
Given the potential termination costs that can be triggered by a closure/sale of the business or the continuation of a temporary layoff or a permanent layoff it makes sense for a business owner to consult with an employment lawyer before making a decision.
For over 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]