COVID-19 and Employment contracts in Canada

How should companies deal with a reduction in business during the COVID-19 pandemic?

Given the current COVID-19 pandemic, many employers have been forced to make difficult decisions regarding their businesses in order to cut costs and maintain viability, including laying off employees or reducing hours/salary.

Each Canadian jurisdiction has its own specific rules regarding temporarily laying off employees, as employment standards are generally provincially regulated (with the exception of federal undertakings).

Generally speaking, in Canada, under common law, there is no inherent right to temporarily layoff an employee absent a contractual term, agreement, industry standard, or past practice. Businesses that unilaterally lay off employees, or impose a significant reduction in compensation or hours on employees, may risk facing “constructive dismissal” claims.

However, it appears that not many such claims are currently being advanced – likely due to the courts mostly being closed except for urgent matters, and because many employees are taking a “wait and see” approach and may prefer to return to their positions rather than receive a package during these uncertain times.

The manner in which businesses deal with a reduction in business will depend on the circumstances in each case and specific business needs. However, all businesses should consider whether they, or their employees, are eligible for the various government assistance programs that have been announced (e.g., Canada Emergency Wage Subsidy, Canada Emergency Business Account, Canada Emergency Commercial Rent Assistance, Canada Emergency Response Benefit, etc), and whether utilizing the programs may reduce potential legal liability and/or assist them through this difficult period.

For detailed information on the various government programs available to individuals and businesses, please click here.

What if I had just hired an employee? Is it possible to rescind the offer of employment or dismiss the employee?

Potential liability relating to rescinding an offer (prior to the employee commencing work) or terminating an employee within a few weeks of starting will depend on the specific circumstances in each case. Generally speaking, an offer of employment can be rescinded before it is accepted but, once an offer is accepted, the employee may be entitled to certain termination entitlements.

It is crucial that employers have enforceable written employment contracts for all employees that outline the terms and conditions of employment. Of particular importance to employers is that the termination clause be valid and enforceable. There have been many changes in this area of law in the past couple years and it is strongly recommended that employers seek legal advice on this topic.

Employers should generally ensure that probationary clauses are included in their written employment contract, and that termination provisions limit employee entitlements to the minimum required by the applicable employment standards legislation.

Recent case law has found that employers cannot rely on probationary clauses if employment is terminated prior to the employment relationship commencing. In such cases, the other termination provisions will apply. If termination provisions are invalid/illegal (or there are no termination provisions), employees will generally be entitled to common law reasonable notice, which is based on years of service, age, position, and the availability of similar employment. It is important to note that, unlike common law provinces, in Quebec, employers cannot contract out of reasonable notice even with an employment agreement.

Importantly, any termination of employment or rescinded offer cannot be due to the fact that an employee may have COVID-19, be in self-isolation, or have to care for elderly parents or young children, etc. This could engage a violation of the applicable human rights legislation, as well as be contrary to certain recently enacted COVID-19 job-protected leaves of absence.

Can I require that employees take their remaining vacation days?

Given that each jurisdiction has its own employment standards legislation, the answer to this question will vary. In most jurisdictions, employers have discretion regarding the timing of employees’ vacations. For example, in Ontario, Canada’s most populous province, among the only restrictions for employers are that vacation time be taken within 10 months of being earned in the vacation entitlement year, and that vacation be taken in blocks of weeks (unless the employee requests vacation in short periods).

How should companies deal with employees that cannot attend at work/work from home because they have childcare obligations?

Each jurisdiction will be opening its childcare centres and schools at different times (if at all this academic year). Employers should check to see whether childcare centres and schools are open in the particular jurisdiction in which they operate.

Each of Canada’s jurisdictions have their own rules regarding human rights, family responsibility leave, etc. Generally speaking, employees cannot be discriminated against due to their family status and employees who are unable to attend work/work from home must be accommodated up to the point of “undue hardship” (business inconvenience does not meet this threshold). The manner of accommodating an employee will depend on the specific facts and circumstances.

Employers are generally not obligated to provide paid leave unless the specific jurisdiction has paid leave provisions for family responsibility leave or paid leave is provided in the employment contract, etc.

Both employers and employees may wish to consider how employees can continue to receive money while on leave due to childcare obligations or due to medical issues concerning COVID-19 etc (see the details regarding the CERB, CEWS, EI, etc outlined in question 1). Employees who are off work due to caring for a child due to school closures etc related to COVID-19 should be able to qualify for the $2,000 CERB payment from the government.

What should I do if there is still some business to be done? How can I anticipate the end of the lockdown?

Each jurisdiction has been providing near daily briefings regarding the status of COVID-19. Many jurisdictions have now announced plans to gradually re-open the economy. Employers are encouraged to closely follow the updates in their specific jurisdiction.

Work from home continues to be permitted and it is expected that businesses will open gradually and in segments, with remote work continuing to be prevalent for the foreseeable future. As such, employers should look into work from home arrangements, if they haven’t already, and put in place policies regarding working remotely.

If businesses only require certain employees to work during the lockdown, assuming they are permitted to remain open by law, they may reach agreements with the needed employees to work reduced hours and/or receive reduced compensation etc. In this regard, the CEWS program outlined in question 1 may be particularly beneficial. Alternatively, if employees earn less than $1,000 per month to do minimal work, they may also still be entitled to receive the CERB (see question 1).

If and when employees are permitted to return to the workplace, and in fact do so, it is important for employers to ensure they are following the strict guidelines regarding social distancing and other health measures, and that they follow all recommendations and orders from the different levels of government and public health officials. Cleaning and sanitation practices should also be increased to reduce the spread of COVID-19 as much as possible.

Do I have the right to terminate employment relationships during this period?

Yes. Employers continue to be able to terminate employment contracts for any legal reason. In other words, employees’ employment cannot be terminated due to discriminatory reasons (or reasons related to job-protected COVID-19 leave in certain jurisdictions), including the fact that an employee must stay at home to take care of children or is ill with COVID-19 etc. Such illegal terminations may result in additional liability above and beyond the potential liability relating to the termination of employment.

As previously mentioned, in the absence of an enforceable termination clause in a written employment agreement, employees are entitled to common law reasonable notice – which is generally far greater than the entitlements provided for under applicable employment standards legislation. Employers are often surprised to learn that there is also no inherent probationary period – such a period must generally be specifically provided for in the employment agreement.

It is important to note that it is not possible to contract out of common law reasonable notice in Quebec (even with an employment agreement). In certain circumstances, employees also have recourse to non-civil remedies (e.g., In Quebec, after two years of employment, certain employees cannot be let go without “good and sufficient reason” – this is decided by a tribunal and the employee receives legal representation).

For the time being, employers may wish to utilize the various programs outlined in question 1 until they have a better sense of business needs going forward. If an employer determines they will be proceeding with a termination of employment, it is strongly encouraged to seek legal advice so that they are fully apprised of potential liability and manners in which risk may be minimized.