More Practical Considerations for Employers in a Pandemic

Last week, I posted a guide to pandemic preparedness for employers.

But as the situation continues to deteriorate, and increasing numbers of businesses shut down due to pandemic-related declines in business, or to comply with public health guidelines relating to social distancing, it's worth further discussion of how these businesses should address the very real practical problems that will result from closure.

The Legal Stuff

Most employers in non-union contexts have no contractual right to impose unpaid layoffs.  That means that, in many circumstances, imposing an unpaid layoff will be a constructive dismissal.

Last week, we talked about the implications of this doctrine on employer-imposed quarantines, and how that's a really new kind of question.  This framework will be better established, with the possible exception of circumstances where legislative or executive government action mandated business closure: For a restaurant, for instance, that is legally forced to close, there is a very new but possibly compelling argument that the employment contract has been 'frustrated', relieving the employer of further liabilities.

I'm of the view that the doctrine of frustration can't extend very far beyond that scenario, but there's room for debate here.  Extraordinary times.

What's Happening on the Ground?

As a practical matter, certain businesses are closing but continuing, at least for the moment, to pay their workers.  Apparently, GoodLife Fitness is doing so.  My contacts within the municipal HR field tell me that most municipalities, though shutting down rec centres and other facilities, are continuing to pay the staff. (They probably don't have to, as a general rule.  Most of them are likely to be subject to a collective agreement that permits unpaid temporary layoffs.)

However, not all businesses are in a position to continue to pay all their staff.  Small and mid-size businesses, franchise locations, not-for-profit organizations, etc. likely don't have the resources at their disposal to continue to pay their staff through a period where their revenue streams have been stopped.  Many restaurants, fitness clubs, recreational facilities, travel companies, and other services open to the public are completely shutting down, without the financial 'firepower' to continue to satisfy their ordinary operational liabilities.

Sometimes, people like to see the 'owners' - like employers and landlords - as nameless, faceless corporations with unlimited resources who can afford to be generous but choose not to.  Of course, that's not generally true.  This isn't about businesses laying off employees without pay because they want to; this is about needing to close - either for economic reasons or out of a sense of obligation in light of public health recommendations - and the money simply not being there for payroll.

Areas of Concern

A few things to consider when you think about whether, who, and what to pay.

Firstly, business continuity.  To the extent that you need to continue to communicate with customers, staff, and other stakeholders, you'll need people for that.  Those people will need to be compensated.

Secondly, what will you need to resume operations?  Presumably, at some point in the not-so-distant future, you'll want to resume carrying on business.  The problem with laying off all your staff without pay is that you can't necessarily expect them all to come back.  One of the corollaries to constructive dismissal (or frustration - whichever way you want to cut it) is that you are not going to be entitled to notice of resignation.  In other words, if you're looking to resume operations on a given day, and critical components of your operation just...doesn't show up...there's not a lot you can do about that.

You may want to keep enough of your staff paid and gainfully employed through the shutdown to ensure that you will continue to have an operational org chart, along with a recruitment and training infrastructure to be able to fill any vacancies that might arise during the shutdown.  (To be clear, I'm not using 'vacancy' as a euphemism.  While there is a very real possibility of some of your staff dying or becoming disabled in the coming crisis, I'm primarily talking about the risk of them deciding for other reasons - a new job, new career, sour grapes about being laid off, whatever - not to come back.)

Thirdly, loyalty.  Some employees put in their hours, go home, and to the extent that they can get paid for doing minimal work, they're thrilled.  Most businesses, however, are successful because of the employees who go 'above and beyond' - who work more hours than required, and who regard the business' success and stability as being their own success.

An unpaid layoff really shakes that level of dedication.  If you're not taking care of your most dedicated workers during this time, you may not be able to expect them to take care of you in the future.

Lastly, and most importantly, benefits.  I can't stress this enough:  Whatever you decide to do with employee wages through layoffs, if you don't have a solid contractual basis for the layoff (i.e. under a collective agreement), DO NOT DISCONTINUE BENEFITS WITHOUT APPROPRIATE NOTICE DURING A PANDEMIC.

There's good case law from Ontario, which probably applies across the country, that an employer can be liable for the full value of a benefit claim that arises during the employee's notice period, if benefits have been discontinued.  It's something that we normally discuss almost as an afterthought - it's a significant risk to employers, but it arises so rarely as to barely warrant mentioning.  But in the context of a pandemic, the risk of a claim arising against the employee's extended health benefits, disability insurance, or life insurance policy...is highly elevated.

Some policies allow for the continuation of benefits through a layoff; other policies may require the purchase of additional premiums; other policies may bar the practice altogether.  Whichever one you choose to do, be aware that the possible exposure here is absolutely incalculable.  And as sympathetic as courts may be to small employers in the present extraordinary circumstances, the employee whose benefits were terminated in the face of a pandemic will be more sympathetic.

Government Assistance

There are whispers, rumours, and vague announcements from various governments about employer obligations and supports.  So far, the only one that has materialized is a waiver of the EI waiting period.  The rest are lacking in details.

In the mean time, there's a pre-existing framework that, while I haven't seen used in this particular circumstance, is worth looking into:  EI's "Supplemental Unemployment Benefit" plan:  For temporary stoppages of work, the establishment and registration of a plan allows an employer to pay a laid off worker receiving EI benefits a 'top-up' without it resulting in an EI overpayment.

For an employer who might want to support its employees, but who can't afford to pay their whole salary, this might be a decent compromise solution - contact Service Canada for details.  (These plans typically take some time to register, but may be practical for some circumstances, and I'm reaching out through certain avenues to see if waiving or expediting the registration process may be in the cards.)

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Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.

This post does not contain legal advice, but only general legal information. It does not create a solicitor-client relationship with any readers. If you have a legal issue or potential issue, please consult a lawyer.