Six Ways to Reduce Your Payroll During the Pandemic

Authors – Alan Riddell & Kyle Van Schie

If your organization is looking to cut its staffing costs during the pandemic, this Winter, it has six different options for doing so. Here are those six options, along with the pros and cons of each one:

1. Unilaterally direct some staff to use up all their accrued paid vacation days: This is an easy, risk-free option, that is surprisingly under-utilized by employers.  In most cases, this does not require the consent of the affected individual staff member, and you can therefore lawfully direct staff to do this, unilaterally, thereby reducing your existing payroll liabilities. This is because employers have a general legal right to dictate to their employees when they must take their vacation. The only exceptions to this are where (i) the employee’s employment contract explicitly entitles him/her to unilaterally pick when to take his/her vacation and (ii) where there is a longstanding, and unbroken, historical practice of the employee setting his/her vacation dates without any prior consultation with his/her employer. In practice, neither of these exceptions apply to most employees.
2. Place some staff on unpaid temporary layoff for the next 2 – 8 months: Contrary to popular belief, this is a complicated, and potentially risky, option, that can easily backfire on you unless you are very careful. Except in the very rare situation where the employee’s employment contract already contains a temporary layoff clause, placing him/her on unpaid temporary layoff generally requires his/her express prior consent to being laid off. In most cases, failure to obtain that prior consent automatically triggers a constructive dismissal and – in theory – an entitlement by the employee to claim very significant termination pay from you. Obtaining prior consent is not necessarily as difficult as you might think because during a serious pandemic or major economic downturn, many employees would prefer to consent to being temporarily laid off, for a short period of time, rather than risk permanently losing their jobs. But even where the employee consents to being placed on unpaid temporary layoff, you have to be careful, when implementing that layoff, to follow the requirements of the Employment Standards Act. Up until July 3, 2021 there is a temporary form of infectious disease emergency leave that suspends the normal operations of the temporary layoff provisions of the Act. However, after July 3, 2021 (and subject to a few limited exceptions) Section 56 of the Act requires that if the layoff is to be longer than 13 weeks you maintain his/her benefits coverage for the duration of the layoff period. You must also ensure that you recall him/her prior to the statutory deadline for doing so. Your inadvertent failure to do either of these things will automatically trigger a constructive dismissal, and an obligation to pay him/her significant termination pay even though he/she may have consented to the layoff.
3. Temporarily reduce the weekly salaries and/or hours of some staff by between 10%-50%:  Again, you cannot lawfully order this unilaterally; a temporary salary reduction of 10% or more requires, in theory, the reluctant prior consent of the affected individual staff member. Again, obtaining such prior consent, during a serious pandemic or major economic downturn is not necessarily as difficult as some might think. Such reluctant consent can sometimes be obtained either: (a) by a promise to him/her that the reduction in his/her salary will be offset by a comparable salary increase in 2021 once economic conditions improve or (b) by the warning that failure to immediately consent to a salary reduction may unfortunately necessitate immediate termination of his/her employment.
4. Temporarily reduce the weekly salaries and/or hours of some staff by up to 9.9%: This does not require the consent of the affected individual staff member and you can therefore lawfully direct this to be done unilaterally so long as (i) the employee’s total annual remuneration is being reduced, cumulatively, by less than 10% and (ii) you are not adversely changing any of his/her other terms or conditions of employment. However, unilaterally reducing his/her salary, without his/her consent, may expose you to a Ministry of Labour complaint[1] or a lawsuit, whereby the employee seeks to recoup the shortfall in his/her wages – even though that shortfall is less than 10%. The affected employee is entitled to seek an Order ordering you to pay the shortfall, without giving up his/her job working for you, and if he/she does so, you will have little option but to pay him/her the shortfall. He/she may do this within 2 years of the salary cut, either by filing a complaint to the Ministry of Labour or filing a civil claim in court. The fact that he/she files a complaint, or claim against you does not provide you with legal just cause to terminate his/her employment without paying him/her the termination pay that is legally owing to him/her.
5. Terminate the employment of some staff with actual working notice (that is to say with little or no severance package): This does not of course require consent from the affected staff member, but it does require your keeping him/her at work for a period of time while he/she knows his/her employment will soon be ending. That may mean that his/her work productivity may suffer. Depending on the personality of the employee, and the degree of his/her access to sensitive information, it may or may not also pose some risk to your organization. If the employee has at least 5 years’ service with you, and if your payroll exceeds 2.5 million, you will have to pay him/her statutory severance pay (about 1 week of pay per year of service) at the expiry of the period of working notice.
6. Finally, terminate the employment of some staff with pay-in-lieu of notice, (that is to say, with a severance package): This does not of course require consent from the affected staff member, and avoids the potential problems that may arise from his/her continuing to work with you during a working notice period. But it does require that you pay him/her a severance package. If his/her employment contract contained a well-drafted termination clause, that validly restricts his entitlements to the statutory minimums prescribed in the Act, that severance package will be quite small, especially if the employee has worked for you for less than 5 years. Otherwise, if the contract does not contain any such clause, the severance package may have to be very hefty, particularly if he/she has worked for you for many years, is relatively old, occupies a senior position within your organization and/or was recruited from another employer. In extreme circumstances, you may have to provide a severance package of 24 months – a sum so large that it more than cancels out any financial savings that you were hoping to derive from your temporary staff downsizing measures!

[1] Note that while the new Infectious Disease Emergency Leave regulation is in effect, employees are not able to file complaints with the Ministry of Labour. However, immediately following the expiry of the COVID-19 period under the Regulation (namely July 3, 2021) the right to make complaints to the Ministry of Labour will resume.