22nd Annual Conference

"Called to Trust...Building Together"

Workforce Reductions: Policies and

Practices
Ralph N. Nero
Partner
Fasken Martineau LLP
Outline

• Workforce reduction options

• new and creative alternatives to termination
• Legal risks for Employers
• Termination and termination entitlements
• Human rights considerations when downsizing
or restructuring
• Managing the workforce that remains
Workforce Reduction: New and Creative
Alternatives to Termination
• Reducing expenses:
• Hiring freezes
• Cut back on recruitment
• Reduce business travel and related expenses
• Reduce expenditures for entertainment and training /
conferences
• Reduce administrative cost of benefits
Alternatives to Termination

1. Time off
2. Increasing Performance Expectations
3. Direct Cost Cutting
4. Freezing overtime
5. Burning vacations
6. Flexibility in work assignments through cross-functional
training
7. Hiring freezes and investing in productivity
improvements
8. Voluntary severance programs
1. Time-Off

• Job-sharing programs
• Short work weeks
• Unpaid leaves
• Paid leaves
• Deferred hiring
• Temporary lay offs / furloughs
• Intermittent “Rae days”
• Short term lay offs
• Longer term lay off
Time Off - Temporary Lay Offs

• When the employer cuts back on the employee’s work week

or ends the employee’s work for a period of time.
• Permits short-term avoidance of “termination”
• Provincial employment standards legislation sets maximum
number of weeks before temporary lay off constitutes
termination
• ex. Ontario – Employment Standards Act:
• Temporary lay off cannot be for more than 13 weeks in any period of 20
consecutive weeks
• Can be up to 35 weeks in 52 consecutive week period where employer
continues benefits or other compensation
• Potential common law termination / constructive dismissal
issues
2. Increasing Performance Expectations:

• Managing poor performers back to productivity

• Revisiting the “value proposition” in
accommodation
• Putting an end to “on the job” retirements
3. Direct Cost Cutting

• Reducing wages and salaries

• Increasing or introducing co-pay benefit
arrangements
• Ending or modifying defined benefit pension
plans
Other Alternatives:

4. Freezing overtime
5. Burning vacations
6. Flexibility in work assignments through cross-
functional training
7. Hiring freezes and investing in productivity
improvements
8. Voluntary severance programs
Legal risks for employers

1. Constructive Dismissal Risk

2. Discrimination and Harassment Claims
3. Disability (Stress) Claims
4. Breach of Contract Claims
5. “Third Party” Risk
1. Constructive Dismissal Risk

• Occurs when an employer makes a significant change to a

fundamental term or condition of employment without reasonable
notice and the employee’s actual or implied consent and as a result
the employee resigns within a reasonable period of time

• Considered a termination under employment standards legislation

• Employer then subject to termination pay and severance pay entitlements

• Can also occur when an employer harasses an employee or gives him

or her an ultimatum and the employee resigns
• “Quit or be fired”
Changes that could support a Constructive
Dismissal claim:
• Changes that result in a meaningful reduction in
salary
• Significant changes in:
• Work location
• Hours of work
• Authority
• Position
• Benefits
Tools for Managing the Constructive Dismissal
Risk:
• Volunteerism
• “Temporary” Change
• Notice
• Effective Communication
When Termination is the Only Option…

Employer considerations:
• Employee’s entitlement to:
• Termination pay
• Severance pay

• Possible wrongful dismissal claim

What do they get?

Is there an employment contract?

• Does it specify severance entitlements?

• Is there potential for fixed term and guarantee

confusion?
What do they get?

• Statutory
• Length of service
• Notice or pay in lieu of notice
• Severance pay

• Common law:
• Consider age, length of service, compensation level, position…
• Notice or pay in lieu of notice
• Consider mitigation component
• Lump sum?
• Continuance?
Statutory Termination Pay

• On termination an employer must provide the

employee with written notice of termination or
termination pay, or a combination of the two
• The length of notice or amount of pay in lieu
depends on the employee’s length of service with
the employer and varies by province
• Guidelines for written notice of termination can be
found in the employment standards legislation of your
province
Statutory Termination Pay

• Employer obligations during the notice period:

• The employer must not reduce the employee’s wages or change
any terms or conditions of employment
• The employer must continue payments towards the employee’s
benefit plan
• Not all employees are entitled to notice:
• An employee who has committed wilful misconduct,
disobedience or wilful neglect (eg. “just cause”), is generally not
entitled to notice of termination or pay in lieu of notice
• Other exceptions
Statutory Severance Pay

• Compensation paid to employees for loss of seniority or

job-related benefits when employment is severed

• This entitlement is independent of the employee’s

entitlement to notice of termination or pay in lieu of
notice
ex. Ontario Guidelines for Severance Pay

• To qualify:
• employee must have been employed for 5 years or more
and
• employer has a payroll in Ontario of at least $2.5 million or
• employer severed the employment of 50 or more employees in a six-
month period because all or part of the business closed
• Entitlement:
• Employees are entitled to one week of regular wages for every
year of service up to 26 weeks
• Entitlements are also pro rated to recognize completed months of
service for incomplete year of service
Common Law Termination Pay

• Likely range – two weeks to one month per year of service

• Factors considered for notice period:
• Character of employment (level of position, compensation, etc.)
• Length of service
• Age
• Availability of similar employment having regard to experience,
training and qualifications
• Bad faith at time of dismissal:
• Employer’s obligation of good faith and fair dealing
Common Law – Mitigation Issue

• Employees are expected to take reasonable steps

to mitigated damages
• Not entitled to damages that could have been avoided
by acting reasonably
• Duty to find comparable employment
Human Rights Considerations when
Downsizing or Restructuring
1. Who goes?
2. Restructuring and its impact on your ability to
accommodate
3. Terminating the employment of those on
statutory leave
4. Releases – what should you be asking for?
5. Post-employment continuation of disability and
other benefits
1. Who goes?

• Younger workers?
• Older workers?
• Avoid “early retirement” references
• Demographic analysis – age? gender? race?
• Underperformers?
• Inexpensive employees?
• Departments?
• Volunteers?
2. Restructuring and its impact on your ability to
accommodate
• Assessing who is to be impacted by a
restructuring
• Decisions should be based on objective and relevant
factors
• Not influenced by any of the prohibited grounds of
discrimination
• Increased demands being put on those who
remain
• Will this impact ability to offer modified duties?
3. Terminating the employment of those on
statutory
leave
• Employer’s general obligation is to reinstate the
employee at the end of leave
• Subject to only limited exceptions
• Must demonstrate that decision to terminate is
entirely unrelated to employee having taken or
being on a legitimate leave of absence
4. Releases – what should you be asking for?

• Must be careful about what you ask employees to

sign off on, in the way of a Release, as part of the
separation package
• Risks of human rights-related complaints or
issues are only effectively dealt with if human
rights is specifically and properly referenced in
the Release
• What may be most appropriate will depend on the
circumstances and the workplace
5. Post-employment continuation of disability and
other benefits
• Common law obligation to continue all benefits –
including disability and life insurance for the
course of the common law notice period
• Insurance companies are making this more
difficult and more expensive for the employer
• Never discontinue benefit coverage before having
assessed the risks associated with uninsured
claims
After reductions: Managing the workforce that
remains
• Communication is key
• Credible
• Clear
• Timely
• Decisive
• Hours of work considerations
• Stress
• Talent Reduction
Conclusion

• “cost cutting” can be expensive

• Termination pay
• Severance pay
• Collateral damage
• Increased workload
• Stress
• Increased competition
• Morale implications can be long lasting
• Measured, Reasonable, Lawful and Decisive Action is
critical
Ralph N. Nero
rnero@fasken.com
416 868 3356