For many, the workplace in 2020 looked quite different. And, for a lot of companies, these changes are continuing into 2021. With all of these shifts happening, there is a unique opportunity right now for companies to look for ways to evolve, innovate, and focus on specific streams that will grow their businesses in the long run. This may require some help from government relief programs, and also some restructuring or downsizing to adapt.
Invest Ottawa recently sat down with tax, legal, and HR experts to offer some guidance to companies during this unique shift. Some topics covered included how to deal appropriately with constructive dismissal cases, how government relief programs can help both employers and employees during this time, and how these programs might affect any 2020 tax filings.
Host
Kara Eusebio – Senior Manager, Strategic Partnerships, Invest Ottawa
Panellists
Gavin Miranda, – Partner, Taxation Services, MNP
Jim Cruikshank – Human Capital Consulting, MNP
Simon Sigler – Lawyer, MDK Business Law
Here is the recording of this informative session which we will be breaking down into three quick, easy-to-digest articles.
Article 2 of the Recovery Essentials: Labour Relations, Tax and People in the 2nd Wave
Constructive Dismissal
Constructive dismissal may occur where there has been such a change in the nature of the employment that in the employee’s mind they have been essentially dismissed. This can result from a reduction in compensation, hours, or a change to other fundamental terms of the employment contract. To prevent claims of constructive dismissal an employer should hold a conversation with their employee and obtain mutual consent for any new conditions of the employment in writing.
If the employer is looking to retain an employee but can’t maintain their full pay, a reduction of 10-15% is standard, and in more extreme circumstances [such as COVID] a temporary reduction of up to 20% may be acceptable. Some employers may be considering these options for employees that have moved to an area with a lower cost of living during the pandemic. Employers should be careful, as minor reductions in pay combined with changes to other fundamental terms of the contract may rise to the level of constructive dismissal.
Currently, there is emergency legislation in place till July 3, 2021 that allows employers to temporarily decrease compensation above 10-15% which may be appropriate for extenuating circumstances. Again, if any type of reduction is being considered, it is recommended that a conversation happens with the employee(s) affected, where agreement to the new terms is mutually established.
When it comes to potentially terminating an employee, the employer may consider factors such as the cost of training a new hire down the road, and the potential damage it may cause to the relationship with the affected employee(s) should they wish to rehire them post-recovery. Ideally, employers want to take a balanced approach to any termination case. Considering the costs and benefits beforehand.
Advice to employers when it comes to any potential form of constructive dismissal – keep things personalized and compassionate, have the meeting over video chat (include one other team manager on the call whenever possible), and follow up with both an email and a physical letter (sent to the employee’s home). Further, employers should have the employee return a signed consent after a few days, and with the chance to obtain legal advice. It is vitally important that the employee have time to process the conversation and not consent immediately, otherwise, it is highly probable that no court would uphold the consent.
When it comes to weighing options, it’s important to practice balance in any potential change in fundamental employment terms that may create a situation of constructive dismissal. With every reduction in pay, or change to contract terms there may be potential for the employee to file a claim, which the employer may be required to defend in court or settle.
Government Programs
The Government of Canada unveiled a number of relief programs to support both businesses and employees during the pandemic including CEBA, CEWS, and CERB. It’s important for anyone who utilized these programs, to understand how this might impact tax filing for 2020.
The Canadian Emergency Business Account (CEBA) includes an initial $40k business loan, then another $20k loan which is available for further assistance. Each is a separate loan which includes forgivable portions of 25% and 50% respectively if the loan(s) are paid back in full by December 2022.
The Canada Emergency Wage Subsidy (CEWS) was intended to cover employees once they returned to work. But, if the funds were used to draw down on their vacation days, or as pay for leave – and the employee has overlap with another subsidy program – then there are tax considerations. For furloughed employees, the employer is eligible to provide payroll at a reduced rate.
Then, there is the Canadian Emergency Response Benefit (CERB). If an employee was furloughed or put on leave, and also collected the CERB, they can still return to work and be paid retroactively. However, employees need to be mindful that they will have a tax bill for any overlapping payments, and they should budget for this come tax season.
Tips for Employers
- Take stock of the business – process re-design, re-engineer the business. This could justify downsizing or restructuring to increase efficiency. Or focus on specific streams. Focus on core competencies.
- Take a balanced approach when considering any form of constructive dismissal.
- Treat all constructive dismissal cases with compassion, taking a personalized approach.
- CERB or CEWS (as well as other government subsidy programs) will require more reporting for employers and employees, so be prepared for that. And prepare your employees for anything that might affect them as well.
- If you are unsure, it is important to consult with experts including tax, legal, and HR before taking action in any case.
It can be challenging to know what resources and safeguards are in place to ensure a smooth transition to your next step. To learn more about the services and support provided by MNP and MDK Business Law, please contact:
Gavin Miranda, Regional Tax Leader, MNP, Eastern Ontario
Phone number: 613-691-4224
Jim Cruickshank, Senior Manager, MNP, Human Resources Consulting
Phone number: 905-333-9888
R.Drew Kelsall, Business Lawyer, MDK Business Law
Phone number: 613-695-7800 ext.102
The article above is provided for general information only and does not constitute legal or tax advice. MDK Business Law Professional Corporation (“MDK”) and MNP LLP does not warrant or guarantee the quality, accuracy or completeness of any information. The article published is current as of the date of publication or date noted above, but should not be relied upon as accurate, timely or fit for any particular purpose.
Accessing our content, and receipt or transmissions of any communications to you or by MDK and MNP relating to the content does not create a lawyer-client relationship.
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