Temporary layoffs to become permanent by law

Employers could be forced to pay severance they can’t afford, employment lawyer warns

'If you’ve got 101 employees earning $40,000 a year, it’s a $1 million severance liability for group termination' -- Ryan Anderson, Matthews, Dinsdale and Clark. | Submitted

Any day now, workers who were temporarily laid off due to a state of emergency that shut businesses down will be deemed, by law, to be permanently laid off, whether they or their employers like it or not.

The B.C. government needs to amend the Employment Standards Act, and quickly, or it could put both employers and employees in an untenable position, says Ryan Anderson, a lawyer specializing in employment law at Mathews Dinsdale and Clark LLP.

Anderson said a deadline is looming that will see employees who were temporarily laid off due to pandemic restrictions deemed, by statute, to be terminated.

That could force employers to pay large severance payouts that they can’t afford, even though they hope to eventually recall their employees back to work. But hefty group severances could bankrupt some businesses.

“Do the math,” Anderson writes in a legal brief. “For example, the termination of 101 employees earning $40,000 per year on average, at a single location within a two-month period, triggers a group termination liability of over $930,000. 

"There are few small- or medium-sized businesses that could survive that kind of hit – especially if their doors have been shut for 16 weeks.”

Under the BC Employment Standards Act, employees laid off for more than 13 weeks are automatically deemed to be terminated, and eligible for severance. The B.C. government extended that period to 16 weeks.

But many businesses, venues and tourist attractions have been shut down nearly that long already, so there may be a wave of statutory terminations on the way any day now. Larger employers that have had to shut down for more than 16 weeks might have to pay group termination severance.

“These liabilities are automatic,” Anderson said.  “So if I’m an employee who’s been laid off for 16 weeks, on the seventeenth week the statute says I am now terminated.

“The employer doesn’t have to issue a termination letter or take any action at all. The act says I am terminated and I am entitled to my individual pay in lieu of notice, and if I’m part of a group of more than 50 employees, I’m entitled to group termination.”

Under a group termination, a B.C. employer that dismisses 50 or more employees must pay each employee eight weeks of pay in severance, regardless of length of employment. An employer with more than 100 employees must pay 12 weeks.

“If you’ve got 101 employees earning $40,000 a year, it’s a $1 million severance liability for group termination,” Anderson said.

Section 65 of the Employment Standards Act allows for unforeseeable circumstances that may let employers off the hook in paying severance. And as Anderson points out, “if the pandemic is not an unforeseeable circumstance, what is?

“The ones that are under direct order to close, we hope that the branch will adjudicate these cases, applying section 65 and relieving them of that liability, but we don’t know,” Anderson said.

But what about businesses –  hotels, for example, or retailers  – that are allowed to reopen but have seen business cut in half?

If those employers are forced to continue to have some off employees laid off for more than 16 weeks, due to reduced business, they may have a harder time arguing that those layoffs are a direct consequence of the pandemic lockdown.

“What our government seems to be saying… is that if terminations occur as a direct result of COVID, then maybe you won’t be responsible for individual termination pay or group termination pay. But if it’s not a direct result, then maybe not.”

Even if an employer is successful in getting an exemption from having to pay severance, the employee is still deemed terminated, whether he or she wants to be or not.

“A strict adherence to the act results in these folks being terminated when they don’t want to be terminated,” Anderson said.

He cites hotels as an example. It may be months before they are back to normal occupancy levels. Many of their temporarily laid off employees will have been deemed statutorily terminated by then.

“They’re going to want those same employees back, if they’re available,” Anderson said. “They don’t want to terminate them.”

Those employees might get get a few weeks of severance, but when they are eventually rehired, their employer would be under no obligation to rehire them at their previous salaries or seniority levels.

All of these problems could be avoided, Anderson said, if B.C. were to follow Ontario’s lead. Ontario has suspended provisions in its employment act that automatically deems temporary layoffs permanent.

“They have said if you are temporarily laid off due to COVID, then it never becomes a termination as long as COVID continues,” Anderson said.

“Ontario has made it a job protection leave. It’s not just stripping employees of their right to be deemed terminated and collect severance – it has also created their leave as a protected job leave, just like parental leave. They maintain their seniority, they maintain their right to return to work to a same or similar position.”

Alternatively, Alberta has relieved employers of their group termination liability.

“What Alberta has said is that, if terminations occur as a result of COVID, the group termination provisions don’t apply,” Anderson said.

Employers in B.C. can try to argue that the terminations were the result of unforeseen circumstances, but as Anderson points out, they would have to make that argument with the Employment Standards Branch.

“They’ll have to duke it out with the Employment Standards Branch.  If I knew what my liability was, I might be able to make some rational decisions. If I fear that my liability might be $1 million, I might declare bankruptcy.”

Asked if B.C. would consider taking a similar approach as Ontario, the ministry of Labour told Business in Vancouver it's not necessary.

"There is no need to duplicate Ontario’s legislative change because British Columbia’s Employment Standards Act already allows for the employers to request a variance on the length of the temporary layoff under section 72," the ministry said.

However, that request for a variance requires a majority of laid off workers to support the extension and submit the request to the director of the Employment Standards Branch.

"Variance applications under section 72 of the Act is not the solution," Anderson said.

For one thing, in order to qualify under that section, an employer must have “definite plans to recall the employees by a specific date." But there is no specific date for some sectors -- nightclubs and sports venues, for example -- that are in the third and fourth phases of BC Restart plan.

And what if an employer can't get a majority of employees to agree to the variance? 

"Finally, does anyone really think that the branch has the resources to process hundreds, or thousands, of variance applications in a timely fashion?" Anderson said. " How long might that take?

"A complaint-driven solution – or one reliant on variance applications – whereby we all wait for the branch adjudication process and appeal procedures to eventually produce reliable precedents does not provide anything near the kind of certainty provided by legislation in Ontario, which automatically extends the permissible duration of temporary layoffs for as long as such layoffs remain necessary due to the COVID-19 crisis."