Duncan McPhail, the managing partner of Roper Greyell LLP in Vancouver, says in recent months, he’s been seeing not just downsizing through layoffs and terminations, but attempts to reduce the costs of doing business by introducing new efficiencies so businesses can weather the economic storm.

Lawyers who specialize in this area give grave warnings about lawyers without labour and employment experience “dabbling” without getting specialist advice. “If clients are restructuring for reasons of cost, you need to get advice from people who are practising in the area all the time,” stresses McPhail. “You need a plan that’s going to work. There is a risk of going offside of the law.” Referral to a specialist is also recommended when calculating the anticipated cost of severance that a company will have to bear. “You can’t do that to the nickel but you can provide a ballpark range.”

Nowakowski says when advising a client going through hard times, plenty comes into play when pinpointing trouble spots. “Federally the Canada Labour Code and provincially the employment standards acts, the common law in a non-unionized environment, and the collective agreement in a unionized environment. These three things set out the general rules.”

McPhail agrees. “When you are about to embark on a plan that has an impact on the workforce, you tread on a whole raft of different labour rules, principles, and laws. The client who is about to embark on such a plan needs to know up front what rules and laws apply, the costs of the rules to the plan, and what they can and cannot do. For example, an employer can’t unilaterally change wages and terms of conditions of employment, such as reduce salaries by half, unless the employees agree. They can elect to consider themselves constructively dismissed, which makes them entitled to severance. There’s a whole body of law that determines what that will be.”

Nowakowski says another high-risk action is terminating 50 or more employees in four weeks. “This triggers the mass-termination provisions of the [Employment Standards Act], requiring notice to the minister [of Labour] and bringing into play notice of termination liabilities. In Ontario, there is normally an automatic right to eight weeks notice of termination. If you dismiss between 200 and 499 employees it increases to 12 weeks, and for greater than 500 dismissals there are 16 weeks of notice owing. If you don’t give working notice they get pay in lieu, which can be very significant.”

While ramifications in employment standards acts are substantial, the common law requirements for reasonable notice can be significant too. “For example, a five-year employee might be entitled under ESA to five weeks notice and five weeks severance,” says Nowakowski. “The common law might say 20 weeks, which would be inclusive of the ESA standard.”

If there is a collective agreement, the union must get notice before closure of operations. “There are potential liabilities if inadequate notice is given,” warns Nowakowski. Then there are seniority bumping rights, severance rights, recall rights, and collective bargaining issues to which they are contractually bound. “Employers are running a big risk if they are not considering all these items.”

After calculating all that, employers still have to look at severance pay, which is separate from termination under the ESA. “Severance pay is owing to someone who has worked for the employer for five years or more,” explains Nowakowski. “If you have an annual payroll of $2.5 million or more, or 50 workers have gone out the door in a six-month period, a maximum of 26 weeks could be owed.”

All of this calls for a lot of strategizing with clients before they take any steps. “They must go in with their eyes open,” says McPhail. “The most difficult cases are where people have already done the downsizing or reorganization, or changed terms and conditions, and problems and difficulties are arising. You protect them as best you can when it turns adversarial.”

Nowakowski says his firm sees all kinds of scenarios. “Lots of clients are proactive, but often it all needs to happen in a hurry and the landscape is changing so quickly. You only have to follow what’s happening to the Big Three automakers. We do spend some time putting out fires. For example, if you said today to 75 employees, ‘sorry, there’s no more work,’ the termination is effective today and nothing can be fixed.”

If clients do come in beforehand, lawyers can help turn their minds to due diligence, and help them ask the right questions. “You have to take a hard look at all the strategies,” says Nowakowski. “It may be possible to stagger terminations so that you never have more than 50 leave in the four-week period. A lawyer needs a good grasp of the operational requirements so he or she can make the plan cost as little as possible.”

McPhail suggests employers can make use of Employment Insurance if they instigate a work-sharing program. “You could change a four-day week to a three-day week, reducing everyone’s hours across the board, with the assistance of Employment Insurance to help augment people’s pay. It’s an option but you must know the limits to it so as to avoid the pitfalls of falling afoul of the rules.”