Reducing Labour Costs in Tough Times

Written By Carl Cunningham and Mary Beth Currie

The credit crisis and the recent downturn in the economy means many businesses are facing an economic squeeze that leads them to look for ways to save money, including reducing labour costs. But no one wants to terminate valued employees. This update provides some practical suggestions that may reduce costs in respect of active employees and suggests certain cost minimization strategies if it is necessary to terminate.

Reducing Costs of Active Employees

There are options to reduce labour costs that your business can consider prior to and/or in conjunction with terminating or temporarily laying-off employees. Most employers will want to avoid drastic unilateral changes without advance notice that could result in the affected employees having successful constructive dismissal claims. Non-union employers who are not bound by a collective agreement will have greater flexibility to modify terms of employment. Depending on the specific terms of the employee's contract, without constructively dismissing the employee, it may be possible to take some or all of the following steps:

• Asking your employees if they have any cost-saving suggestions. Employees may be more understanding if the employer first takes reasonable steps to reduce costs other than labour costs.
• Reducing travel and expense costs (e.g., require greater use of technology such as video-conference and conference calls in substitution of airline travel).
• Permitting employees to take voluntary unpaid leaves to pursue further education, complete skills building programs or do charitable work.
• Directing an employee to use accrued vacation time at a time convenient to the employer. This can delay or avoid needing to place employees on temporary lay-off and reduces an accrued liability.
• Ensuring proper steps are taken to limit or reduce the need for overtime pay. In the absence of work restrictions in a collective agreement or contract this may include temporarily re-assigning an employee's duties to ensure there is an efficient use of available resources.
• Eliminating or reducing discretionary bonus payments.
• Reducing (slightly) hours of work in a day or week (e.g., 40 to 37.5 hours).
• Reducing (slightly) salary or wage rates (e.g., five-percent decrease).
• Investigating enrolment in the federal government's Work-Sharing Program which permits certain types of employees to receive a “top-up” of wages from Employment Insurance while they work a temporarily reduced work-week.
• Amending benefit plans to require employees to pay an increased portion of benefit premiums.
• Implementing a hiring freeze on all resignations and replacements for employees on statutory leaves.
• Ensuring any new hires enter into written employment contracts that limit or define entitlements on termination of employment.

Reducing Severance Costs

If your business needs to permanently reduce on-going labour costs, it may be necessary to terminate the employment of several employees without cause. In such case, we suggest that you consider:

• Implementing a voluntary separation program which could provide for payments less than reasonable notice at common law because the employee is leaving voluntarily.
• Staggering terminations to avoid the mass termination provisions of the applicable minimum standards legislation.
• Providing working notice of termination to reduce the actual compensation in lieu of notice paid for which no services are performed.
• Reviewing applicable employment contracts to confirm if there is an enforceable termination provision which may limit exposure to damages for reasonable notice.
• Offering discounted lump sum severance offers instead of longer periods of instalment payments.
• Ensuring severance offers of instalment payments clearly state that they are subject to mitigation (e.g., payments cease or employee only receives 50 percent of remaining payments).
• Avoiding claims for bad faith damages by unconditionally paying statutory amounts if working notice is not provided and by issuing the Record of Employment in a timely manner.

With effective planning and the guidance of counsel, one or more of the above options may be an appropriate way to reduce costs during these tough times. Please contact one of our employment service lawyers to discuss the options that may be right for your business.