April 8, 2020

Canadian subsidies and temporary layoffs related to COVID-19

Here, e2r’s Stuart Ducoffe describes features of the Canada Emergency Wage Subsidy and provides key considerations for employers to navigate temporary layoffs related to COVID-19.

As the pandemic evolves, many employees are being placed on paid or unpaid leaves of absence which means employers must stay on top of quickly changing laws and legislation related to COVID-19. Here, I answer ten frequently asked questions about the Canada Emergency Wage Subsidy (CEWS), announced on March 27, 2020, and COVID-19 layoffs.

1. What is the most recently announced wage subsidy in Canada?

The CEWS is a 12-week wage subsidy of up to 75% of wages paid starting March 15, 2020. It is available to eligible employers experiencing a revenue decline of 30% or more. Given as of the date of writing the legislation is yet to pass, the terms of the subsidy may change.

2. Which employers are eligible under the CEWS?

Eligible employers include individuals, taxable corporations, partnerships (consisting of eligible employers), non-profit organizations and registered charities.

3. How is the 30% decline in revenues determined?

The CEWS is available to those employers incurring a 30% or more drop in revenue in March, April or May 2020 when compared to the same months in 2019. Revenue is determined based on its business conducted in Canada from arm’s length sources. The employer’s normal accounting method can be relied upon but will not include extraordinary items and amounts on account of capital.

Despite the above, the Minister of Finance has suggested that in certain circumstances, for example, a business expansion over the previous year may not show a year over year decline in real terms despite material reduction in business, flexible approaches should be available.

4. How much is the subsidy and is there a limit?

For employees employed before March 15, 2020 the formula is: the lesser of (a) the amount of remuneration paid, to a maximum of $847 per week, and (b) 75% of the employee’s pre-crisis weekly remuneration. Guidance regarding the definition of “pre-crisis weekly earnings” is anticipated shortly.

There is no overall limit on the amount of the subsidy.

5. Does the previously announced Temporary Wage Subsidy (TWS) of 10% still exist?

Yes. The TWS is available to corporations eligible for the small business deduction, individuals (other than trusts) certain partnerships, non-profit organizations and charities. The TWS is equal to 10% of the remuneration paid during the 3-month period between March 18, 2020 and June 19, 2020, up to a maximum of $25,000 per employer and $1,375 per employee.

To benefit the employer simply reduces the remittance it would otherwise be required to withhold and remit to CRA on account of income tax.

For employers eligible for both the CEWS and the TWS for a period, any benefit received from the TWS will generally reduce the amount of the CEWS for the same period.

6. Are employers required to provide advance notice of layoff?

Subject to any contractual provisions or collective agreement language, employment standards legislation governs the implementation of layoffs. There are certain jurisdictions where advance notice of layoff is required such as Alberta but even in those jurisdictions there are exemptions such as “unforeseeable circumstances” which COVID-19 may indeed constitute.

7. Is an employer required to maintain benefit coverage such as medical and dental coverage during a period of temporary layoff?

Although any requirement to maintain benefit enrolment during the temporary layoff period may be subject to contractual provisions or applicable policies and subject to an argument of constructive dismissal, group benefits are typically maintained by employers during this period although not required by statute. The maintaining of group benefit enrolment in some jurisdictions, for example, Ontario is very valuable as it permits the extension of the period of the temporary layoff before it becomes a deemed termination. 

8. Given the COVID-19 circumstance represents an extraordinary situation is it possible the temporary layoff provisions in employment standards legislation will be extended to delay a “deemed termination”?

As of the date of writing Manitoba has done exactly this. Manitoba has amended its temporary layoff provision in its employment standards legislation to not include any period of layoff following March 1, 2020 through to the date the state of emergency ends.

It should also be noted, however, that employment standards legislation typically includes an exemption for providing notice of termination where there is an unforeseen event that frustrates the employment relationship. The COVID-19 circumstance arguably constitutes such an unforeseen and frustrating event.

9. Are employees entitled to vacation pay during a temporary layoff?

Subject to any contractual provisions or applicable policies, employers are not required to pay out vacation pay during the temporary layoff period.

10. If the employer maintains group benefit coverage during the period of the temporary layoff is the employee still responsible to pay the employee’s premium portion?

Subject to any contractual provisions or applicable policies, the employer obligation, where applicable, is to continue to make payments for the benefit of the employee under a group insurance plan. In other words, the employer is to maintain the current protocol for the allocation of premium costs. As a result, if the employee is currently responsible for a share of the premium costs then the employee must continue to make those contributions.

Learn more about key legal and HR considerations for Canadian employers related to COVID-19. Watch our recent webinars.

Stuart Ducoffe

Stuart Ducoffe (B.C.L., LL.B.,CHRL) is a seasoned employment and labour lawyer as well as the co-founder of e2r®, which powers Ceridian HR Advisory Services. He is also a partner and co-founder of Woolgar VanWiechen Cosgriffe Ducoffe LLP and leads the firm's employment and labour law practice. Follow @e2rSolutions on Twitter to stay up to date on Stuart and his team!

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