Is it time to consider the Work-Sharing Program?

“Employers are being very, very guarded.”

So says Andrew Bratt, partner at Gowling in Toronto, when it comes to employers assessing their options amid the economic uncertainty of the Canada-U.S. tariff “war” — including the Work-Sharing Program.

“Because the tariffs were paused once… they don't want to make any swift decisions before they understand exactly what the ramifications are. So, until they actually start to feel any pain, they're probably going to be more reactionary than they are going to be proactive about it.”

But with the federal government announcing temporary changes to the Work-Sharing Program as of March 10, employers might want to consider the new flexibility offered by Ottawa.

“Now is the time for employers to be doing various planning scenarios and considering various options… including to limit production or reduce hours,” says Carl Cunningham, partner at Bennett Jones in Toronto.

“I understand that's a challenge given all of the uncertainty that is out there.”

At least employers have more time to prepare — unlike when the pandemic hit, says Bratt.

“It's given employers an opportunity to take a look at what they need to do, really examine their workforce, have contingency plans in place, talk to their legal advisors. That's not a benefit that these employers had during COVID.”

Avoiding layoffs by sharing costs

The Work-Sharing Program, administered by Service Canada, allows businesses to temporarily reduce employee work hours while ensuring workers receive Employment Insurance (EI) benefits for lost wages. This program was widely used during past economic downturns, including the 2008-09 financial crisis and the COVID-19 pandemic.

The focus for the federal government is trying to avoid large-scale layoffs, says Bratt.

“What happens during times of economic crisis like COVID or now the trade war is consumer confidence is really low to begin with, and that has obviously a negative effect on the economy. If you then pile on layoffs and you now take away people's disposable income and they stop spending money, it just exacerbates the problem,” he says.

“I think the government's overarching goal here is going to be ‘Let's just try to stop the bleeding by doing whatever we can to incentivize employers to keep people in the workforce, even if it means us having to subsidize the wages.’”

The “special measures” announced by Ottawa on March 7 are effective until March 6, 2026. Employers experiencing a decline in business activity “attributable to the threat or potential realization” of U.S. tariffs could be eligible for the new measures if they are operating in Canada for a minimum of one year.

Work-Sharing agreements approved under these special measures must have a minimum duration of six weeks, and may be extended, to a maximum total of 76 weeks, if required.

Ottawa is also waiving the required cooling-off period between successive agreements and including non-profit and charitable organizations, along with cyclical or seasonal employers. Expanded eligibility has also been extended to certain employees.

Limitations to Work-Sharing Program

It’s a winning scenario for all involved, says Cunningham, because the employee isn’t fully laid off, the employer avoids a constructive dismissal claim, and the government is paying less than if the individual was in receipt of full EI benefits.

But the Work-Sharing Program is not applicable in scenarios where employers have to fully shut down, he says.

“It's probably best suited for a manufacturing-type setting… even one that's unionized, where you know that you can reasonably forecast that, as a result of the loss of certain contracts, certain changes, the volume of product you need to produce is reduced by 10, 15, 20, 25% and you anticipate that.

“If you can do that type of planning, then this type of program makes a lot of sense...  rather than reducing your workforce by 10 or 20%.”

The program is not overly complicated but the “analyzing and strategizing” can be complicated, says Bratt.

“Essentially, what you're figuring out is ‘OK, what is the reduction of work going to look like?’” he says, such as people working 80% of the time for a 20% reduction.

“You have to go through the mechanics of working out that schedule and trying to figure out what your needs are, which is difficult in the early days, because you don't know how much your sales are going to decline as a result of the tariffs and how much you're going to need people.”

While the Work-Sharing Program can be a really effective tool, it’s also “extremely bureaucratic,” according to Bratt.

“The application process is brutal, like, it's just very, very slow,” he says. “If they want to incentivize employers to use it — and they should — they really have to look at trying to expedite the application process and remove some of the bureaucracy, otherwise if it's going to take months to get the thing approved, it's not really effective.”

Employee approvals – and refusals

One important consideration with the Work-Sharing Program is the need for consent from employees. Workers must agree to a reduced schedule of work and share the available work equally over the term of the agreement.

“You need buy-in or agreement, and then there's an application process. So, as a result of that, it's not something that the employer can just impose tomorrow morning,” says Cunningham.

“It’s important for an employer to be considering their different options and their different scenarios… Certain departments may need to run at 100% to continue to operate, but others, maybe that's the manufacturing floor, are only needed at 80%.”

And if it's a non-union scenario and an employee is not willing to participate, the employer won’t be able to apply to Service Canada to benefit from the Work-Sharing program, he says.

“Then, the employer is going to have a choice as to whether they continue to employ that individual on a full-time basis, or whether they're prepared, for example, to take some constructive dismissal risk by telling the employee that they're unilaterally reducing their hours from 40 to 32 or from 37.5 to 30 — or whatever it may be.”

If one or several employees don’t agree to the program, they will have to apply for EI for the period that they're not working, and it’s likely they’re going to allege constructive dismissal, says Bratt.

“You really want to find a group of employees that you can sit down with and say, ‘Look, we're all in this together. We're going to weather the storm. But as a result of the tariffs, our sales are declining by X percent, therefore we just don't have the need for these many hours — let's all share in the reduction together… For the time that you're agreeing to reduce your hours, you'll collect EI so it's better than the alternative, which is we lay you off because we have no choice.'”

Employee benefits under Work-Sharing Program

On the payroll side, there are a few considerations for employers with the government program.

Vacation pay is a function of gross wages, so if those are reduced, for example, by 20%, then vacation pay will necessarily be reduced, says Bratt.

“But the work share program is intended to be temporary, and so in theory, it may not actually have any impact whatsoever on vacation, because you're accruing your vacation time and if you're only using it later once the work-share program has been discontinued, then, in theory, it wouldn't have any impact,” he says.

“But it will likely impact hourly employees who are paid vacation pay on every paycheck — they would experience a reduction for sure.”

As for benefits, employees would still be eligible, unless they only qualify if they're working a certain number of hours per week, says Bratt.

“In that case, we'd be recommending that employers carefully consider the work-share program and not have anybody drop below that threshold, because you don't want to be reducing their hours and compensation and also taking away their benefit coverage. That would be a big pill to swallow.”

For short-term cash flow relief, some employers might suspend benefit programs temporarily even if they don’t have the contractual right to do, he says.

“If you're an employee and you know that the alternative is termination, you might not be happy about this, but at the end of the day, are you really going to walk away from an otherwise secure job just to allege construct dismissal?”

Risks of temporary layoffs

In considering their options during economic downturns, employers should fully understand the potential risks and liabilities when it comes to temporary layoffs, says Cunningham.

“If you don't go into the Work-Sharing [Program] and you have to reduce, the default is a layoff. And the layoff may be permitted under the ESA, but it still has constructive dismissal risks under common law. So, as an employer, you would want to understand the implications or ramifications of that option… check your templates, check your policies.”

One of the primary benefits of the Work-Sharing Program is that employers avoid constructive dismissal claims because the employee has agreed to work the reduced hours and they're being compensated by Service Canada, he says.

“[Employees’] loss for those foregone hours of work is minimized. So, that's certainly — besides employment relations, besides employee retention — another positive reason for this program from the employer's perspective is it mitigates, litigation risk.”

During the COVID pandemic, a lot of employers were surprised to learn that when they needed to abruptly put staff on temporary layoffs, that was permitted under employment standards legislation, but could still give rise to constructive dismissal claims, says Bratt.

“The problem in a non-unionized environment is that unless there's a provision in the employment contract that says you can lay someone off, you don't actually have the right to do it,” he says.

“If you do, and if the employee protests and alleges constructive dismissal...  you got your short-term relief by laying them off, but now you’ve got to go pay them severance, so that doesn't always work all that well.”

As a result, coming out of the pandemic, a lot of employers revamped their employment contracts to make sure there were layoff provisions, says Bratt.

Blown out of proportion?

At this point, there’s a lot of uncertainty and Canada hasn’t seen the “cataclysmic type of events that people are forecasting,” as seen with the COVID pandemic, says Cunningham.

“We may reach the point, depending on what happens, where there needs to be shutdowns or significant layoffs. But because we're not there — to my knowledge at least — I don't think that any employers are going out and attempting to get their employees to agree to an arrangement, because, quite frankly, there's so much uncertainty. They don't know what to plan for yet.”

Bratt agrees, saying he doesn’t think the tariffs will have as big an impact as people are saying.

“Maybe I'm just an eternal optimist, and maybe I'm totally naive, but I think this is being somewhat blown out of proportion,” he says.

“Now, if the tariffs go through and stay in place for a long time, of course, it'll [have] a huge impact on some industries, no doubt.”

And that may be why many employers are not making inquiries about the Work-Sharing Program, says Bratt.

“They're taking a wait-and-see approach, and unless and until it becomes a problem, they don't want to go and start laying people off and reducing compensation and applying for work-share programs, when, at the end of the day, it may all be a moot point.”