Managing a workforce in a distressed economy requires a shrewd strategy while remaining conscious of employment standards
Responsibility and efficiency, not liability
When financial times are tough, businesses are faced with tough decisions. Trimming the workforce is one way to cut costs, but it comes with the risk of losing good talent to competitors and decreasing productivity. Trimming employee perks or making internal changes can be other ways to reduce expenses without having to fire employees, but employers have to be careful the changes they make don’t lead to circumstances of constructive dismissal or other employment standards transgressions.
Management-side employment lawyer Christina Hall offers some recommendations and warnings for employers who are faced with daunting decisions to help them survive the precarious business landscape brought on by the recession.
Canadian workplaces, like many around the world, have felt the effects of the recession. At the end of May 2009, the national unemployment rate was 8.4 per cent, the highest level in 11 years. Since October 2008, more than 363,000 jobs have been lost and many Canadian employers are reeling as a result of economic challenges. In this context, it is critical for employers to carefully consider their hiring, retention and termination strategies in order to ensure they are well positioned to weather the storm and emerge successfully as the economy recovers.
Hiring employees
Employers must keep in mind that despite current economic conditions, there is still a need to plan for the future. In time, the economy will recover and it is important employers avoid the challenges that can arise when cuts made in difficult times lead to talent gaps and recruiting problems as business rebounds. Given the statistics on job losses, there are talented employees in the marketplace, which is good news for employers who are seeking strategic hires. However, many companies have laid off their weakest employees first and retained their key talent. Therefore, employers who are hiring now should place an increased importance on reference checking and the use of probationary periods in order to protect against potential bad hires.
Retaining employees
Employers must also focus on retaining their strongest employees and reducing any employee apprehension and stress about their job security and the state of the economy, which can have a serious affect on employee productivity and morale. However, there are steps employers can take to reduce employee insecurity and stress in the workplace:
Communication. Perhaps the most important step is to implement a communications strategy. Nothing fuels employee speculation and fear more than silence about issues that are clearly going on around them. Employers should consider appointing a spokesperson within the business to talk to employees about the challenges of the economic slowdown and its impact on the business. The information presented to employees should be realistic, but should focus on the positive wherever possible. Furthermore, the messaging must be consistent, so employers should ensure that supervisors and managers are providing employees with the same message as the spokesperson.
As part of a communications strategy, employers should also consider asking employees for their ideas about cost savings. Employees may have creative ideas that can benefit the business and their employer’s request will make them feel included in the decision-making process.
Finally, the most effective communication strategies are those that are fluid. Employers should consider providing periodic updates about the state of the business.
Implement morale boosters. Another important step for employers is to implement morale boosters. These can involve little or no financial cost, but can make a significant difference in improving employee morale and productivity. Examples include gift certificates, inexpensive social get-togethers, charitable drives, praise at meetings or personal thank-you notes.
Support employees who are struggling. Given that many employees are experiencing higher-than-normal levels of stress, it’s important for employers to be attuned to employees who are particularly struggling and to show concern for them. Employers should make sure employees are aware of company supports such as employee assistance programs (EAPs) and confidential counselling. Employers must also remember human rights legislation requires that they accommodate employees whose stress leads to medical diagnoses of disabilities such as depression, anxiety disorders or alcohol and drug addiction.
Alternatives to workforce reductions
Many employers have been working hard to find ways to reduce their costs short of terminating employees, such as:
•Freezing or decreasing compensation (salaries and bonuses).
•Reducing daily or weekly hours of work (with reduced pay).
•Changing or eliminating employee functions or reassigning employees.
•Requiring unpaid vacations, office shutdown or furloughs.
The risk to employers in implementing these changes is they can give rise to claims of constructive dismissal. Depending on the degree of change implemented — the amount by which employees’ salaries are reduced — the employees may be entitled to resign their employment and claim damages on the basis their employer fundamentally breached the employment contract. However, if the employees are wrong and their employer’s conduct does not rise to a level the law recognizes as a constructive dismissal, a court will not award any compensation. This makes claims of constructive dismissal particularly risky in the current economy, where replacement jobs are often not easily found. As a result, constructive dismissal claims do not appear to be increasing, despite the changes being implemented in many Canadian workplaces, perhaps because many employees are willing to deal with changes to their employment contracts in order to retain their jobs.
Terminating employees
Many Canadian employers have found themselves unable to avoid terminating employees. When this happens, it is important to use objective criteria for determining which employees to terminate and to document the criteria, in order to maintain a record in the event of future legal claims by employees. Employers must also exercise care when considering terminating employees who are protected by provincial employment standards or human rights legislation, such as employees with disabilities, older workers and those on leaves of absence.
Given the state of the economy, employers should also consider providing terminated employees with supports to help them deal with their termination and their transition to new employment. These supports may include outplacement counselling, reference letters and extended access to the EAP.
Finally, employers should also be wary of providing skimpy severance packages — at or around provincial minimum standards — to terminated employees. Employers who have repeatedly engaged in this strategy in the current economy have met with little sympathy from the courts. For example, following the shutdown of its Thornhill, Ont., facility, Canac Kitchens was sued by a number of former employees as a result of its small severance packages. Since the only issue in these cases was the determination of the appropriate notice period, many of the cases were decided well before a trial, through summary judgment motions that were heard during the employee’s notice period. This has led to some unique results, such as in Mahesuram v. Canac Kitchens Ltd., where the Ontario Superior Court of Justice granted employees a lump-sum award that was not subject to mitigation throughout the remainder of the notice period. In Zaman v. Canac Kitchens Ltd., the court ordered Canac’s lawyers to hold the remaining amounts payable in trust, to be invested and then disbursed appropriately to the employee on a monthly basis. Given these unpredictable results, employers would be well advised to avoid giving skimpy severance packages.
For more information see:
•Mahesuram v. Canac Kitchens Ltd., 2009 CarswellOnt 229 (Ont. S.C.J.).
•Zaman v. Canac Kitchens Ltd., 2009 CarswellOnt 1165 (Ont. S.C.J.).
