Regulations Amending the Canada Labour Standards Regulations (COVID-19), No 2: SOR/2020-242
Canada Gazette, Part II, Volume 154, Number 24
Registration
SOR/2020-242 November 9, 2020
CANADA LABOUR CODE
P.C. 2020-873 November 6, 2020
Her Excellency the Governor General in Council, on the recommendation of the Minister of Labour, pursuant to paragraphs 227(d), 233(a) and 236(a) of the Canada Labour Code footnote a, makes the annexed Regulations Amending the Canada Labour Standards Regulations (COVID-19), No 2.
Regulations Amending the Canada Labour Standards Regulations (COVID-19), No 2
Amendments
1 (1) Paragraphs 30(1.1)(a) and (b) of the Canada Labour Standards Regulations footnote 1 are replaced by the following:
- (a) by nine months after the day on which it would otherwise end, if it began before March 31, 2020 and ends on or after the day on which this paragraph comes into force; and
- (b) to March 31, 2021, if it begins during the period beginning on March 31, 2020 and ending on December 31, 2020.
(2) Paragraphs 30(1.2)(a) and (b) of the Regulations are replaced by the following:
- (a) by nine months, or to March 31, 2021 if that day is before the end of those nine months, if the lay-off occurred before March 31, 2020 and the fixed date or fixed period for the employee to be recalled to work falls or ends, as the case may be, on or after the day on which this paragraph comes into force; and
- (b) to March 31, 2021, if the lay-off occurs during the period beginning on March 31, 2020 and ending on December 31, 2020 and the fixed date or fixed period for the employee to be recalled to work falls or ends, as the case may be, before March 31, 2021, or a later date set out in a notice in writing that meets the requirements of sub-paragraph 30(1)(d)(i).
Consequential Amendment
2 Subsection 2(2) of the Regulations Amending the Canada Labour Standards Regulations (COVID-19) footnote 2 is replaced by the following:
(2) Subsection 1(2) comes into force on April 1, 2021.
Coming into Force
3 These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues
Since March 2020, many employers in the federally regulated private sector have temporarily laid off their employees due to the economic crisis resulting from the COVID-19 pandemic. While provinces and territories have reopened their economy with restrictions during the second half of the summer, economic recovery is only in its initial stages and employment in some federal jurisdiction industries remains severely impacted by the pandemic. As the second wave of COVID-19 is well underway with cases climbing across Canada, the prospect of provinces and territories reintroducing restrictions could lead to additional lay-offs.
Under the Canada Labour Code (the Code), when a lay-off becomes a termination of employment, employees who meet eligibility requirements are entitled to severance pay, termination pay (if notice of termination of employment was not provided) and any accumulated vacation pay. These requirements could put additional pressure on the viability of businesses. This is particularly problematic when many employers see these lay-offs as a temporary measure and they intend to recall these employees once the economic situation improves.
For employees who have been temporarily laid off, although termination could entitle them to severance pay, vacation pay and/or termination pay, the prospect of having their employment terminated could also further aggravate their precarious situation by cutting their ties to employment.
On June 22, 2020, the Government of Canada introduced changes to the Canada Labour Standards Regulations (the Regulations) to extend the allowable time period that employees can be laid off by up to six months. The objective was to give employers more time to recall employees whose employment would otherwise have been terminated due to the duration of the lay-off. These amendments only apply to lay-offs commencing on or before September 30, 2020, after which the previous rules apply to new lay-offs.
With the return to the previous lay-off rules, and with the Canadian economy still in the initial stages of recovery (the unemployment rate was 10.2% in August, almost double the rate of 5.6% in February, but down from a high of 13.7% in May), it is unlikely that these employers will be able to recall the employees they laid off earlier this year in the coming months.
Under the current set of regulatory amendments, employees laid off in March or earlier could see their employment be deemed terminated within the next couple of months. For employers, having to pay the termination, severance and vacation payments of employees could risk the financial viability of their businesses.
Some of the mandatory analytical requirements related to this proposal may have been adjusted as it is related to the Government of Canada’s response to COVID-19.
Objective
The objective of this proposal is to avoid the termination of employment resulting from the COVID-19 pandemic, by giving employers more time to recall employees whose employment would otherwise have been terminated due to the duration of the lay-off.
Description and rationale
The amendments temporarily extend, by up to an additional three months, certain time periods set out in the Regulations to give employers more time to recall employees who have been laid off. Specifically,
- the period of three months or less set out in paragraph 30(1)(c) and extended under subsection 30(1.1) will be further extended
- by three months for employees laid off prior to March 31, 2020, and
- to March 31, 2021, for employees laid off between the period of March 31, 2020, and December 31, 2020;
- the fixed date or fixed period in the written notice given under subparagraph 30(1)(d)(i) and extended under subsection 30(1.2) will be further extended
- by three months or until March 31, 2021, whichever occurs first, for employees laid off prior to March 31, 2020, and
- to March 31, 2021, for employees laid off between the period of March 31, 2020, and December 31, 2020, and where the fixed date or fixed period specified in the written notice occurs before March 31, 2021. This amendment clarifies that the six-month period provided under subparagraph 30(1)(d)(i) is maintained such that if the fixed date or fixed period specified in the written notice is within six months after the lay-off date and occurs on or after March 31, 2021, employers will have until that date to recall their employees.
The amendments to the Regulations are only extending the period of time a temporary lay-off is permitted, or, in other words, the length of time an employer may recall a laid off employee before their employment is deemed terminated. At any point, if an employee’s employment is terminated by the employer, the employer is required to pay the employee eligible termination pay, severance pay and vacation pay as outlined in the Code.
In addition, the time that an employee is laid off will continue to count towards their continuity of employment and will thus be factored into the calculations for termination pay and severance pay if their employment is eventually terminated. The amendments do not impact an employee’s right to eligible termination, severance and vacation pay upon termination.
The amendments do not apply to employees who are covered by a collective agreement that contains recall rights. In addition, they do not apply to employees whose employment has already been terminated prior to the coming into force of these amendments. There is some risk that if an employee was laid off well before March 31, 2020, they could be terminated if they are not recalled to work shortly after September 30th and before the Government announces its new extension. However, these would be employees that would have been laid off for some time, likely for reasons unrelated to the COVID-19 pandemic.
This is a temporary measure and these amendments have no impact on lay-offs beginning after December 31, 2020.
Consultation
The amendments to the Regulations address issues raised in correspondence to the Minister of Labour from stakeholders, submissions to the Minister of Justice on the Time Limits and Other Periods Act (COVID-19), informal discussions with stakeholders, as well as ongoing discussions with provincial and territorial counterparts. Stakeholders were seeking changes to the Regulations to extend the time period that an employee can be temporarily laid off before their employment is deemed terminated. Employer groups are supportive of the changes citing reasons of the economy only being in the initial stages of recovery and concern about the potential implications of a second wave. Unions have cited concerns about employees putting their severance payments at risk if they cannot continue on temporary lay-off for such a long period. Unions want to maintain the current labour standards and ensure workers are not disentitled to their existing rights under the Code.
Cost-benefit analysis
The analytical requirements for cost-benefit analysis (CBA) have been adjusted as it relates to the response to COVID-19. The CBA compares the baseline with the regulatory scenario to provide a qualitative assessment of the incremental costs and benefits. The CBA concludes that the amendments impose minimal costs on employers, employees and the Government.
Baseline scenario
With the economy only in the initial stages of recovery and the potential for some restrictions to be put back in place in light of a second wave, many employers continue to generate little or no revenue at all. In that context, it is unlikely that these employers will be able to recall the employees they laid off earlier this year in the coming months. In the absence of these regulatory amendments, employees who were covered by the current extension would see their lay-off become a termination in the next couple of months, many of them on December 30, 2020.
Under the Code, when a lay-off becomes a termination of employment, employees who meet the eligibility requirements are entitled to severance pay, termination pay and must be paid any accumulated vacation pay. If an employee has completed at least three consecutive months of employment, and if notice of termination of employment was not provided, the employer is required to provide pay in lieu of notice equivalent to two weeks’ wages at the regular rate of wages to the employee. In addition, the employer is required to pay severance pay equivalent to two days’ pay at the employee’s regular rate of wages for each full year of employment, with a minimum of five days’ pay. To qualify for severance pay, an employee must have completed at least 12 consecutive months of continuous employment. Finally, upon termination of employment, the employer must pay out any vacation pay owed to the employee for any prior completed year of employment and for the partially completed current year.
In 2019, the average weekly wage in the federally regulated private sector was $1,204. Assuming an employee has completed one year of employment at the time of his or her termination of employment and that the employee earned the average weekly wage, excluding vacation pay that is owed, the employer would owe that employee approximately $3,613 in severance and termination pay. The cost of severance and termination pay could become a significant financial burden for small employers with 10 employees ($36,130), 50 employees ($180,649) and 100 employees ($361,300). This cost becomes considerably higher for employees that have been with the employer for several years. For those employers who are struggling to earn revenues, have smaller cash reserves and are likely currently accumulating debts, the costs of termination pay, severance pay and vacation pay may affect the short-term viability of their business and create a risk of bankruptcy.
For employees whose employment is terminated, although they are entitled to severance pay, termination pay and potentially vacation pay, seeing their jobs terminated further aggravates their precarious situation. In addition, if their employer filed for bankruptcy or is subject to receivership and is unable to pay termination pay, severance pay or vacation pay, an employee may be eligible to receive a payment under the Wage Earner Protection Program (WEPP). However, the maximum amount that can be paid to a claimant under the WEPP, which is $6,798.57 in 2020, would not cover the full amount of termination pay and severance pay owed to employees who have been employed with the same employer for any lengthy period. For example, an employee with 10 years of consecutive employment earning the average weekly wage would be entitled to $7,226, not counting vacation pay.
For the Government, the risk that a greater number of employers go bankrupt will likely result in additional WEPP payments, which will increase costs for the federal government and, ultimately, taxpayers.
Regulatory scenario
The regulatory amendments extend the time period that an employee can be temporarily laid off before their employment is deemed terminated.
The Regulations have minimal negative cost implications for employers. While employers may incur some implementation costs to update workplace policies and procedures, in the short-term, the changes will provide financial relief to employers by temporarily delaying when they are required to pay termination pay, severance pay and vacation pay, should their employees not be recalled to work after a lay-off. In the medium- to long-term, it will allow them to restart at normal staffing levels when the economic situation improves.
While the Regulations delay when an employee could be eligible for termination pay, severance pay and vacation pay, the Regulations provide greater job security to employees by reducing the risk of lay-offs turning into permanent terminations and improve the chances that they will be recalled when the economic situation improves. Should they not be recalled, the period of lay-off will not impact their continuity of employment and will be factored into the calculations for termination pay and severance pay if they are eventually terminated.
Some employees (who fell under the previous extension) and who have been laid off for more than three months (and potentially upwards of nine months) may prefer to collect termination pay, severance pay and vacation pay at the earliest time possible, as currently required under the Code, and not be subject to a further extension. If they quit their employment during a significantly lengthened lay-off period, they could lose the termination and severance pay entitlements they would otherwise have received.
The cost of implementation of the regulatory changes for the Government of Canada will be low and absorbed through existing operating resources. The resources will be used to update communication and outreach materials, training materials, and inform Labour Program (ESDC) inspectors of the changes.
By providing financial relief to employers and reducing the risk of bankruptcies, the Regulations may benefit the Government by reducing the risk of complaints to the Labour Program (ESDC) regarding unpaid termination pay, severance pay and vacation pay, as well as the number of applicants for the WEPP and any payments made under the program.
The table below provides an overview of the results for the incremental costs and benefits of the regulatory scenario.
| Stakeholder |
Cost Item and Description |
Benefit Item and Description |
|---|---|---|
| Employees | The amendments delay when an employee could be eligible for termination pay, severance pay and vacation pay. Some employees (who fell under the previous extension) and who have been laid off for more than three months (and potentially upwards of nine months) may prefer to collect termination pay, severance pay and vacation pay at the earliest time possible, as currently required under the Code. If they quit their employment during a significantly lengthened lay-off period, they could lose the termination and severance pay entitlements they would otherwise have received. |
The amendments
|
| Employers | The amendments may impose minimal costs on employers to implement any necessary changes to their workplace policies and procedures. | The amendments
|
| Government | The Government will incur some implementation costs to update communication and outreach materials, training materials, and inform Labour Program (ESDC) inspectors of the changes. | The amendments may reduce the risk of bankruptcies, which may reduce the number of applicants for the WEPP. Given that this measure will provide financial relief to employers, the risk of complaints to the Labour Program (ESDC) regarding unpaid termination pay, severance pay and vacation pay will be reduced. |
Small business lens
Analysis under the small business lens determined that the Regulations will not negatively impact small businesses in the federally regulated private sector. These businesses, which represented approximately 95% of all employers in the federally regulated private sector but employed approximately 13% of all employees in 2019, will benefit from the regulatory changes as they will temporarily delay when they are required to pay termination pay, severance pay and vacation pay should they not recall employees after a lay-off.
One-for-one rule
The one-for-one rule does not apply, as there is no incremental change in administrative burden on business.
Regulatory cooperation and alignment
Responsibility for the regulation of labour matters is constitutionally divided between the federal and provincial governments. The federal government has exclusive authority to legislate labour standards for the federally regulated private sector (e.g. banking, telecommunications, broadcasting and inter-provincial and international transportation), federal Crown corporations, as well as for certain activities on First Nations reserves. This includes about 955 000 employees (or approximately 6% of all Canadian employees) working for 18 500 employers.
Labour standards for other sectors — such as manufacturing, construction, primary industries, and wholesale and retail trade — fall within the exclusive jurisdiction of the provinces and territories.
Discussions took place with provincial and territorial counterparts on how they would respectively address the issue of temporary lay-offs and termination of employment. The changes that are made through these Regulations align with similar initiatives taken in Alberta, British Columbia, Manitoba, Ontario and Saskatchewan.
Implementation
The Regulations come into force upon registration.
The Labour Program (ESDC) will reach out to its stakeholders and prepare interpretation and guidance materials to help employees and employers understand their new rights and responsibilities and to facilitate implementation of any necessary changes to employers’ workplace policies and procedures. These materials will be available on the Canada.ca website.
Contact
Douglas Wolfe
Senior Director
Strategic Policy, Analysis and Workplace Information Directorate
Labour Program
Employment and Social Development Canada
165 De l’Hôtel-de-Ville Street
Place du Portage, Phase II, 9th Floor
Gatineau, Quebec
Email: douglas.wolfe@labour-travail.gc.ca