#reorganization #whattoconsider #reorgwithcare
Elon Musk has been making headlines for weeks now after his acquisition of Twitter, and the mass layoff or termination of approximately 3700 employees (or more than half of Twitter’s workforce), followed by the resignations of over 1000 employees after Elon’s #hardcoreorquit ultimatum. A similar story unfolded at Facebook, which recently laid off around 11,000 employees due to consistently poor financial results.
Business acquisitions and reorganizations happen all the time, and it is not uncommon for mass layoffs or other job changes to follow. Mass layoffs may also occur as a result of a significant and sustained downturn in business, as is the case with Facebook. Regardless of the explanation, and even when an employer is forced to close its doors for legitimate financial reasons, they remain obligated to provide employees with any notice or compensation they may otherwise be entitled to receive upon termination (except in cases of bankruptcy, where special rules apply).
While there are of course many factors to consider when planning any kind of reorganization or change that may result in mass layoffs, the following considerations should be top of mind:
- Employee Communications
Apart from the legal ramifications addressed below, news of a mass layoff can have a disastrous impact on a workplace. Employees who are laid off are of course the first that come to mind; but employees who remain with the organization can also be negatively impacted by such news, and the employment uncertainty it may generate. Following a mass termination, employers may experience an increase in morale issues and a decrease in productivity, which may further impact the company’s “bottom line.”
While the exact communication strategy used will depend upon the situation, employers should deliver this news with integrity, sensitivity, and a high degree of professionalism, and should be carefully planned and executed. Suffice to say, tweeting this type of communication is not the typical recommended route.
- Statutory Obligations
Employment standards legislation across Canada sets out specific requirements with respect to termination of employment. For example, in Nova Scotia, the Labour Standards Code (the “Code”) provides employees with more than 3 months of service are entitled to notice of termination. The amount of notice is determined by their years of service:
|Period of Employment||Statutory Notice|
|3 months or more but less than 2 years||1 week|
|2 years or more but less than 5 years||2 weeks|
|5 years or more but less than10 years||4 weeks|
|10 years or more||8 weeks|
Employees are also entitled to receive all wages and vacation pay owing up to their final day of employment, and if an employee is provided with “working notice” then their employer must also ensure all regular benefits and compensation are continued for the duration of the “working notice” period. Special rules apply with respect to employees who have 10 or more years of service. These “tenured” employees may only be terminated for “just cause.”
An employee’s statutory entitlement on termination changes, however, when they are let go as part of a larger workforce reduction. Under the Code, if an employer terminates the employment of 10 or more employees in a 4-week period, then all affected employees would be entitled to receive at least 8 weeks’ notice or pay in lieu. The amount of notice increases depending on the number of employees who are laid off.
In addition, employers in Nova Scotia must also provide notice to government whenever a mass termination is planned. Under the Code, the employer must provide the same amount of notice to government as is required for their employees. The Industry Closing Act further requires employers in Nova Scotia to provide at least 3 months’ notice to government where a reduction of 50 or more is planned. Failure to adhere to these requirements could result in penalties.
Though the rules are not all the same, other provinces have similar regimes in place dealing with group notice and mass terminations. Employers must bear these minimum statutory obligations in mind when planning any kind of reorganization that may result in layoffs.
- Contractual and Common Law Obligations
The statutory obligations set out in the Code represent an employer’s minimum obligations to employees when conducting a group termination. But that’s not the end of the story. Employees are also presumptively entitled to “common law reasonable notice,” which is determined based upon certain factors that are specific to each individual employee, namely their age, years of service, skills and qualifications, and the availability of similar employment. Employers and employees may contract out of this common law presumption, as long as their agreement is in writing; is clear and unambiguous, and does not conflict with the Code.
Any employer who is planning a mass termination should carefully review all employee contracts with their legal counsel to determine the appropriate amount of notice for affected employees, which in some cases may exceed their statutory notice obligations under the Code. Likewise, any employee faced with a prospective termination as part of a mass termination should carefully review their employment contract with legal counsel to determine whether their entitlements are being met.
- Constructive Dismissal
When planning a mass termination, employers must also be cognizant of the impact such a reduction may have on other employees. For example, with respect to the Twitter acquisition, it has been reported that the company effectively ended remote working arrangements and now expects employees to work much longer hours, in addition to making other unilateral changes to their terms of employment.
While from time to time employers may reasonably expect employees to increase their productivity, especially during an economic downturn, doing so in a way that alters an essential term or condition of employment could give rise to a “constructive dismissal.”
A “constructive dismissal” occurs when an employer unilaterally changes an essential term or condition of employment against the employee’s wishes. This may occur, for example, when an employee’s title is changed without their agreement; when their otherwise stable hours of work are changed; or where their pay is decreased. When an employee has been constructively dismissed they are entitled to any compensation or damages they would otherwise receive had they been terminated without cause.
Employers must therefore be mindful not to allow any planned reductions to also result in significant changes to the employment terms and conditions of those employees who remain, or otherwise ensure that employees receive notice of or are otherwise appropriately compensated for any such changes. Ensuring such news is appropriately and sensitively communicated is also important for maintaining a positive and healthy workplace.
Where an employee is faced with a change to an essential term or condition of employment against their wishes, they should discuss this change with legal counsel to determine their legal options as well as how they want to respond practically.
- New Developments – Mass Layoff Class Actions
Last year, the British Columbia Supreme Court certified a class action lawsuit on behalf of over 100 hotel workers against their employer in relation to a mass termination brought about by Covid-19. The employee group in that case alleged that the employer had cancelled their shifts due to a decline in business, and subsequently sent communications to the employees that suggested they could soon be recalled to work. However, the employer then began to lay employees off in groups of fewer than 50 every two months, which the employee group alleged was done in a bad faith effort to avoid the group notice requirements of the British Columbia Employment Standards Act. Although claims relating to breach of the Employment Standards Act was not permitted to proceed, the Court found the class had 11 common issues relating to breach of contract and other claims, and was certifiable.
While wrongful dismissal class actions are rare, such cases further raise the stakes of a mass termination and should be taken into consideration.
It remains to be seen how Elon Musk and Twitter will emerge from its reorganization, and there is currently much speculation on Twitter’s uncertain future. Taking measures to plan and appropriately implement mass terminations can provide both employers and employees with greater stability, and avoid uncertainty where possible.