The Canada Emergency Wage Subsidy – too much power for employers?

This week, the Government has started accepting applications from employers for the Canada Emergency Wage Subsidy (CEWS), part of the Government’s economic response to the COVID-19 pandemic crisis. This new benefit is unprecedented in scope and is likely to be well received by many employers and employees. However, the design of this benefit arguably leaves too much power in the hands of employers.

What is the CEWS?

The CEWS is a wage subsidy intended to help employers that are struggling due to COVID-19, allowing them to recall employees that have been laid off, and to avoid future layoffs. Eligible employers will receive a subsidy for up to 12 weeks between March 15 and June 6, provided they can show the required reduction in revenue for that period. The Government has not imposed any size limit on eligible employers and has extended the benefit to all types of businesses, as well as not-for-profit organizations and charities. Only public institutions, such as schools and hospitals, are excluded.

How much does the subsidy cover?

The subsidy will cover up to 75% of wages on the first $58,700 that an employee earns, up to a maximum of $847 a week. There are special calculations for employees whose pay has been reduced since before the crisis, and for non-arm’s length employees.

Employees who have been laid off can become eligible retroactively for the CEWS if the employer rehires them. However, if those employees have received the Canada Emergency Response Benefit (CERB), and they will earn more than $1000 per month as a result of being rehired, they will have to repay the CERB.

Does the CEWS give too much power to employers?

This program is new and therefore may be revised and adjusted in response to public criticism, similar to the CERB. The Government may want to consider some of the ways in which this program’s design places too much power in the hands of employers.

No obligation on employers to pay remaining 25% of wages

The Government is not requiring employers to pay the remaining 25% of employees’ wages as a condition of eligibility for the CEWS. The Government has stated publicly that it “expects” employers to make best efforts to pay the remaining salary amounts, but it is unclear whether there will be any mechanism to enforce that expectation. As a result, there is a concern that many employers will recall employees at only 75% of their previous pay rate, or even potentially reduce the pay of existing employees. This program should obviously not create an incentive for employers to pay their workers less.

Employers decide the level of government benefit for workers

The CEWS (up to $847 per week) is a far more valuable benefit than the CERB ($500 per week). A worker who has been laid off due to COVID-19 is only eligible for the CERB, but that worker’s employer could choose to rehire them solely for the purposes of accessing the CEWS, thereby granting that worker access to a significantly larger benefit.

This program therefore gives a huge amount of power to employers to basically decide how much financial relief their workers will receive during this crisis. One way to fix this flaw is to increase the value of the CERB to make it equivalent to the CEWS.

Will the CEWS strengthen a claim of constructive dismissal?

While the CEWS appears to place workers at the mercy of their employers in many respects, one way in which it may hand some power back to workers is in claims for constructive dismissal.

Many employment law experts have questioned how courts will consider claims of constructive dismissal in these extraordinary circumstances. Some argue that the COVID-19 crisis may justify greater changes to the employment relationship than have previously been accepted, on the theory that a reasonable person in the employee’s position would not consider the change to amount to a dismissal in this unique context.

The CEWS offers significant relief to employers in meeting payroll obligations, and so it may play a role in the constructive dismissal analysis. A reasonable employee may, for example, consider themselves constructively dismissed if they are laid off or have their wages reduced, if the employer cannot prove that these changes were necessary despite the presence of the CEWS benefit.

These questions, unfortunately, will not be answered by the courts for some time. Therefore, it is important for employees to obtain legal advice before claiming constructive dismissal, to fully understand the risks and consequences.

[This article is for informational purposes only and does not constitute legal advice, which cannot be given without an assessment of your individual circumstances.]