Legal, financial guidance for Canadian architecture firms during COVID-19
With the swift arrival of the COVID-19 crisis, Canada’s economy has gone from boom to bust in a matter of days. How should architects navigate the uncertain economic times ahead? We turned to some experts for advice.
Workforce planning during the COVID-19 pandemic
Marc Rodrigue of legal firm FASKEN offers a run-down of options for employers outside of Quebec looking to manage the unexpected downturn, and if necessary, to reduce their labour force:
1) Voluntary and Involuntary Temporary Layoffs
Provincial employment standards legislation has provisions dealing with situations of temporary lay-offs. Some have specific requirements. Others are more permissive. Ontario, for example, has provisions dealing with temporary leaves up to 35 weeks in a 52-week period (with a number of conditions) and up to 13 weeks in a 20-week period (with significantly fewer conditions). Temporary layoffs that adhere to the statutory provisions will not violate employment standards legislation. Generally, if a layoff lasts longer than permitted under employment standards legislation, termination of employment will be deemed to have occurred.
Collective agreements typically contain layoff provisions. These provisions will typically apply for unionized employee temporary layoffs and recalls. For non-union employees, an unpaid layoff may be considered to be a constructive dismissal unless the employer has a contractual right to layoff or that right is implied by past practice.
2) Other Voluntary Measures for Employees
Employers may be assisted by voluntary measures accepted by employees. These may include:
- a voluntary agreement to reduce pay;
- a voluntary agreement to reduce weekly hours, or implementation of rotating shifts (e.g., one week on, one week off, etc.);
- a voluntary agreement to take an unpaid leave of absence (furlough); and
- a voluntary work sharing agreement (see below for more information).
All of these voluntary measures should be reduced into written agreements. Employers should consider what, if anything, they may be able to provide employees in exchange for these agreements (e.g. compensation, etc.).
3) Other Involuntary Measures for Employees (Short of Termination)
In addition to a temporary layoff, employers may have the following measures at their disposal, without employee consent if the change is not substantial:
- a reduction in pay; and
- a reduction in hours.
Employers should seek specific legal advice before making any unilateral changes of this nature.
4) Work Sharing
The federal government has a work sharing program available for employers and employees. Under the program, if employers and a specific unit of employees agree, those employees may “share” the work being performed by reducing each employee’s work week by as much as 60%.
Under the program, if an agreement is in place between these employers and employees, accepted by Service Canada, Service Canada will provide employment insurance benefits to employees to make up some or all of their lost income.
Work sharing arrangements are subject to an employer application, agreement from employees, acceptance by Service Canada and other qualifying criteria. There are also reporting requirements. Work sharing agreements, once issued, are for up to 26 weeks with the potential for extension. Work sharing arrangements made as a result of COVID-19 impacts may be extended, up to a maximum duration of 76 weeks (subject to approval). Otherwise, work sharing arrangements are typically limited to an overall maximum of 38 weeks.
More information about the work sharing program for those impacted by COVID-19 is available online here.
5) Termination of Employment (Non-Unionized Employees)
Employers continue to have the right to terminate employees’ employment as a result of economic circumstances. Contractual or common law rights, equal to or in excess of employment standards rights, will apply.
For employees who are entitled to common law notice, the economic impact of COVID-19 may impact a common law notice period. If there is a scarcity of work, this may, in particular, act to lengthen a common law notice period – the theory being that it will take longer for the employee to find alternate work in a downturn.
In some cases, depending on how situations develop, there may be grounds to assert that frustration of employment has occurred, which could end the relationship between the employer and employee, and limit an employee’s entitlements. These situations are highly specific and fact-driven. Before asserting frustration of the employment relationship, employers should obtain specific legal advice.
Marc’s full article can be viewed here.
By temporarily laying off employees, employers maintain the employment relationship, allowing employees to return to work when business circumstances permit. A more detailed summary of temporary layoffs, written by FASKEN’s Karen M. Sargeant, can be viewed here.
Cash flow, government subsidy and tax relief programs during COVID-19
Elaine Pantel of accounting firm Shimmerman Penn offers the following analysis:
I’ve been speaking directly with clients about the specific challenges facing their businesses, mainly relating to cash flow priorities. Here are some of the key points we’ve been discussing:
Billings and Collections: As you know, your business’s billing cycle is its financial lifeline, and it’s essential that regular invoicing protocols are maintained. Collecting Accounts Receivable remains a high priority. Business owners and senior management are stepping up to take a more direct role in contacting clients and customers to negotiate terms for payment that work for them, with a goal of maintaining positive relationships. Options for electronic funds transfers, through online banking platforms or wire transfer are becoming more attractive.
Temporary Wage Subsidy: The Federal Government has announced a Temporary Wage Subsidy for Employers. This is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA). Information and details about whether your business qualifies can be found here.
Managing Expenses: Add an expense line to your accounting records to capture financial information related to COVID-19. This includes direct expenses such as supplies, computer hardware, employee cost reimbursements, and also the notional value of owners’ time spent in meetings dealing with changes to the business. This information will be needed to obtain relief from governments, landlords, insurance companies, banks and other stakeholders.
Deferral of Payments: Governments, Landlords, Banks and other stakeholder groups are providing relief through various measures.
- Canada Revenue Agency: Corporations and individuals are permitted to defer the payment of certain tax instalment payments to August 31st. To date, there is no deferral on the remittance of HST and Payroll, as these are funds that businesses hold in trust for the Government.
- Landlords: Canada’s largest commercial landlords have made public statements about deferring rent for certain tenants. The monthly payment includes two components: (1) base rent, and (2) common area maintenance costs (CAM). An option to consider when approaching your landlord is to ask for a deferment or reduction of the base rent, while you continue to pay the monthly CAM.
- Insurance claims: Whether or not your business will be entitled to “business interruption” insurance coverage for losses related to COVID-19 will depend on the specific terms and conditions of your policy. It will also depend on an analysis of the facts surrounding the circumstances of the loss, and how these apply to the policy wording. This is a good time to undertake a full review of insurance policies and coverages.
- Banking covenants: Many credit facilities agreements include “Debt Service” and “Debt to Tangible Net Worth” covenants. These covenants are dependent on the business generating sufficient operating cash flows to cover annual payment of principal and interest as well as maintaining a healthy level of leverage in the Balance Sheet. As earnings of the business are expected to decline in 2020, it is important to approach the bank to reset these covenants to a sustainable level for the business. Prepare a projection of your conservative estimate of revenues and expenditures, and a summary of the costs incurred dealing with the changes in the business.
- Legal contracts: Law firms are assisting their clients to review their legal contracts to understand how contractual rights and obligations under an agreement are affected. This includes situations in which you are a party, where you or your counterparty claims that it cannot perform its obligations under an agreement as a result of an event such as the current pandemic.
For Elaine Pantel’s full article, visit https://www.spllp.com/content/covid19-what-should-your-business-be-doing-right-now.
Finally, here’s an excerpt from the Canada Revenue Agency’s FAQ on its Temporary Wage Subsidy for Employers program:
1. What is the Temporary Wage Subsidy for Employers?
The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA).
2. Which employers are eligible?
You are an eligible employer if you:
- are a non-profit organization, registered charity, or a Canadian-controlled private corporation (CCPC);
- have an existing business number and payroll program account with the CRA on March 18, 2020; and
- pay salary, wages, bonuses, or other remuneration to an employee.
Note: CCPCs are only eligible for the subsidy if their taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million.
The Temporary Wage Subsidy for Employers is limited to the eligible employers listed above.
3. How much is the subsidy?
The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 20, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer.
Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
For example, if you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
4. How do I calculate the subsidy?
The subsidy must be calculated manually.
For example, if you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.
5. How will I receive the subsidy?
Once you have calculated your subsidy, you can reduce your current remittance of federal, provincial, or territorial income tax that you send to the CRA by the amount of the subsidy.
Important: You cannot reduce your remittance of Canada Pension Plan contributions or Employment Insurance premiums.
For example, if you calculated a subsidy of $2,050, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.
6. When can I start reducing remittances?
You can start reducing remittances of federal, provincial, or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 20, 2020.
For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
For the Canada Revenue Agency’s full FAQ, visit https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-subsidy-small-businesses.html