By Maciej Lipinski, KPMG Law LLP
Mr. Lipinski is a management-side lawyer and Senior Associate, Employment & Labour Law, at KPMG Law.
Canada’s economy has been sending some mixed signals lately. Inflation rates are slowing, and the prospect of a ‘soft landing’ – meaning cooling price hikes without sending the economy into a recession – remains a possibility. Whether or not the economy experiences a recession, many business leaders are laser focused on managing costs and adopting a prudent path forward.
For employers, planning for a range of possible economic and business outcomes is key to lowering risk, riding out current challenges, and capitalizing on opportunities that the year ahead may bring. Depending on labour needs, employers can choose from a variety of approaches that take into account long-term targets, business structure and level of risk tolerance. Consider some common and not-so-common approaches:
Terminations and layoffs
Although a workforce reduction can be a necessary measure to preserve financial resources and help refocus business priorities, it can also present significant legal and business risks. Employers need to weigh these risks and the net impact of reducing headcount against factors such as the cost of rehiring, particularly in a tight labour market. If your company chooses this path forward, seek out the benefit of legal advice and plan carefully. Significant legal liabilities involving termination and severance payments, wrongful dismissal claims, and statutory mass termination obligations can be incurred or possibly mitigated, depending on your approach. Legal claims often arise from how employees perceive their employer handles these matters. Given these risks, there may be other ways to reduce or avoid layoffs entirely, such as automation to increase operational efficiencies, flexible work arrangements, reduced benefit spending or other measures described below.
Changing compensation structures
Where a workforce reduction is a risky or unrealistic option, cost savings can be achieved by changing compensation structures. This may involve temporary wage decreases, bonus reductions or deferrals, and generally replacing high-cost forms of compensation with low-cost or deferred compensation. Ensuring employees receive plenty of advanced notice and thoughtful communications to build support and buy-in can play a crucial role in building long-term team cohesion. It can also help to mitigate legal risks resulting from claims of constructive dismissal or discrimination by affected employees
Employers can benefit from the flexibility and skillsets of contract workers on an as-needed, project-specific basis and without being subject to certain obligations arising from employment standards legislation, such as hours of work, overtime and termination entitlements. However, employers that engage contractors must be prepared to provide this workforce with greater flexibility and freedom than would apply to their employee workforce. For example, while it’s typical for an employee to perform work as scheduled and assigned by their employer, an independent contractor generally has greater freedom to determine their own schedule and complete tasks. Also, mischaracterizing employees as independent contractors can result in legal liability, so seek advice before incorporating contractors into the workforce.
Significant cost-savings and productivity improvements can be realized by integrating technologies into business operations. A recent KPMG in Canada survey of mid-sized business found that 85 per cent of leaders are looking to improve productivity by digitizing their operations, automating and deploying other technologies. By leveraging technologies and adopting new ways of working (e.g. remote or hybrid work), employers can take the opportunity to modernize their workforce and workflow management. Such changes must be approached with appropriate caution and risk mitigation measures to avoid inadvertently triggering a claim of constructive dismissal or discrimination by affected employees.
Economic downturns don’t last forever and don’t uniformly impact all businesses and industries. Leaders who can adapt to change are more likely to spot growth and investment opportunities. When this translates into new staffing needs, your company can hit the ground running by developing a deliberate employment strategy that includes competitive compensation packages and employment contracts with the flexibility needed to pivot and scale-up quickly.
No matter which strategy you take, communicating directly, clearly and consistently with your employees should always be a priority. Employees are aware these are uncertain economic times and recognize that the world of work is changing. An effective and sustained communications strategy can go a long way toward mitigating legal risk and reputational damage. When employees perceive their employers are fair and transparent, employee morale and productivity can remain high and put your business on a positive path to future growth.