The outbreak of COVID-19 continues to have a significant impact on businesses across the country. As this situation evolves, business owners and employers have many questions about what this means for their operations and employees.
Topics covered included:
- What steps should be taken now?
- What can employers do as a result of the decline in work resulting from the COVID-19 measures?
- What is a force majeure and how might it apply to COVID-19?
- What legal implications should you be aware of, and how can you address business interruption?
Michael Bordin: Good morning and welcome everyone to this Gowling WLG webinar on COVID-19 and your business. If you've been on the line for a while we appreciate your patience. With this webinar we hope to answer some questions and provide you with some basic information that will help you and deciding what steps, if any, you need to take to address the issues you and your business may be facing. As you know, the impact of COVID-19 has been changing quickly. As a result, this webinar is to some extent a point in time discussion based on current facts as an imagine the list of topics that we could cover is substantial and our time is limited, so we'll focus on four things, potential breaches of contract and force majeure, insurance implications for business interruption, implications for construction projects and employment consideration for employers. On the bottom of your screen, there will be a Q and A button where you can post questions to the presenters. We will address questions at the end. I will be addressing enforce measure and potential breaches of contract.
I want to thank my associate Kevin Columbus and other members of Gowling WLG for their work on the background papers.
Let's move to slide one. The analysis of force majeure as we will see, is very specific to the terms in a written contract into the circumstances faced by each of you.
Some contracts will have a force majeure, clause, which may protect parties from certain obligations under a contract that are caused by extraordinary events often referred to as "Acts of God.
The force majeure clause may relieve parties from some or all obligations or liability under the contract, if such events occur. So what is a force majeure?
The 1975 Supreme Court of Canada decision in the Atlantic Paper Stock Limited, case is still the leading decision.
There the Supreme Court of Canada said a force majeure clause generally operates to discharge a contracting party, when a supervening, sometimes supernatural event beyond the control of either party makes performance impossible.
The common thread is that of the unexpected, something beyond human foresight and skill. So, impossibility of performance is widely considered and applied as the test. Courts will look to several factors when considering a force majeure clause, whether the event qualifies as a force majeure under the contract, whether the performance is truly impossible.
And whether the risk of non-performance was foreseeable and able to be mitigated.
So let's take a look at a sample clause from a distribution agreement on the next slide. I'll be dealing with some of the provisions in the second half of this sample clause and throughout I'll be referring to this particular clause. Read the first part. Neither party shall lose any rights here under or be liable to the other party for damages or losses on account of failure performance by the defaulting party, if the failure is occasioned by government action or terrorism, fire, explosion, flood strike lockout embargo act of God, or any other 'cause beyond the control or the fault or negligence of the defaulting party provided that the party claiming force majeure, has exerted all reasonable efforts to avoid or remedy such force majeure.
So let's then consider on slide three our current situation. Recall always that the party seeking to rely on a force majeure Clause has the burden of proving the clause applies.
The first question is whether the event being relied on is set out in the contract. In the sample clause we just looked at, there's no reference to turn such as play, epidemic or pandemic majeure clauses sometimes do include these words as well as other phrases such as Public Health Emergencies more communicable disease outbreaks if such terms are included in the clause, we would then have to consider whether COVID-19 meets the definition of those terms. In general these kinds of terms have not been well tested by the courts in Canada.
Some of the factors that would be considered would be things such as COVID-19 then called a pandemic for example, by the World Health Organization or by a national, provincial or local government. Has the local regional provincial or federal government declared a state of emergency? As we have seen in these circumstances, this can be fluid and changing over time, there will be points in time when the definition is not met and others when it has likely been met.
There was certainly the case law arising out of COVID-19 testing these definitions in terms. Not just in Canada, but likely in most of the common law world. In the absence of such terms, as we've just described, we could revert to considering whether COVID-19 is otherwise an "Act of God, the sample clause we referred to also says and relies upon failured occasion by government action. Ontario declared a state of emergency and this ordered the closing of workplaces except for the list of essential services, with the right facts and timing, this could trigger the force majeure clause. Another option is what is sometimes called the basket clause, the sample clause, we reviewed also includes any other cause beyond the control andn without the fault or negligence of the defaulting party. Some courts have accepted the use of the basket clause, and the question then becomes whether the event that's being relied upon is truly beyond the parties control or is in fact something that is within the party's control.
Note, that in the sample clause we looked at the event must be without the fault or negligence of the defaulting party provided that the party claiming force majeure has exerted all reasonable efforts to avoid or remedy such force majeure. This will be an important consideration as the court will look at whether reasonable steps have been taken to avoid the impact of COVID-19.So just on that note, an important caveat to remember: that force majeure clauses will be interpreted narrowly and it is very much dependent on the wording of the clause in the contract.
Now let's turn the slide four. Assume that you want to try to rely on a force majeure clause. First, as we've been discussing, you have to show that a force majeure event has occurred, and again, it will depend on the wording of the particular clouds in the current circumstances. We have to look at things like does it include words such as disease or endemic? Does the clause reference government actions, or restrictions or regulations or orders. If not, can you fit it into a basket clause? Interpretation will depend on timing and the ever changing status of COVID-19. For example, was the breach before after COVID-19 was declared a pandemic or before or after a state of emergency was declared. Second you have to show that the forces your event actually caused the non-performance or delay. Things to consider here are whether there were alternative sources for the goods materials or services even if they are more costly. Courts have not been sympathetic to the argument that a party cannot purchase the goods or materials except at prices which render the venture or the contract unprofitable. In fact, Courts have said that the fact that a contract has become expensive to perform even dramatically more expensive, is not a ground to relieve a party on the grounds of force majeure. So you have to ask yourself, "Is there another market available for goods or materials to source them even if it's more expensive. Is the disruption actually due to the virus or the state of emergency or is the disruption due to choices that have been made? For example, failure to move workers online to work remotely or the failure to protect workers in the workplace with the result that they refused to attend the work. Were there issues with the performance of the contract before the pandemic and Government orders arose which are the cause or one of the causes of the breach and which will make it virtually impossible to rely on the force majeure clause. Are other steps available to mitigate or alleviate the potential interruption?And if so, if they've been taken? Also depending on the wording of the clause courts may also consider force ability of the event. Did you enter into the contract when the government action or the issues caused by the virus were foreseeable?
A third factor to consider is if the force majeure might apply, what is the extent of the relief from the contractual obligations? Does force majeure clause specify the form of relief that is available? is a relief limited to a period of time?
When do obligations under the contract resume? The sample clause, we looked at only provides for temporary relief. It readsshall continue as long as the condition preventing performance continues upon cessation of such condition the affected party shall promptly resume on performance they're under or does the clause and all obligations under the contract?
And again, this will depend on the wording and the nature of the event being relied on.
You also have to consider other provisions relating to the cancellation of the contract and damages that have set out in the agreement itself. Is there another out or another remedy that is set out in the contract, is there an obligation to mitigate?
Another important consideration that you need to have in mind are the notice provisions in the force majeure clause.
What does it say about notice and consider giving notice as soon as possible on intended reliance on the force majeure provision. In the sample clause, we looked at it requires prompt written notice of the occurrence of any such condition, the nature of the condition and the extent to which the affected party will be unable to perform its obligations.
So notice is required that reliance is going be made on the provision and also the notice provision requires that each party agrees to use all reasonable efforts to correct the condition as quickly as possible to give the other party prompt written notice it when it is again fully able to perform its obligations. So you can see from this provision that reasonable efforts are going to be required to correct the problem.
Let's move on to slide five, and we'll consider if there's no force majeure clause in your contract or if you have an oral contract, frustration of contract may apply.
However, the doctrine of frustration, generally has a higher standard than force majeure, and it can be more difficult to prove the consequences of frustration may also be different than force majeure which as we have seen, they provide for temporary suspension of the contract. On the other hand, frustration generally means the end of the contract and its obligations. Similar to force majeure there must be an event that occurs to no fault of either party, and which was not contemplated by either party at the time, of the contract, the contract must have become impossible to perform. So again, you have that standard or performance of the contract is in the words of the court a thing radically different from that contemplated by the contract.
Again, it can't be just because it's more onerous or more expensive to perform the contract. It must be positively unjust to hold the parties to the contract. If you are facing a potential inability to perform the contract. What do you do about consider you speaking to your lawyer who can help with the analysis.
Litigation is always uncertain, and the threshold as we've seen for force majeure, and frustration is very high. Consider giving really notice to the party. Think about and during it to dialogue with the other side, especially in these circumstances as they may be facing similar issues. You may be able to work something out. Perhaps, it's delaying performance under the contract or re-scheduling the commitment to a later date or negotiating clearer terms as to when and why the contract might no longer be binding and consider amending your future contracts to include or clarify force majeure clauses. So and with that, I will now turn things over to Scott Beattie who will discuss the insurance implications of business interruptions.
Scott Beattie: Thank you Michael. As Michael mentioned I wanted to be speaking to about business interruption insurance and this topic has been largely from an article that was written a few weeks ago. With heavy credit to my colleagues, Rachel Runge and Kevin Columbis.
That paper is available on Gowling WLG's website through the COVID-19 hub that we've set up so if you haven't read it, you can find it there, a simple Google Search would find it. If you can't find it but would like a copy, please feel free to email any one of us and we make sure you get your hands on it. Now based on all of the unknows at this time, my discussion today is going to have to be quite high level of course, it's almost impossible to predict each and every scenario that's going to arise for each business or each business owner. So for specific questions, what we're saying to people is, first of all, consult with your insurance broker. For the lawyers that are here today, advise clients to consult with their insurance programs. As we are experiencing in real time, the world is changing on a minute-by-minute basis the most reason which is the mandatory closures of all the essential service businesses. Now even before premiered Ford made his order. We started to see a lot of clients with questions as to whether they had be covered for business interruption. And the answer to that question, obviously depends on the specific provisions and endorsements in each individual policy. So that takes us to our first slide today. It's self-evident that at this stage of the COVID-19-endemic businesses are being affected. That is, of course, a significant understatement, particularly in light of the order closing all the essential businesses. The next 14 days, but if we're being realistic likely to be the foreseeable future. So is their insurance coverage available for business in eruption? The short answer is, yes, in broad strokes. What is business interruption?
Typically, this takes perform of a commercial property insurance, that insures against the loss of business income and in some cases, insures against measures necessary to return the insured property to normal business operations.
Now I pause there for a moment, to note that the insurance is typically tied to the property at which the insured business, carries on as opposed to the business itself.
Now, when your typical circumstance insurance coverage is triggered by what's called a physical loss or physical damage. The next part of the equation and I'll get back to the physical loss part, but the next part of the equation turns on whether or not there has been what's call interruption. Most standard, ensuring statements or indemnity agreements require that there be an interruption of business operations that arises directly from that physical loss or damage to the insured property. As we included here interruption is defined generally as the inability to put insured property to its intended use, due to physical loss or damage caused by covered peril taking a few steps back. What is physical loss or damage?
And more often than not physical loss and damage is relatively easy to establish. Think of the examples of a natural disaster. You have your flood to fire your earthquakes proving physical damage is pretty straightforward, in those cases, you have two feet of water in your building, you can't work, you can't access your building because it's burned to the ground. These are obvious examples. What's becoming much less clear as this COVID- 19 situation unfolds, and it's likely to be increased when under the microscope is whether a loss can be considered physical in the context of a global pandemic. A significant hurdle that we foresee for insured as a result of the pandemic that even if they can establish that it was a virus that did cause a physical loss contamination is not usually an insured peril in most business interaction policies and more often than not it's actually specifically excluded from coverage. So again, it's going to be extraordinarily important to review very carefully. The covers that you have on the owner with the broker that said largely following the infectious rates over the past few decades, think SARS the Ebola virus, the insurance market did start to see and sell specific endorsements for coverage that included viruses for diseases as insured perils, but you would have needed the foresight to purchase these additional endorsements which can be quite expensive and we hear from clients is often cost-prohibitive. So unless you specifically, negotiate for this coverage, it's unlikely to be the case that is included in your standard run-of-the-mill commercial property policy.
The insurance market does offer some additional endorsements to protect against interruptions caused by communicable and contagious diseases as well as interruption caused by mandatory closures due to diseases. As you can see from our slides, we'll touch briefly on what's called the civil authority extension and supply change insurance, first of all, civil authority extension if you have this coverage, this will ensure against losses, and extra expenses when a government order denied you access to the property.
This is obviously top-able and there will most likely be an influx of these cases in the very near future, again, the hurdle we hear is that in the typical case, this extension will apply only where the government order is made as a result of some physical disaster. Again, we're back to the example, natural disasters, the fires, the earthquakes. So again, we have the problem as to whether or not viruses, and contamination can be found to be t physical, and whether or not that will be specifically excluded from the policy. Now, I bet and I would suggest that this will certainly find its way to be for the courts and probably in the very near future. Now, we're starting to hear from our neighbors from the south, that there are pressures being exerted on the US government and American insurers to treat viral threat and in that makes such as COVID-19 as a physical and natural disaster. Obviously, we're in relatively early days here, so we don't know how this is going to play out so we're in a bit of a 'wait and see' period to see if any of these pressures have an effect on the government in the American Insurance and whether these pressures migrate up to Canada. The second additional extension I wanted touch on is supply chain insurance, and briefly This is otherwise known as contingent business interruption, which is designed to compensate businesses in the circumstance where a vendor or someone else along the supply chain fails to meet supply obligations, which led to its loss. If you've got this coverage protects against losses, that are sustained from disruptions to your supply chain, including your suppliers and customers. Subject to the specific language of this extension it is certainly possible to have coverage on supplier ceases operations as a result of COVID-19 again, however, we start to see like which like physical damage as a loss, which may again prove to be a hurdle for the insurance listening today. As this stands now proof of some actual physical damage may be necessary. Again, specific questions about these two extensions. We need to be able to answer with an I-to the wording of the actual policy question, but my last slide deals with the common exclusionn of contamination. We've already discussed that. I don't wanna go too much longer on it but we included it because we felt it was worthy of its own slide to highlight the point. Review your specific policies contamination is unfortunately a very common specific exclusion so please pay specific attention to this. Stemming from a virus COVID-19 is likely to be interpreted at first instance as a contaminant, and it may be the basis for an initial denial of coverage, at least.
Now with that said, That doesn't sound like fantastic news, but there has been some action in the United States. Just a few days ago we had our first lawsuit filed in Louisiana by a state court by a restaurant which is seeking a declaration for coverage against its ensure for COVID-19-related losses, under a business interruption insurance policy.
I've heard that as of last night there have been two additional cases that have been filed unfortunately I don't have any information about those at this time, but my colleague has authored an article that is available on the Gowling WLG website, about some of things going on in the United States. And I would encourage you to read that if you can't find it, please reach out to one of us. I mentioned at the outset.Nnobody will be able to foresee all of the circumstances that may give rise to a business eruption claim.
What we're telling people now is, if you have specific questions or concerns, speak with your brokers, report your claims. It may not be easy, it may not be quick but the events of the past few weeks and in the future will certainly have a long-lasting implication for the insurance industry.
Thank you very much and I'm going take this opportunity to pass it over to my colleague, Jordan Diacur to talk about some of the construction implications.
Morning everybody, as Scott set out, I will be speaking about construction law and construction site implications of COVID-19. As Michael mentioned at first and Scott alluded to as well. This is a very fast changing area right now, just within the last 72 hours, we've gone from construction sites being declared either essential or non-essential depending on what they were doing. So the Premier's first public statement about this was that some construction sites would be allowed to remain open for example, hospital construction to the list of essential businesses listing essentially all construction sites, calling them all essential allowing all of these remain open to the premiere again, making a public statement encouraging workers, you don't feel safe on construction sites to refuse to work.
So that's just in the past three days and future if holds. But we can give you some information about the general circumstances applicable to construction. And so what we're going to do in our first slide, is talk a little bit about the standard language in the CCDC-2 Stipulated Price Contract.
This is applicable in many circumstances, not all obviously, many construction projects work on a basis of hiring subcontractors, who quote and receive a purchase order and so in those cases, the purchase order, general conditions will be applicable rather than the CCDC-2 language but CCDC-2 contracts are generally applicable across the board, both between owners and general contractors and between general contractors and subcontractors. So that's the starting point for us in less common circumstances, cost plus unit price, design-build from P3 contracts or if there's a project management contract to CCDC 5-A or 5b, you're gonna need more specialized advice because the language does very a bit between all of those circumstances and of 'course the CCDC-2 language itself can be varied, as well or amended by supplementary conditions, that's done very commonly any large institutions have their own standard set of supplementary conditions that they will apply to the language in this contract. So, as Michael had said when we're talking about delays or force majeure the specific language of the contract does need to be reviewed very carefully to ensure that all steps necessary are being taken.
So if we go to the next slide, what we see in the standard CCDC-2 situation is in clause 65 a set of terms that apply to delays and these aren't usually triggered outside of things like labour disputes, strikes. And so one of the things that we're dealing with now is a question of whether this section clause, 53-653 is triggered in the circumstances of COVID- 19 and what it says if the contractor is delayed in the performance of the work, which is a defined term, defined in the construction documents, by any number of specific events labor disputes, fire unusual, shipping delays, which were hearing have occurred in the last few weeks, unavoidable casualties, which is a defined term, meaning insurable damage, It doesn't have anything to do with the health of many individuals, it has to do with incurable damage like Scott was just discussing, abnormal weather or a broad catch-all clause, which is any cause beyond the contractors control other than one resulting from a default to breach of the contract by the contractor. And it's that broad catch all that is posing the most questions outside of shipping issues because it does seem to apply in circumstances where something like a pandemic is disrupting the supply of labour and in the supply of materials, so where such an event occurs, the contract time shall be extended for such reasonable time is the consultant they recommend. And so, it were, first, to the consultant, first of all. So whether there's a payment certified on the project is going to be an important question, and that's going to be done in consultation with the general contractor. And so, what this clause does, 65 and the standard CCDC-2 contract is it tries to assign responsibility for the delay, allow everybody to put together a period of time that everybody is going to be agreeable to, in terms of extending the contract schedule, rather than assigning responsibility for any costs of that delay because the standard clause says that GC, the general contractor, or the subcontractor but then in most circumstances is not entitled to be paid for delay costs unless the delay was caused by the owner of the consultant or anyone engaged by them.
And obviously in circumstances where the delay is the result of a pandemic that's not going to be the case. So, delay costs aren't going to be something that are applied to the owner or the general contractor depending on the way that the contract is set up, but the contract schedule can be extended and there are several very common amendments to that clause. So, I've mentioned that in the last bullet point there, sometimes there is an addition to say that the delay must not have been possible to mitigate it, by reasonable diligence or due diligence. That's a very common one. It's also a very common for it to be limited rather than just all of the work set out in the construction documents for it to be critical path activities to be specified. If there's a delay on the critical path then this language may be maybe triggered if not, you may not have the protection of this clause.
So again, the language used, the actual language used is key in all cases, if you're dealing with just the standard CCDC-2, what it does and say that a delay can be valid, and it will be done in consultation with the consultant, the engineer, the architect, payment certifier, and we'll determine how much time everybody needs to be given, but the costs of it, aren't something that are allocated under this contract.
Movign on to the next clause.
Now, Michael had mentioned that in general force majeure clauses are often pressure clauses often required notice and CCDC, contracts are no different. The very next clause. 654 in the delay section of the contract mandates no extensions, unless there's a notice in writing of the cause of the delay and that is to be given not later than 10 working days after the commencement of the delay.
And obviously that's a pretty tight time frame is actually when things are changing quickly, so the notice of claim with respect to any delay generally has to one, under this standard language set of the reasons for it.
So what we're seeing in notices of delay is just a broad reference to either the emergency declaration by the province or by the local municipality. The World Health Organization's definition of COVID-19 as a pandemic. Or other various other arguments labor shortage. I'm having people not show up to work, I'm not able to get shipment of my materials, right now, but the causes are generally set out in the notice themselves and that is sometimes made mandatory along with the estimated duration, which may not be possible given in the uncertain circumstances and it's likely effect upon the time to complete the work in any other subcontractors in some cases as well. So, if there's going to be a cascade of problems sometimes that also has to be provided in the notice of writing. Generally, the notice can be very simple to say what the causes are. There may be additional requirements based on your own contract. Upon termination of the circumstances giving rise to the delay generally, it's not required to give notice of the termination of the delay, but some contracts you mandate that as well and often itself, it is something nice to do, at the end of you can say, well now all of those circumstances have been resolved that may also not be possible right now, given the circumstances of COVID-19 it's something to think about and potentially see specific advice about ending in the contract.
I've already talked a little bit about the quote and purchase order situation and the possibility of purchase order general conditions applying, that's really very specific to the individuals that are involved in any particular contracts. I'm not going say anything more about those right now, but that may be another topic for specific advice.
What can we do to take action in order to address these issues?
First, obviously, is review your construction contracts. The specific language matters, doing that either in house or with your lawyer may provide you with a great deal of information about stepsas soon as possible, notice generally ask to be provided within 10 working days of the beginning of the delay or the 'cause of the delay.
Right now, we're coming up on that.
Probably if we were to take the Emergency Declaration, for example, as the beginning of the period of the delay that was on the 17th, and so working days, obviously cut so weekends, but we will be passing 10 days very shortly. It would not be optimal to have to argue about whether notice was given in time.
So what we are seeing is many general contractors, and subs, are seeking to protect themselves by sending out notices in writing with respect to COVID-19 to everybody involved in their projects.
And it's just a type of notice and writing saying, "This is the situation. Some of them are more specific than others, they can say we are dealing with these service interruptions, due to lack of materials, lack of labor but it is for the parties and their lawyers to consider whether notices and writing should be sent and if they receive them, what steps need to proactive steps on any construction project will include reviewing the construction schedule, as it stands, everybody with all stakeholders generall contractor subs, and the payment certifiers or consultants to determine what they're thinking and whether there's any a way of accommodating or working around delays that is given to the entire construction sector at present seems to be defined as essential work can continue.
I say that because the actual list of essential services, has included industrial commercial and residential construction as essential, so it may be possible to continue, at least in some form without compromising progress to and without compromising site security or the safety of workers.
In particular, if there is a payment certifier or a consultant or set of sub-consultants on the project, maintaining lines of communication with them will be key, it may not be possible to do the sort of site meetings that have been done, commonly in the past given that we're not putting our groups of people together in the same room at the moment, but Zoom meetings, the sort of electronic consultation that we're doing right now is an option. Putting everybody together on the same page in terms of what can be done, what extensions are likely to be required, what delays are likely to be face would be very important. If there is business interruption insurance in place, or a builder risk policy potentially, parties and their lawyers should consider whether notices and writing need to be sent other receipt of notice in writing may necessitate a claim being made under business instruction insurance or a builder's risk policy and if there are concerns about side security, and this is something the Premiers are talking about. Safety of workers, sharing washroom facilities sanitation or other employment law issues, advice, both navigating those issues is available. One point that I would make is that there is a distinction to be drawn between unionized, and un-unionized sites labour law inquiries and concerns about collect bargaining agreement and they require more specialized by a company you can find. The Carpenter's Union on your site, for example, it may be slightly different than if you're dealing with an unionized subcontractors and Gowling WLG does regularly publish a construction on newsletter, it's called "Building brief" and there have been a number of publications recently Scott mentioned the COVID-19 hub on our website, but building brief in the construction law newsletter members of the infrastructure team at Gowling WLG have been publishing regularly with updates as things have been changing on a day-to-day basis. And so I put the website there where it's possible to subscribe to the construction law Building Brief, and so I'd encourage you to go there and as well to the COVID-19 hub to look for specific articles that have been written on all sorts of matters to do with construction law. Just in the past week or so, all very topical.
And so now, I'm going to hand the to my associate Alexander Del Bel Belluz who's going to speak about some of the employment law implication.
Alexander Del Bel Belluz : Thank you, Jordan. Scott discussed that this global pandemic has caused a substantial interuption to many businesses and that interuption has resulted in a lot of confusion for employers around how to deal with their employees in these unprecedented times, so whether interuption has caused a downturn in their business or if their business is actually being shut down as a non-essential service provider, or if their business is continuing that they have concerns about the health and safety of their employees.
So, I'm going to focus today on some of the main questions they can get in to our employer clients. And as you all know, and that's every speaker has said before me, this situation is constantly evolving and employment law is struggling to keep up. So what I'll be discussing today, is as Michael pointed out, a point in time discussion, and it's possible and it's actually quite likely that the law will continue to change, to adapt to this new COVID-19 situation.
So turning to the first slide, the first question I'm going talk about, and it's the one that we're probably getting the most often right now is: What can I do if I can't afford to keep my full complement of employees right now?
And the first option that pops into most employer's head is temporary layoffs and most employers are pretty shocked to find out that they don't automatically have the right to do so.
So if you are laying off an employee on a temporary basis due to a shortage of work, you must contractually have the right to do so, or it must be an industry standard otherwise the employee will be able to successfully claim constructive dismissal.
So in other words, you have to have a term in a written employment contract giving you the right to lay that employee off on a temporary basis or your industry has to be one in which lay-offs are standard, so for example, in the construction industry it is generally seasonal and so layoffs are the norm and they're expected in the absence of a contractual provision or an industry standard, the employee may be able to claim that the temporary layoff is a material breach of the terms of their employment and they can then sue for their termination entitlements. So if you have an employment contract with the lay off wording you are able to temporary lay off employees, but you want be sure, that you're following the rules that are set out in the employment standards or how to properly do so there are rules around giving notice what benefits need to be continued and those sorts of things.
Another option that might be available in limited circumstances, would be to simply reduce the number of hours that your employees are working, however, again, in the absence of specific wording in your employment contract or a general practice of reducing an increasing hours of work, there is a risk that an employee could claim that reduction in hours, is a breach of their employment terms and again, claim constructive dismissal.
So with all of that said, there is still a lot of uncertainty right now around how the courts are going to deal with constructive dismissal litigation when it eventually happens. There is a chance that the courts will sort of relax the rules a little bit to deal with this unprecedented situation, but that's something that we don't have the answer to right now. So this is the state of the law as it is and it really does put in lawyers, in a tough spot where you're sort of choosing the less risky option.
Now, given the uncertainty around the layoffs a lot of employers are looking for alternatives or other options for employees who have to stop working on a temporary basis, short of terminating their employment. So if we could go to the next slide, late last week, the provincial government did introduce new legislation that provides a job protected unpaid leave of absence for employees in emergency situations if they fall into one of the listed categories.
So the categories are listed on this slide here. I won't go through each one, but it's essentially if your employee has been directly affected by COVID-19 so whether they've been diagnosed or they're being forced to quarantine or to sell isolate or they have to stay home to take care of a child to school has been closed, they would be eligible to take this emergency leave of absence.
The one category that I will draw your attention to is number four, on the slides. The employer directs the employee not to work in response to concerns that the employee may expose others in the workplace through COVID-19.So that's an important one, because it shows the limited availability of this leave of absence. It's only available to employees who have and directed not to work, because of a health and safety concern. It's not available if they've been directed not to work because of a downturn in business or because of a shortage of work.
So this leave of absence, isn't the complete substitute for having that lay-off language in your employment contracts, but it does provide employees with another option in the events that they are unable to work. A couple of other important notes about employees taking this leave of absence. If an employee approaches you and advises that they need to take this leave for whatever reason, whatever category they fall into, they don't need to provide you a doctors note or any kind of medical documentation and that's just the government time to ease the burden on the health care system at this time. Again, so you're not obligated to pay your employees, if they're taking this leave of absence as I said, it is an unpaid leave, but you are obligated to ensure that their job is there and waiting for them when they are able to return to work.
And finally, employees who are going on this leave if they prior to going on the leave, if they were participating in any kind of benefit plan so for example, health benefits while they're going on the leaf, they are still entitled to participate in those same benefits. So you as the employer are still obligated to pay the premiums on those benefits and to continue them for the duration of belief.
So, for businesses who are actually manage to continue right now, another question that has come up pretty frequently is employers having concerns about the health and safety of their employees. And what they can do if they have a concern that a particular employee could be exposing the rest of the workplace to COVID-19
So there are some specific circumstances laid out on the slide for when an employer is able to send an employee home for concerns like that, and it's basically, if the employee should be self isolating for any of the reasons outlined by the government, but that would be an appropriate circumstance that the employer is able to send them home and there should be no risk to the employer of any kind of discrimination claim.
Now, there are a few ways to go about sending an employee home in the circumstances, and you can work with your employee to figure out what's been a work best. If they have paid sick days available, they are able to take those while they're off of work. Or similarly if they have vacation time, they are able to utilize the vacation time for the two weeks or however long it is, that they need to be away from work.
If neither those options viable. Unfortunately, you are going find yourself again, likely in the situation of either a lay-off or the emergency leave of absence that we spoke about on the previous slide. So again, it's putting employers in between or off in a hard place and again, it does come to the Emergency leave of absence. You would still have those obligations that I just discussed of continuing the benefits for the employee and ensuring that their job is there waiting for them, when they are able to return.
So in situations like that, a lot of employers have been asking how they could be able to continue to support their employees even when they're not able to work, whether it's because of a work shortage or because of illness.
So we do turn to the next slide, there are few options available. The first one is the government has made changes to employment insurance sickness benefits, and this actually doesn't require any work on the part of the employer, the employee is required to quarantines or to self isolate, they are able to apply for the sickness benefits and the employment insurance has waived the one week waiting period so they can apply immediately and they don't have to provide a doctors note to support their applications, that is an option, if they're on that 14 day quarantine.
Another option is the supplementary unemployment benefit program, so this program allows employers to top up the employment insurance benefits that their employees are receiving if they're not working.
So it's similar to the programs that a lot of employers have when an employee goes on maternity leave, and they topped up those benefits. It's a similar situation. It's important to note that these programs, you have to be registered with Service Canada and approve in advance of making any top up payments, otherwise, you do risk insurance climb back. Some of the benefits to the employee because of the income that they are receiving. There's also what's called the work-sharing program. This program is designed to try and help employers to avoid layoffs so it's available when there's been a reduction in the normal business level of a business, and that reduction is beyond the control of the employer. I's basically an agreement between the employer and the employee. The employee agrees to work or reduce number of hours, and then Service Canada agrees. But for the days the employee is not working, they will provide component insurance benefits and they will not claw back the benefits or the payments as a result of the payment that the employees receiving for the days that they do work. So again, it's important that these plans have to be registered with Service Canada and there is always a 30-day waiting period to register these plans.
I would imagine that those timelines are extended right now. So if this is something that you would be considering we would certainly recommend that you move forward as soon as possible and start looking into it. The benefits can be retroactive but just to get it in place as quickly as possible. And after I did these slides, the government actually introduced the Canadian emergency response benefit and that is pretty broadly available to Canadians who are not able to work as a result of COVID-19 and it is available whether or not that individual wouldn't otherwise qualified for employment insurance benefits.
My understanding is that it's about $2000 a month, and it's going to be available from sometime in April, of this year until sometime in October of this year, so that's another good option for employees or even small business owners who are self-employed are eligible to receive this benefit as well.
I think that the government is trying to streamline the application process to get the money out as quickly as they can. So with all of that said, as I mentioned at the beginning, the situation is evolving constantly and each situation employers have different situations with their employees and we certainly strongly recommend that you consult with an employment lawyer before taking any steps regarding your employees to make sure that the strategy you're going to implement makes sense. And it's still in compliance with the law, as a stand at that time.
And with that, I'm going to pass it back over to Michael who I think is going to take some questions.
Michael: Yes, thank you Alex. So we did get a couple of questions that we'll address. One of them is, I was asked "What do I do if I've suffered a business interruption" and I'm going to ask Scott to address that.
Scott: That's a good question, as I mentioned during my talk, the first thing you're going to want to immediately is call in your broker review with your insurance broker exactly what coverages you have in place, just to make sure that that you are able to make a claim.
I gather any and all documents or evidence that you can to support the fact that you've suffered a loss. Have your broker help you in making a claim. If you need to call a Lawyer, please feel free to do so if you're denied absolutely call your lawyer. And the reason I say that is because most commercial policies will have specific timeline within which you have to contest denials. So it's important that you don't sit around on any denials in effect, you might actually need to speak with your broker to ensure that that there are no particular timelines within which you need to actually make a claim.
So, first things first is it's get on the line with your broker.
Michae: Alright, thank you, Scott. And there was a question posed then this is going to be for Alex, and it was perhaps a clarification or someone may have missed this but the question was "can employers essentially force vacation days on their employees in these circumstances?"
Alex: Generally, yes, the law is that employers can control when their employees take their vacation. There is some risk and an employee, if they had already scheduled their vacation for later in the year and now you're forcing them to take it now, could make a claim that that is a bridge of their employment, but it's unlikely and the damages would be pretty difficult to prove.
So yes, it is an option, but again, we would, in each particular circumstance, recommend just consulting to make sure that your situation as an acceptable option.
Michae: Okay, thank you, and there was another question posed. Just give me a moment here to pull it up. And it related to establishing what would make it reasonably foreseeable. I'm sorry, just give me one second here. I want to get the question right.
How does a party prove that an event was not reasonably foreseeable? And this is with respect to a force majeure clause or defense. I'm going to post an answer, and I'll open it up to any of the other panelists if you have anything to add.
First of all, of course whether or not it's reasonably foreseeable you've got look to the language in the contract, and in the clause itself, if you have a particularly detailed force majeure provision it may well be addressed in there, as to what is reasonable and what might be anticipated you're not anticipated.
So that's your starting point is always. I'm looking at what's reasonable in any situation. Courts typically look at what an ordinarily prudent person would do in the circumstances. And specifically with respect to COVID-19 as you can imagine, that is going to be a bit of a challenge to determine when it became reasonably foreseeable that there might be business or an inability to perform the terms of the contract.
So, one might argue that if the contract was entered into last year years ago it may not have been reimbursable or certainly not in the mind of an ordinarily reasonable prudent person but if it was a recent contract that was entered into after this was becoming a clearly an issue, whether it was before or after, there were declarations of emergency made, you may have some issues as to whether it was reasonable to foresee that there could be problems with performance under the contract, and that's going to become more challenging, I think, if people forward. I want open that up for anybody else. Is there anyone else who wants to comment on that?
Okay, there was another clarification requested from Alex. Let me just pull that one up here for a moment. And this is with respect to an employee going off on temporary EI. And the question was whether they have to have their vacation paid out first, do they stay on payroll until that money is used up? Is that something you can address?
Alex: If their being laid off?
Michael: The question was, if the intention is that they will be temporarily on EI whether they need to use up vacation first, or is it an option that one can proceed one way or the other?
Alex: It's an option if you're going to use your vacation first, that might delay your application to is to lay your that availability, but it's an option that you can use your vacation in first, it's not... You don't have to.
Michael: We won't be able to get to all of the questions, there are a number of other questions that we'll address, and we'll respond in writing. I do want be respectful of people's time commitments, and there have been a number of questions asked about whether we'll make the materials available, whether the webinar will be available. So I would say this, we're looking at making the recorded webinar available and our team will provide you with follow-up information as to where you can access that. The same question was asked about the slides. What I would say is, has been mentioned a few times, is that much of the background material, for this is included in papers that are found on the Gowling WLG website. And in fact, what I wanted to say is that over the coming weeks Gowling WLG will be offering some free webinars that will go into more details on topics like this, and additional topics. For example, there's upcoming ones being planned for construction and restructuring. Those will likely also be made available at some point on the website. Currently on the website is a detailed employment webinar, and also another one again, addressing contracts and contracting in to some extent, force majeure.
So we will go off video in a moment and we'll answer the remaining questions. I want to thank you all for joining us today and I want thank Scott, Jordan, Alex others who are behind the scenes at the Hamilton Gowling WLG office for all of their work and for putting this together, thank you and stay safe or going.
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