For employers who are experiencing a reduction in business activity during this economic downturn, there are positive steps that can be taken to reduce labour costs while still avoiding layoffs or employee terminations. Many employers are considering reducing the number of working days/week by 20 percent or more. There are government-sponsored programs to facilitate such reductions while minimizing the financial impact for your employees.

The Service Canada Work-Sharing Program (the "Program") is one such cost-saving tool for employers.

The following is a summary of the key information relating to the Program, employer eligibility and the application process.

What is it?

The Program is an adjustment program designed to help employers and employees avoid temporary layoffs when there is a reduction in the normal level of business activity that is beyond the control of the employer.

The Program is intended to provide income support to employees eligible for Employment Insurance ("EI") benefits who are willing to work a temporarily reduced work week in order to avoid temporary layoffs.

Who is Involved:

The Program requires that a tripartite agreement be reached between an employer, the affected employees and Service Canada with regard to participation. It is important to note that all employees that the employer deems to be part of the affected unit must agree to participate.

While a unit may consist of any group of EI eligible employees in a particular establishment (and generally includes everyone within a single job description), not all employees of the establishment are necessarily included. Employees who are needed to help generate work and thus assist in the recovery of the business are excluded from the unit and therefore do not need to agree to participate.

Required Work-Week Reduction and Duration of the Program:

In order to qualify, an employer must implement a work-week reduction of 20-60% (i.e., 1-3 days) for a period of 6 — 52 weeks.

Eligibility Requirements

In order to qualify for the program, employers must:

  • have been in year-round business in Canada for at least two years;
  • demonstrate that the need to reduce working hours is unavoidable and that the shortage of work is significant (i.e., at least 10%), temporary and unexpected;
  • demonstrate that it has tried to prevent layoffs through other means;
  • demonstrate through a Recovery Plan that (i) the business can be maintained during the period of the Program’s applicability; and (ii) a return to normal working hours will occur as the economy strengthens;
  • not be undergoing a labour dispute; and
  • have the agreement of the union (if applicable) or its employees individually.

In order to be eligible, employees must:

  • be "core staff" (i.e., permanent full-time or part-time employees who are not seasonal);
  • meet the eligibility requirements for regular EI benefits; and
  • not be participating in a labour dispute.

Employees who were laid off prior to the submission of the Program Application can be included in the employee unit provided that they are deemed by the employer to be essential to the maintenance of the business during the period of the Program Agreement.

Employees needed to generate business, such as managers and others who assign workloads, are generally not eligible for inclusion in an employee unit as they are deemed to be essential to the recovery of the business and therefore should not be working reduced hours.

Program Payment Information:

  • There is no two-week waiting period for Program Benefits.
  • The Program Benefits are payable based on the employee’s normal average weekly earnings and are clawed back if the employee receives earnings above a certain threshold.
  • If the employee is subsequently laid off, the Program Benefits do not affect the employee’s regular EI Benefits.

Limitations on Employers:

  • Employers must maintain all existing employee benefits during the life of the Program Agreement, including payment of statutory holiday pay.
  • Employers cannot increase their workforce during the life of the Program Agreement, but may replace essential employees who choose to leave, with the prior consent of Service Canada.

Program Application must include:

  • an Application for Work-Sharing Agreement;
  • a Recovery Plan; and
  • a list of all Work-Sharing Unit members.

Applications must be submitted at least one month prior to the anticipated start date. All Program Agreements start on a Sunday.

After the Program Agreement Begins:

Employers who enter into a Program Agreement are expected to complete a Utilization Report every two weeks detailing the number of hours worked by each employee in the employee unit.

Lessons for Employers

During these difficult economic times, employers are finding they need to cut costs at the employee level to compensate for reductions in business activity. The Program is a useful tool for employers to avoid terminations and temporary layoffs by reducing the work week, while providing economic support to employees to compensate for the corresponding salary loss. The reduced economic loss for employees decreases the likelihood of constructive dismissal claims. In addition, employers are able to retain their trained and skilled employees, without the cost and hassle of having to recruit and train new employees when business activity levels increase.