The following case decision is a cautionary tale for any party confronted with an anticipatory breach or repudiation of a contract—in layman’s terms, when it becomes clear before the end of the contract terms that one party will not fulfill their side of the agreement. These principles were recently applied by the Ontario Superior Court of Justice in Caivan (Creekside) Limited Partnership et al. v. Logoteta et al.,[1] a summary judgment decision involving a failed pre-construction real estate transaction.

A mere acknowledgement of repudiation, or even an internal belief that the agreement is over, is insufficient. Unless the non-repudiating party clearly communicates its acceptance of the repudiation within a reasonable time, the contract remains in force. As this case illustrates, silence can have serious and costly consequences.

Although the dispute arose in a residential real estate context, the Court’s reasoning has broad application across commercial agreements. In particular, it carries important lessons for franchise systems and supply or distribution relationships, where franchisors, franchisees, and suppliers frequently confront defaults, payment issues, and threatened non-performance.

The Facts

In June 2022, the defendants entered into an agreement of purchase and sale with the plaintiffs to buy a pre-construction townhouse in Oakville for approximately $3.31 million, with completion anticipated in July 2024. The defendants paid an initial deposit of $100,000 but failed to make subsequent required payments in August and October 2022, due to difficulties selling their home in the United Kingdom.

The plaintiffs granted an extension to November 10, 2022, warning that failure to pay could result in termination. On November 8, 2022, the plaintiffs advised that if payments were not made by 5 p.m. on November 10, they “will move to terminate the Purchase Agreement and all deposits shall be forfeited.” However, the plaintiffs also stated that if the defendants later became able to make payment and the house remained available, they were “willing to consider in good faith reviving the transaction,” including crediting the forfeited deposits towards the purchase.

The payments were not made by the deadline. Despite their prior warnings, the plaintiffs took no steps to actually terminate the agreement or communicate any acceptance of the defendants’ repudiation.

Several months later, in March 2023, while the agreement remained technically in force, the plaintiffs resold the property to a third party at a lower price. When the defendants subsequently inquired about reviving the transaction, the plaintiffs asserted that the agreement had already been terminated and sought damages. The defendants countered that the resale constituted a breach and demanded the return of their deposits.

The Decision

The Court reaffirmed the settled law on anticipatory breach repudiation does not terminate a contract unless and until the innocent party clearly accepts it. While acceptance may be communicated expressly or inferred from conduct, it must be clear, unequivocal, and communicated within a reasonable time.

The plaintiffs relied on Cachet Summerhill Developments Inc. v. Kaznlson,[2] where the Court termination based on mandatory and unequivocal language stating that the agreement “shall be declared null and void” unless performance occurred. In contrast, the communications in this case fell short.

Here, the plaintiffs’ October 31 and November 8, 2022 letters did not effect termination. Statements that the vendor “shall have the right” to terminate, or “will move to terminate,” contemplated future steps rather than an immediate and final election. Further, by expressly inviting the defendants to revive the transaction if payment later became possible, the plaintiffs affirmed the contract.

When the defendants failed to pay on November 10, 2022, the plaintiffs were required to make a fresh election, either to terminate or to continue with the agreement. They did neither. Their silence meant the repudiation went unaccepted and the contract remained alive.

By reselling the property in March 2023, the plaintiffs rendered themselves incapable of performing the agreement. In doing so, the “tables turned”: the plaintiffs became the breaching party. The Court held that the defendants were therefore entitled to the return of their deposits, with interest.

Why This Matters for Franchise and Commercial Relationships

This decision carries particular significance for franchise systems. Franchisors often grant indulgences, extensions, temporary forbearance, or informal accommodations to struggling franchisees or suppliers. While commercially understandable, such indulgences can inadvertently affirm the contract and eliminate the ability to later rely on an earlier repudiation.

Similarly, communications that reserve rights, threaten future termination, or continue to press for performance may prevent a franchisor (or franchisee) from later asserting that the agreement was already at an end. In commercial relationships failing to clearly accept repudiation can expose parties to unexpected liability.

Key Takeaways

At the core of the decision is a long-established principle of contract law: a repudiatory breach does not, by itself, bring a contract to an end. Termination depends not on the breaching party’s conduct, but on the clear and unequivocal election of the innocent party to accept the repudiation.

The key takeaways of this case are as summarized:

• Repudiation alone does not terminate a contract. Termination requires a clear and unequivocal acceptance by the “innocent” (non-repudiating) party.
• Termination cannot be unilateral or internal. A belief that an agreement is over has no legal effect unless communicated.
• Granting indulgences carries risk. Courts may infer that a party willing to extend time once may do so again.
• Pressing for performance affirms the contract. Once affirmed, the right to accept the repudiation is lost.
• Silence can be fatal. Where there is still time for the defaulting party to cure, inaction may leave the contract alive and shift breach risk to the innocent party.

For franchisors, franchisees, and commercial actors alike, the lesson is clear: when faced with repudiation, contact counsel, decide, and communicate, quickly and decisively. Silence is not termination.

About the Author

Sara Ray Ramesh is a litigation associate at Sotos LLP.  Prior to joining Sotos, Sara gained valuable experience as a summer and articling student at a national full-service law firm in Toronto. Sara has worked on a wide range of litigation matters spanning various practice areas, including general commercial litigation, construction law, and regulatory proceedings. She can be reached at 416.572.7306 or srayramesh@sotos.ca.

[1] 2025 ONSC 1875.
[2] 2021 ONSC 2512.

This article originally appeared in the Canadian Franchise Association’s Legal Digest column. 

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Against that backdrop, while the use of written employment contracts has never been the norm for the restaurant industry, it is argued here that these businesses can utilize these contracts to help address various of the unique labour challenges now faced by the industry.  For businesses that already use written employment contracts, it is recommended that those contracts be reviewed to address their current enforceability as a result of recent court decisions.

Basic principles and considerations applicable to employment contracts

Before discussing the specific content of written employment contracts, it is useful to review some basic principles and considerations applicable to all employment contracts:

1. in order for these contracts to be valid, they must be entered into before the employee starts their employment;
2. if an employee does not have a contract, one can be presented to them for required acceptance at the time of any proposed promotion or proposed new benefit, such as a raise in pay, or bonus;
3. if an employee does have an employment contract, depending on its terms, a new one can be presented to them for required acceptance at the time of any proposed promotion or proposed new benefit;
4. employees are not required to obtain legal advice before entering into an agreement; however, as a best practice, they should be encouraged to do so, or at least given a reasonable opportunity to do so;
5. in some provinces, (such as Ontario) employees cannot be bound to post-termination non-competition covenants. In Ontario, this restriction generally applies to all non-senior executive positions;
6. many employers use employment contracts to limit the amount of common law notice they must give to an employee when they want to terminate the employee for reasons other than for cause. The industry has typically not resorted to written contracts as this is usually not a serious concern for restaurateurs. To that end, most employees are not employed long enough by the same employer for this to matter much; employees who are let go can easily mitigate their damages in markets such as this, and the amounts in issue are not particularly significant for most employers. Nevertheless, many written employment contracts which have been in use contain termination provisions that the courts have invalidated.  These provisions need to be reviewed and updated where possible. More about this below.

Employment contracts provide flexibility

The fundamental benefit of an employment contract is to give the employer flexibility in how the employee can be employed. By way of a few typical scenarios demonstrating the need for such flexibility, in many restaurants these days, managers are increasingly needed to work the floor, the bar, and the kitchen. Without provision for this flexibility in an employment contract, a manager might claim to be constructively dismissed if, for example, they are required to fill the role of a dishwasher for any extended period of time. Similar concerns may arise for an employer with various locations that require its employees to work at different locations as directed by the employer. To the extent this possibility was not set out in an employment contract, depending on the degree of hardship involved in attending multiple business sites, an employee may have grounds to resist such direction. As another common example, consider also the need for the ability to vary or increase an employee’s scheduled working hours, or location where they work, with little notice to respond to issues arising from staff shortages.

The content of employment contracts

While a review of the full range of potential content in a written employment contract for use in the restaurant industry is beyond the scope of this article, the following list touches on a number of key provisions for consideration by an employer when drafting such agreements:

1. Bonuses/ profit-sharing – A written employment contract can address with much certainty how any bonus or profit-sharing entitlement will work. For example, it is not uncommon for the discretionary nature of any bonuses to be described in language which protects the employer and which also makes such bonuses payable only if the employee is employed at the time the benefit is stated to be payable.
2. Compliance with vaccination policies – A written employment contract can specify whether and to what extent the employee is required to comply with vaccination policies and what may or may not be required in the case of any illness or symptomatology. Whether contained in a written employment agreement or not, it is important that you obtain advice on your vaccination policies as there are human rights and accommodation issues that arise that should be addressed when formulating such policies.  Much has been written on the topic and there are divergent views.
3. Restrictive post-termination covenants – Although non-competition agreements for non-senior executives are invalid in Ontario and in many cases in other provinces, there are measures an employer can take to obtain related protections in the circumstance of a departing employee. For example, an employer can be specific as to which intellectual property it is entitled to protect and how it will do so. Those lawful protections are best set out in an employment contract, the fact of which also serves as evidence of the employer’s genuine interest in protecting its property.
4. Modification to benefits – Businesses may also want the flexibility to modify any benefits they may provide to their employees. The right to change or cancel benefits is a matter which can be included in a written employment agreement.
5. Layoff provisions – A written employment contract can also contain an express right of the employer to lay an employee off for a limited period of time without the layoff being considered a constructive dismissal at law. This is a very important consideration given the experience during the pandemic where employers were required to ask employees not to come in from time to time and for lengthy periods. Fortunately, the government also addressed this issue by regulation to support employers during the pandemic, but a properly worded contract can avoid the problem.
6. Notice requirements – A written employment contract can set out how much notice the employee may have to give if they want to quit. Subject to the minimum requirements provided for, in provincial employment standards legislation, the contract can also specify the required notice that the employer must give in a without-cause termination situation.  The parties can also agree on the circumstances in which the contract will be determined to be “frustrated” or terminated as a matter of law, for example, if the employee is unable to work for a certain extended period due to any prolonged health issues. Courts do tend to be extremely rigorous in their analysis of these provisions such that any deficiency will tend to invalidate them in favour of the employee.  The likelihood of such provisions surviving a challenge is increased if notice is not limited to minimum employment standards requirements but rather includes something more, even if less than common law notice.
7. Termination provisions – A written employment agreement is particularly useful in defining what constitutes cause for dismissal which would allow the employer to terminate the employee’s employment without any notice or pay in lieu of notice, such as in the instance of fraud, theft, or deception. Based on recent authority, dismissal for cause is viewed strictly by courts and will not be enforced unless the conduct is extremely serious as reflected by these examples.
8. Severability – A written employment contract should contain a provision that allows any provision which may be found to be unenforceable severable from the balance of the contract so that the balance remains enforceable.

An alternative to employment contracts and independent contractor agreements

As an alternative to requiring the employee to sign an employment contract, before their employment begins, an employee can instead approve a description of their prospective role which is broadly drafted to address certain of the issues identified above.  For the employer who may want to avoid the formality of a more detailed contract, this is a minimum best practice.

If a prospective worker is in fact an independent contractor and not an employee, and the business wants to ensure that the person is categorized as such, a written independent contractor agreement rather than an employment contract is strongly recommended.

There are many critical differences between employees and independent contractors, which can affect the content of a business’s written independent contractor agreement. As a few examples of these differences, independent contractors are not entitled to the various rights and protections contained in provincial employment standards legislation, such as in respect of termination rights, rights to disconnect, vacation pay, etc. It is also noted that a business is not required to withhold and remit for income tax payable by a worker or to comply with other government-required deductions where that worker is an independent contractor (as opposed to with employees).  The taxing authorities, however, will look at the substance of the arrangement to determine if employment taxation applies regardless of the way the parties have described their agreement. A mischaracterization can be costly to a business if monies are found due to the government. To that end, and without being exhaustive, critical indicia of an employment versus an independent contractor relationship include the business’s control (or lack thereof) over hours worked, the worker’s right or inability to work for multiple businesses, the full-time nature of the work, and the ability to exercise control over and provide direction to the worker.  In addition to taxing authorities, other government agencies such as labour boards and workers’ compensation can scrutinize these arrangements and decide the matter on the basis of substance over form.  Legal advice should be obtained before characterizing a relationship as that of an independent contractor.

Further incentives to utilize written employment contracts

In addition to the foregoing benefits of utilizing written employment contracts, these contracts are easy to prepare and can be drafted in a general template form applicable to every position within the restaurant, from the general manager position down to various part-time worker roles.

However, it is crucial to note that any template that was not drafted by a human resources/employment law specialist in 2022 may contain unenforceable provisions or, at worst, may be unenforceable in its totality. For example, as noted above, an employment contract that contains an unenforceable non-competition provision, but which fails to also contain a “severability” clause, may not be enforceable at all.  For businesses with employment contracts like this, it is important that they seek legal advice to determine what strategies are available to them to address this potential concern. To avoid this and other pitfalls, it is best not to use an old form of the employment contract but to obtain advice on preparing a current form reflecting up-to-date industry best practices. Furthermore, it is also highly recommended that existing employment contracts be reviewed regularly by legal professionals to ensure they remain in compliance with the law.  Courts regularly issue employment decisions, some of which can materially change the responsibilities of employers and impact the enforceability of contracts or contractual provisions.

In addition to drafting written employment contracts in response to new legal decisions and employment standards legislation, there are numerous other pieces of legislation that impact employers’ obligations to employees, including those relating to worker’s compensation, occupational health and safety matters, and human rights. Whether or not a business is preparing new employment contracts or updating existing contracts, it is always advisable for employers to proactively undertake periodic reviews of their obligations or have access to resources that update them on what they need to know when managing any sized workforce. For example, we have come across a number of Ontario restaurants that inadvertently missed recent legislative amendments which require them to make their washroom facilities available to those participating in the gig economy, such as third-party delivery drivers. With that in mind, it is recommended that employers review the Future of Work Report which can be found at www.Ontario.ca/document/future-work-Ontario to get a glimpse at where future government regulation may occur.

Allan Dick, Sotos LLP

At Sotos LLP, we assist many franchisors and other businesses in the food service and hospitality industry in handling and advising on employment-related matters affecting them and their systems.  If you have any questions relating to your workforce, please contact the author at  adjdick@sotos.ca or 416-805-8989.

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Written Policy on Disconnecting from Work  

Under the Employment Standards Act, 2000, every employer in Ontario that employs 25 or more employees will be required to have a written policy in place for all employees with respect to disconnecting from work.

Disconnecting from work means “not engaging in work-related communications, including emails, telephone calls, video calls or the sending or reviewing of other messages, so as to be free from the performance of work”.

Employers will have until June 2, 2022 to develop and implement this policy and provide employees with a copy.

As yet, there are no specific enforcement mechanisms or consequences for employers who breach the terms of their own disconnecting from work policies.

In developing disconnecting from work policies, employers will need to consider how to eliminate communications outside of employees’ scheduled working hours. This need not be complicated. For example, many email service providers such as Outlook provide options to delay sending messages until a certain date and time allowing employers the flexibility to write emails outside of normal working hours if they wish, but to schedule the delivery of those emails during employees’ working hours.

Regardless of the lack of enforcement mechanisms outlined in the legislation, employers in Ontario should nevertheless be cautious about their work-related communications as they may trigger potential overtime pay obligations when employees perform work outside of their regular hours. Likewise, employees are encouraged to record all the hours they work, including those that are done outside of normal working hours at the request of their employer to ensure they are properly and fairly compensated.

More detail will likely follow when regulations to the Employment Standards Act, 2000  are updated. In particular, it is likely that certain groups of employees will be exempt. These may include the same groups of employees who are already exempted from various parts of under the Act, such as information technology professionals, registered medical practitioners, and certain salespeople who receive commissions.

Prohibition on Non-Compete Agreements

Effective October 25, 2021, employers can no longer enter into a non-competition or “non-compete” agreement with an employee.

These are defined as “an agreement, or any part of an agreement, between an employer and an employee that prohibits the employee from engaging in any business, work, occupation, profession, project or other activity that is in competition with the employer’s business after the employment relationship between the employee and the employer ends”.

There are two exemptions from this absolute prohibition.

The first exemption extends to executive-level employees who hold the job title of:

That list is non-exhaustive and the exemption will apply to “any other chief executive position”.

The second exemption relates to scenarios involving the sale of a business. If as part of the sale, the purchaser and seller enter into an agreement that prohibits the seller from engaging in any business, work, occupation, profession, project or other activity that is in competition with the purchaser’s business after the sale and, immediately following the sale, the seller becomes an employee of the purchaser, the prohibition on non-competition agreements does not apply.

From a practical perspective, these legislative changes are unlikely to alter the course of the law in this area. At common law, non-competition agreements in Ontario were rarely upheld by courts in respect of most employees. These changes mean there is no longer any debate about this issue.

Employers who have non-competition agreements as part of their standard form employment contracts for non-executive employees should amend their employment contracts as soon as possible to remove them. Although the legislation provides that all non-competition agreements are void effective October 25, 2021, there are potential and serious consequences of the legislation if employers do not proactively remove non-competition agreements from existing employment contracts. For example, employees might be able to argue that the presence of a non-competition agreement in their employment contract renders their entire employment contract void and unenforceable.  This could result in heightened liabilities for employers when terminating the employment of their employees.

Licencing of Temporary Help Agencies and Recruiters

Among the more substantial changes to the Employment Standards Act, 2000 are the introduction of licencing and other requirements for temporary help agencies and recruiters.

In order for temporary help agencies to be licenced they will have to provide, among other things, statements acknowledging their obligations and the various prohibitions under the Employment Protection for Foreign Nationals Act, 2009, in addition to paying a fee and a security for potential unpaid wages. The amount of the licencing fee and security has not yet been set out in the regulations to the Employment Standards Act, 2000.

Licences will be capable of being suspended or revoked based on grounds that will be determined by the Director of Employment Standards.

Following the implementation of these changes, employers will be required to retain only licenced temporary help agencies and recruiters.

Access to Washrooms for Gig Workers

One of the additional changes introduced by Bill 27 is an update to the Occupational Health and Safety Act which will require the owner of a workplace, such as a restaurant or other business, to provide access to a washroom for any worker who is picking up or dropping off an item for delivery.

Systemic issues facing gig workers, such as their lack of entitlement to minimum wage and other basic employment standards, were not addressed in Bill 27, however, those issues are likely to become a topic of discussion and potential legislative reform in light of The Future of Work in Ontario Report. This report recommends that Ontario: “create and recognize the dependent contractor category for gig or platform workers in the app-based space and give this category of worker basic employment rights, such as termination pay, minimum wage, minimum or core benefits, regular payment of wages, pay stubs for pay accountability and notice of termination with severance entitlement”.[1]

Please contact Louis Sokolov at lsokolov@sotos.ca to discuss Bill 27 or issues concerning gig workers.

[1] The Future of Work in Ontario Report, p. 68, Recommendation 15.

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While it may seem like a straightforward decision for all employers to adopt a COVID-19 vaccination policy, there is no one-size-fits-all approach and answers to questions surrounding whether vaccination can be made mandatory in workplaces fall squarely in a grey zone.

To help make sense of this tricky area, here are factors that employers who are considering adopting a COVID-19 vaccination policy should take into account:

Should Employers Have a Mandatory COVID-19 Vaccination Policy?

Employers across Canada have a legal obligation under occupational health and safety legislation to provide their employees with safe workplaces and to take all reasonable precautions to protect employees from getting a work-related illness.

For many employers, implementing a COVID-19 vaccination policy may be one effective way of meeting this legal obligation and providing a safe workplace for all staff in addition to clients and members of the public who may enter the workplace.

The vaccines available in Canada are currently thought to be between 80% and 95% effective in either preventing infection, or preventing symptoms of COVID-19 in the vaccinated person. More studies and time are needed to understand exactly why the vaccines are effective and whether vaccination also affects potential asymptomatic transmission of COVID-19 between a vaccinated person and a non-vaccinated person.

Although immunization is one of the best ways of preventing COVID-19 transmission and infection in workplaces, it does not mean that a vaccination policy will be necessary or justified for every workplace.

Is a Workplace COVID-19 Vaccination Policy Necessary or Justified?

It depends. Not all workplaces pose the same level of risk of infection and transmission either to employees or to others who enter the workplace.

Health care institutions, shelters, child care centres, educational institutions, industrial settings (including factories), retail establishments, hospitality sector settings (including restaurants), grocery stores, and office settings all have different risk factors to consider in determining what a reasonable policy might look like.

Employers should consider the following in determining whether a policy is necessary or justified:

• Ability to work from home. Can employees perform their job by working remotely at home? If yes, is it necessary to require vaccinations and order employees to return to the physical workplace? Or is it possible to continue with a work from home arrangement while public health guidelines continue to recommend it? Are there issues concerning staff productivity that cannot be addressed other than by a return to the physical workplace?
• Physical proximity. If employees cannot work remotely from home, can they safely practice physical distancing, masking, and good hand hygiene at work? Do the requirements for physical distancing, masking, and good hand hygiene pose a significant impediment or challenge to operating the employer’s business?
• Vulnerability of clients or members of the public served. Does the workplace involve the provision of care or services to a vulnerable group? (e.g. healthcare employees in a long-term care setting)
• History of workplace transmission. Have employees or anyone else entering the workplace become infected with COVID-19? Is immunization likely to significantly alter the current risk of infection in the employer’s particular workplace?
• Timing of vaccination: What is the demographic of the workplace? Do all employees fit within one of the groups given priority status in receiving a vaccine in Canada? Or will certain employees become vaccinated sooner than other employees and receive preferential treatment because of their immunization status?
• Available healthcare infrastructure. Is the workplace situated in an area with reduced access to healthcare infrastructure? Is the workplace situated in a COVID-19 “hotspot”?
• Unionized setting. Is there a collective agreement and/or a joint health and safety committee that should be consulted and have input into the development of the policy?

Employers should avoid boilerplate policies that do not take into consideration the specific circumstances of their workplace. A policy for a healthcare or industrial setting in which employees cannot work remotely and have challenges practicing physical distancing and other preventative measures will necessarily look much different than a policy for an office setting in which employees can work remotely for the foreseeable future.

As employers consider drafting their policies, it should be kept in mind that it is unclear how courts or boards of arbitration may respond to any potential legal challenges to vaccination policies brought forward by unions on behalf of employees, or employees themselves in tribunals or courts.

In the past, some unionized employees have successfully challenged vaccination policies implemented by employers. For example, in the case of Sault Area Hospital and Ontario Nurses’ Association, 2015 CanLII 55643, the Ontario Nurses Association objected to the implementation of a “vaccinate or mask” policy that required healthcare workers in a hospital setting to wear surgical/procedure masks each year throughout the five to six month flu season if they had not received vaccination for influenza. The union’s position was that the policy was an unreasonable exercise of a management right. The arbitrator agreed with the union after hearing from several leading experts in epidemiology and the employer was not permitted to implement its policy.

However, COVID-19 is much more lethal than the flu and there are indications that arbitrators and courts may reach different conclusions about workplace policies relating to COVID-19. In Caressant Care Nursing & Retirement Homes v Christian Labour Association of Canada, 2020 CanLII 100531, the union challenged the employer’s policy requiring mandatory testing of all staff at a retirement home for COVID-19. The union argued that COVID-19 testing is painful and a serious invasion of an employee’s privacy. The arbitrator disagreed, holding that in weighing the intrusiveness of the COVID-19 test against preventing the spread of COVID in a retirement home, the employer’s policy was a reasonable one.

Can Employers Make Vaccination Mandatory For Every Worker?

The short answer is, no.

Employers can strive for 100% vaccination rates in their workplace, but there are limits to making a vaccination policy mandatory for every employee.

Employees may refuse to become vaccinated and must be accommodated by their employer to the point of undue hardship if the basis of their refusal is related to:

Medical reasons: Employees who cannot receive a vaccination because they may suffer an adverse reaction (e.g. employees with allergies at risk of anaphylaxis), employees who take medications that are contraindicated with the vaccine, or employees who are otherwise advised by medical practitioners to not take the vaccine, may refuse to become vaccinated.

Religious or moral reasons: Employees who object on the basis of religion or freedom of conscience may also refuse to become vaccinated.

Employees may be required to provide documentation to an appropriate person within the employer’s organization to substantiate their refusal to become vaccinated.

Employees’ Charter rights and human rights can engage complex considerations on the part of an employer. Employers should seek advice to understand how to meet their obligations to employees who cannot or will not become vaccinated on these grounds.

Employees who cannot become vaccinated or refuse to become vaccinated should be prepared to discuss what accommodation they are seeking from their employer and recognize that their requested accommodation may not be provided, but other reasonable alternatives may be provided instead.

Generally speaking, if an employee cannot be accommodated by being provided with modified work or an accommodation in the form of working from home, or working different hours, then an employee is entitled to take a job-protected unpaid infectious disease leave in connection with the COVID-19 pandemic. In Ontario, employees are entitled to remain on infectious disease leave until at least July 3, 2021, or potentially longer if they meet certain conditions.[1]

While valid exemptions from vaccination must be respected, vaccine hesitancy will also give rise to challenges in the workplace. Although these types of concerns will not trigger the same obligations in the form of accommodation, employers should seek to understand their employees’ concerns and determine if they will choose to hold townhalls or other information sessions to strongly encourage vaccination and provide credible information concerning its safety and efficacy.

Can Employers Require Proof of Vaccination?

Several sectors in Canada are contemplating “immunity passports”, or standardized documentation that proves a person has been vaccinated in order for that person to access services such as airline travel, or attending sporting or entertainment events with large groups in attendance.

While there is a precedent for requiring proof of immunization in certain contexts such as travel (e.g. yellow fever certificates for entry to countries with persistent transmission) and education (e.g. vaccination of school aged children against certain infectious diseases), the application of an immunity passport in a workplace setting is a new one that may present challenges.

Before employers invest in apps or other programs designed to verify employees’ vaccination status, they should consider the following:

Form of proof of immunization: Which documents will be considered valid in substantiating vaccination? Will employees be required to undergo anti-body testing? Will medical certificates from healthcare providers be required? What information must be included in a medical certificate? Who will pay for anti-body testing and/or medical certificates?

Privacy of personal health information: Who is gathering employees’ personal health information regarding their immunization status and what protections are in place to safeguard the privacy of the information? Who within the employer’s organization will have access to the personal health information?

How proof of immunization will be used: What privileges or responsibilities will employees who provide proof of vaccination receive? What privileges or responsibilities will be withheld from employees who have not been vaccinated or who do not provide proof of vaccination? Will this cause morale issues?

If employers choose to implement a workplace COVID-19 vaccination policy and collect proof of immunization and other personal health information belonging to their employees, they must ensure that strict privacy controls over the information is maintained and that the information is shared with as few people as possible and only for the purpose of managing attendance at the employer’s premises.

Can Non-Vaccinated Employees Have Their Employment Terminated?

Whether employers can make vaccination a condition of ongoing or new employment is a question that can only be answered by looking at the full context of the workplace.

Requiring vaccination as a condition of employment may be a justifiable or reasonable requirement if the circumstances of the workplace make it impossible for employees to perform their jobs remotely and other factors make the workplace one that is at high risk of transmitting COVID-19 in the workplace.

Some employers may consider revising employment contracts to make vaccination mandatory, except in the case of the valid exemptions described above. If employers choose this approach, they should consult with legal counsel to ensure the new contracts will be enforceable.

Bottom Line Practical Advice for Employers

Implementing a workplace COVID-19 policy requires careful consideration. Employers should assess the particular circumstances of their workplace and consult their employees to determine their present intentions on receiving, or not receiving, the COVID-19 vaccine once it becomes available to them. Surveys determining employees’ vaccination willingness should be anonymous.

If employers determine that a vaccination policy is necessary, the logistics of how information and expectations concerning vaccination will be communicated to employees and how proof of immunization will be collected should be determined well in advance. Internal processes for employees requesting workplace accommodations for valid exemptions, and the drafting of any new or revised employment contracts should also take place early in the process.

Finally, employers should keep in mind that even if they are successful in achieving high rates of vaccination within the workplace, because the available COVID-19 vaccines are not 100% effective and their effect on asymptomatic transmission is unclear, other prevention measures including physical distancing, masking, and good hand hygiene should remain in place in workplaces until public health guidelines change.

For assistance with COVID-19 employment related questions, please contact Louis Sokolov. Louis regularly provides employment law advice to our clients. Louis can be reached directly at 416.572.7316 or lsokolov@sotosllp.com.

[1] Infectious Disease Emergency Leave, O. Reg. 228/20.

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Constructive Dismissal Under the ESA and at Common Law

Employers do not have an unrestricted ability to temporarily lay off employees from their employment. In order for an employee to be temporarily laid off, it must be an express term of their employment contract that the employer is entitled to place the employee on temporary lay-off and recall them at a later date.

These laws are intended to promote job stability and protect employees from their employers improperly laying them off. Employers that place employees on temporary lay-off without the proper contractual provisions in place, or, employers that reduce employees’ hours of work or overall remuneration by 20% or more, are vulnerable to a claim by an employee for constructive dismissal.

The New Infectious Disease Emergency Leave Regulation under the ESA

On May 29, 2020, the Ontario government introduced a new regulation to the Employment Standards Act, 2000 which removes employees’ protection from improper temporary lay-offs and reduced hours and remuneration, and expands employers’ power to implement such changes unilaterally.

Under the Infectious Disease Emergency Leave[1] regulation a temporary reduction or elimination of an employee’s hours of work by their employer for reasons related to COVID-19, or, a temporary reduction in an employee’s wages by their employer for reasons related to COVID-19 will be deemed to not constitute a constructive dismissal under the Employment Standards Act, 2000. [2]

The regulation also converts temporary lay-offs during the COVID-19 pandemic to “infectious disease emergency leave” [3], which is an unpaid leave under the Employment Standards Act, 2000 that was recently created to allow employees to take an unpaid leave of absence from work due to COVID-19 related reasons. This effectively eliminates employees’ ability to claim constructive dismissal if they were either improperly temporarily laid off, or, if their temporary lay off exceeded 13 weeks.

Time Limits for Relying on the Regulation

Employers may only rely on the new regulation for imposing temporary lay-offs or unilaterally reducing hours or wages for the period of time beginning on March 1, 2020 and ending on whichever date is six weeks after the provincial declaration of emergency order is terminated. For example, if the province of Ontario terminates the declaration of emergency order on July 3, 2020, employers could continue to rely on the regulation until August 14, 2020 after which point the usual employee protections under the Employment Standards Act, 2000 will resume.

One time-based exception to the application of the regulation is for employees who, as of May 29, 2020, had already been on temporary lay off for a period longer than 13 weeks in a 20 week period.[4]

Certain Constructive Dismissal Claims May Survive

Notwithstanding the introduction of this regulation, employees may continue to advance constructive dismissal claims in a number of scenarios.

Employees that are exempt from the coverage of the Employment Standards Act, 2000 and unionized employees are not subject to the regulation. In the case of unionized employees, the terms of the collective agreement provisions will continue to apply in governing the terms of their employment.

One area of uncertainty concerns whether employees with contracts of employment governed by the common law, such as employees without any written employment contract, may be permitted to advance a claim for constructive dismissal at common law and argue that the new regulation does not apply to them. This argument has not yet been tested in courts or tribunals and it remains to be seen how the regulation may be interpreted in that context.

[1] Infectious Disease Emergency Leave, O Reg 228/20.
[2] Infectious Disease Emergency Leave, O Reg 228/20, s. 7.
[3] Infectious Disease Emergency Leave, O Reg 228/20, s. 4(1), s. 6(1).
[4] Infectious Disease Emergency Leave, O Reg 228/20, s. 6(2) and s. 7(2).

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Take Employee Health Concerns Seriously

While not every business in the hospitality industry has been able to keep its doors open, many have and are adapting to a new normal with a sharply reduced staff complement. With exposure to the public and to other workers, employees are likely to have concerns about their health and safety at work. Employers should take these concerns seriously and discuss them with their employees and any relevant committees. For an employee to refuse to come to work, their health and safety must be endangered, not just at risk. Employers must educate themselves to recognize the difference. Failure to protect employees’ health not only results in an unsafe working environment for everyone, it could also result in labour inspection orders or fines.

Provide Job-Protected Leaves and Workplace Accommodation

Employees who have contracted COVID-19 or who are taking care of an ill family member are protected by human rights and employment legislation. Some employees who are not ill may require workplace accommodation to care for children who are not attending school or daycare due to COVID-19 related closures. Where working from home is not an option, employers may need to provide other accommodation such as a different shift or provide a job-protected unpaid leave of absence. Employers need to individually assess each request for accommodation to determine what can be done, up to the employer’s undue hardship. Where employers suspect an accommodation is required but an employee has not requested it, employers have a duty to inquire.

Understand Lay-offs and When Termination or Severance Pay Is Required

The notion of temporary lay-off is widely misunderstood. The only time a legal right to temporarily lay off employees arises is when there is a written employment contract or collective bargaining agreement in place that expressly allows for temporary lay-offs. Without this, employees are entitled to claim constructive dismissal and seek termination and/or severance pay under employment legislation or at common law, where applicable. This does not mean every employee who was put on temporary lay-off when they should not have been is likely to rush to sue their employer in the current climate, but employers should be aware of the risk.  Employers might consider negotiating an improperly laid-off employee’s return to work by recognizing the employee’s duration of employment as being unbroken in exchange for the employee relinquishing their right to claim constructive dismissal. This represents a win-win situation for employees looking to return to work and employers who are eager to welcome them back.

Where permanent lay-offs are necessary, employers need to provide notice of termination of employment or pay in lieu of notice to employees. Each employee’s circumstance is unique and employers must take care to ensure they are meeting all of their legal obligations, including paying all outstanding wages and providing fair and adequate notice in order to avoid director liability for unpaid wages and potentially costly constructive dismissal or wrongful dismissal lawsuits in the near future.

Consider Continued Employment for Certain Key Employees

Employers need to move beyond a siege mentality and shift gears to planning for the near future when restrictions are loosened but physical distancing remains necessary. For this purpose, marketing employees, general mangers and executive chefs will all prove to be crucial employees that employers should retain, even if only on a part-time basis for the time being. For employers in the foodservice industry, a shift to a predominantly take-out or delivery model means menus will likely need to be reinvented or changed substantially and interiors redesigned to make guests feel at ease if and when they dine in. Employers in the accommodation sector should also shift their focus to attracting local guests who are apt to be wary of air travel or being far away from home. Teams need to continue to work together if innovative ideas and strategies are to be successfully developed for the post-COVID-19 era and that means continued employment for at least some employees.

Embody the New Characteristics of Successful Businesses

Now more than ever, consumers report that their spending decisions are tied to how well they think businesses treat their employees. A recent study found that empathy, patience, support and cooperation may be the new characteristics of successful businesses following the COVID-19 pandemic. While it may seem prudent to take an approach that favours cash preservation above all else, employers need to treat their workers with respect and be seen to be doing so. Emerging on the other end of the COVID-19 pandemic requires strong teams and thinking ahead to a future which promises both radical change and unprecedented opportunities for the entire hospitality industry.

With over 40 years of experience servicing the hospitality and franchise industry, Sotos LLP is actively involved in providing employment related legal advise. Our lawyers are actively engaged in helping industry participants address their employment related issues related to COVID-19.

Allan D.J. Dick, Sotos LLP

Allan is the co-managing partner of Sotos LLP and sector leader of the firm’s Restaurants practice area. Allan is a trusted primary advisor to many top franchisors, with more than three decades practising law in the franchising, licensing and distribution industry. Allan has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. He can be reached at adjdick@sotosllp.com or by cell at 416.805.8989.

This article was originally published by Foodservice and Hospitality magazine in June 2020 issue. 

The post COVID-19 Employment Considerations: Now and Later appeared first on Sotos LLP.

In response to the economic hardships caused by the outbreak of COVID-19, the government of Canada has passed legislation that establishes two wage subsidy programs that are aimed at assisting eligible employers, as well as certain measures to alleviate the pressures that businesses and employers are experiencing. Some of those measures were highlighted in an article prepared by Louis Sokolov of our firm as of March 19, 2020. An updated summary of the subsidies and the measures released to date is set out below.

Sotos LLP will continue to monitor government announcements and we will update and circulate this Informational Circular as warranted.

1. The Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (the “CEWS”) provides a subsidy of 75% of eligible remuneration that is paid by any eligible employer to each eligible employee, up to a maximum of $847 per week. The subsidy is intended to help eligible employers re-hire workers, prevent further job losses and ease back into normal operations.[1]

The CEWS was initially available for three 4 week periods from March 15, 2020 to June 6, 2020, and has been extended to June 30, 2021.

Eligible employers include individuals, trusts, taxable corporations and partnerships (consisting of 50% or more eligible employers), as well as non-profit organizations, registered charities and certain indigenous government-owned corporations.  Further, to be eligible, employers must have had a Canada Revenue Agency (“CRA”) payroll account on March 15, 2020 and have experienced a revenue drop. The amount of subsidy per employee is based on the size of the employer’s revenue drop.

For the purposes of the CEWS, an employer’s qualifying revenue means the inflow of cash, receivables, or other consideration arising in the course of its ordinary activities in Canada in a particular period.  Employers may calculate their revenues under either the accrual method or the cash method, but not a combination of both, and must use the same accounting method for all claims.

As of claim period 5 (July 5 to November 21, 2020), there is no minimum revenue drop required to qualify for the subsidy.  The rate that an employer’s revenue has dropped is only used to calculate how much subsidy they will receive for each period.  The federal government’s CEWS webpage provides an online calculator to establish the employer’s revenue drop for periods 5 and later while also calculating the amount of subsidy.

Subsidy rates vary, depending on how much the employer’s revenue has dropped.  Employers whose revenue dropped less than 30% can still qualify and also keep getting the subsidy as their employees return to work and their revenue improves.

As of claim period 5, there is also increased flexibility in how employers calculate their revenue drop.  Employers can use the current period’s revenue drop, or the previous period – whichever works most in their favour.  Even if the employer’s revenue has not dropped for the claim period, they can still qualify if their average revenue over the previous three months dropped by more than 50%.  Further, employees who were unpaid for 14 or more days may be included in the calculation.

Beginning in period 8 (September 27 to October 24), the top-up rate and base rate are calculated using the same one-month revenue drop.

Eligible remuneration can include salary, wages and other remuneration such as taxable benefits.  It does not include severance pay, or other items such as stock options.

For claim periods 1 to 4, employers must have demonstrated that their eligible revenue dropped by a minimum amount in order qualify for the subsidy, in which case the subsidy calculation used a fixed rate of 75%.  An employer’s revenue drop for a claim period is calculated by comparing the employer’s eligible revenue for the claim period month to the eligible revenue from a corresponding previous period.

The claim period is the period for which an eligible employer can claim the wage subsidy for remuneration paid to eligible employees.

The current reference period is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable prior reference period, to determine its revenue reduction.

The prior reference period, with respect to a claim period, is the period in respect of which an eligible employer’s qualifying revenue would be compared to its qualifying revenue in the applicable current reference period, to determine its revenue reduction. The applicable prior reference period in respect of a claim period will depend on the approach the eligible employer chooses to compare its revenue.

[2]

* For claim periods 5 and later, applicants will calculate 2 revenue drops and use the higher result in their base rate calculation.  The baseline revenue is determined by the prior reference period that they choose – either General prior reference period (the eligible revenue earned in the corresponding month(s) in 2019), or Alternative prior reference period (the average of the eligible revenue earned in January and February, 2020).

For claims periods 1 to 4, an eligible employer must use the alternative approach if:

• on March 1, 2019, the eligible employer was not carrying on a business or otherwise carrying on its ordinary activities, or
• the eligible employer elects to use January and February 2020 as the prior reference period for all four of those claim periods.

Once an approach is chosen, the eligible employer would be required to use the same approach for all of claim periods 1 to 4.

For claim periods 5 to 10, where the eligible employer is using the general approach for the claim periods 1 to 4, it can continue to use the same approach for all of claim periods 5 to 10, or it can elect to apply the alternative approach for all of the claim periods 5 to 10. Where the eligible employer is using the alternative approach for the claim periods 1 to 4, it can elect to continue to use the alternative approach for all of the claim periods 5 to 10, or it can apply the general approach for all of the claim periods 5 to 10.

Once an approach is chosen, the eligible employer would be required to use the same approach for all of claim periods 5 to 10.

Top-Up

If employers were hit especially hard by the COVID-19 crisis, they can qualify for an additional top-up subsidy, based on their average drop for the previous 3 months, as follows:

(1) If the employer’s revenue has dropped by 70% or more over a three month span, they can qualify for the maximum 25% top-up.

(2) If the employer’s revenue has dropped by 50-69% over a three month span, they can qualify for a top-up that is 1.25 times their revenue drop percentage minus 50%.

Please note that for claim periods 1 to 4, employers cannot include employees who had 14 or more consecutive unpaid days in the period.

For periods 8, 9 and 10, the maximum weekly benefit per employee is $734.  The top-up rate is based on the higher revenue drop between either (1) the one-month revenue drop of the claim period month used to calculate the base rate; or (2) the average revenue drop of the three months prior to the claim period month.  Subsidy rates will be the same each period.

The program also offers a 100% refund for certain employer-paid contributions to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan.  These refunds would apply in respect of remuneration paid to furloughed employees in respect of weeks of a period where the employer is eligible for CEWS.

Applications for claim periods 1 to 10 are now open. Employers must apply for the CEWS through the CRA My Business Account portal or through the Web Forms application using their web access code.

2. Temporary Wage Subsidy

Organizations that do not qualify for the CEWS may still qualify for the Temporary Wage Subsidy (“TWS”).  The TWS is a three month subsidy that allows eligible employers to reduce the amount of payroll deductions they need to remit to the CRA.  It is equal to 10% of the remuneration paid from March 18 to before June 20, 2020, up to a maximum of $1,375 per employee and $25,000 per employer.  Those employers that are eligible for this measure are individuals (excluding trusts), partnerships[3] non-profit organizations, registered charities and Canadian-controlled private corporations that are eligible for the small business deduction.  Businesses that are eligible for this support can benefit by reducing their remittances of income tax withheld on their employees’ remuneration.[4]

For employers that are eligible for both the CEWS and TWS, any benefit from the TWS paid in a specific period will reduce the amount available to be claimed under the CEWS in that same period.  If employers are eligible for the TWS, but only want to participate in the CEWS, they are able to make a special election for the TWS to be equal to 0% of the paid remuneration.

3. Business Credit Availability Program (“BCAP”)

BCAP was introduced by the federal government to provide $65 billion of additional support through the Business Development Bank of Canada (“BDC”) and Export Development Canada (“EDC”).

The EDC Loan Guarantee for Small and Medium-Sized Enterprises allows financial institutions to issue operating credit and cash flow term loans of up to $6.25M to existing clients with 80% of the loans guaranteed by the EDC.  These loans are intended to be used for operational expenses and not for dividend payouts, shareholder loans, bonuses, stock buyback, option issuance, increases to executive compensation or repayment/refinancing of other debt.  Businesses from all sectors that were otherwise financially viable and revenue generating prior to the outbreak of COVID-19 are eligible to apply.  This program is now available at various financial institutions, including credit unions.[5]

The BDC Co-Lending Program for Small and Medium Enterprises provides term loans for both the operational and liquidity needs of businesses.  The loans may be used to make interest payments on existing debt. This program is available to businesses that were financially viable and revenue-generating prior to the COVID-19 outbreak. These loans are available in amounts between $1M and $12.5M, depending on the revenues of a business.[6]

The BDC’s Mid-Market Financing Program provides junior loans between $12.5M and $60M to medium-sized businesses (with annual revenues in excess of $100 million to $500 million) that have been particularly impacted by the COVID-19 pandemic and/or the recent decline in oil and gas prices.  This support is available until June, 2021 and is provided jointly by BDC and the business’ primary financial institution.[7]

For additional information on any of the BCAP programs or to apply, businesses should contact their primary lender, by phone or email, where they have a pre-existing relationship.[8]

4. Increased Access to Employment Insurance and Recovery Benefits

On August 20, 2020, the federal government announced that it would extend the Canada Emergency Response Benefit (“CERB”) into September, before it transitioned into a simplified Employment Insurance program (“EI”) as of September 27, 2020.

In order to qualify, individuals need to have completed a minimum of 120 hours of work in the last 52 weeks.  Qualified individuals receive a one-time insurable hours credit of (1) 300 insurable hours for claims for regular benefits (job loss) and (2) 480 insurable hours for claims for special benefits (sickness, maternity/paternity leave, compassionate care or family caregiver).  Applicants receive between a minimum $500 per week, and maximum $573 per week, depending on past earnings.

The unemployment rate in the region in which a claimant resides determines the number of hours of insurable employment the claimant needs to have accumulated in their qualifying period to be eligible for EI regular benefits, the number of weeks of EI regular benefits the claimant may be entitled to, and the number of best weeks of earnings that will be used to establish their weekly benefit rate.  The government uses a minimum unemployment rate of 13.1% for all EI economic regions in order to lower the hours required to qualify for EI regular benefits.  The government has also frozen the EI premium rate for employees at $1.58 per $100 of insurable earnings for two years.

The government also introduced a further  three recovery benefits:

1. Canada Recovery Benefit

Effective as of September 27, 2020, for one year, the Canada Recovery Benefit provides $500 per week for up to 26 weeks for workers who are not eligible for EI – mainly individuals who are self-employed, and including individuals who work in the gig economy (independent contractors, contract workers, on-call workers and temporary workers).  Claimants can continue to earn income from employment while receiving this benefit as long as they continue to meet the following requirements:

• be at least 15 years of age and have a valid Social Insurance Number (“SIN”);
• were not employed or self-employed for reasons related to COVID-19; or had a 50% reduction in average weekly income compared to the previous year due to COVID-19;
• be ineligible for EI;
• reside and were present in Canada;
• have had employment and/or self-employment income of at least $5,000 in 2019 or in 2020; and
• have not quit their job or reduced their hours voluntarily on or after September 27, 2020, unless it was reasonable to do so.

It is important to note that claimants will need to repay some or all of the benefit through their income tax return if their annual net income, excluding the Canada Recovery Benefit payment, is over $38,000.  Further, applicants cannot apply for or receive any of the following: Canada Recovery Sickness Benefit, Canada Recovery Caregiving Benefit, short-term disability benefits or Quebec Parental Insurance Plan benefits.[9]

2. Canada Recovery Sickness Benefit

The Canada Recovery Sickness Benefit provides $500 per week for up to 2 weeks, for one year as of September 27, 2020, for workers who are unable to work at least 50% of the week because they are sick, must self-isolate due to the outbreak of COVID-19, or have any underlying conditions that, in the opinion of a medical practitioner, would make them susceptible to COVID-19.

In order to be eligible, workers need:

• to be a resident of Canada who is at least 15 years of age and has a valid SIN;
• to be employed or self-employed at the time of the application; and
• to have earned at least $5,000 in 2019 or 2020.

Workers will also need to have missed a minimum of 60% of their scheduled work in the week for which they claim the benefit, and cannot also claim other paid sick leave for that period. Further, applicants cannot apply for or receive any of the following: Canada Recovery Benefit, Canada Recovery Caregiving Benefit, short-term disability benefits, EI benefits or Quebec Parental Insurance Plan benefits.[10]

3. Canada Recovery Caregiving Benefit

The new Canada Recovery Caregiver Benefit provides $500 per week, for up to 26 weeks, per household to eligible individuals.  In order to be eligible, individuals need to be residents of Canada, at least 15 years of age on the first day of the period for which they apply for the benefit, have a valid SIN, and

• be employed or self-employed on the day immediately preceding the period for which the application is made;
• have earned at least $5,000 in 2019 or 2020; and
• have been unable to work at least 50% of their normally scheduled work within a given week because of any of the following reasons:
  • they are caring for their child who is under 12 years old or a family member who needs supervised care because they are at home for one of the following reasons:
    • Their school, daycare, day program, or care facility is closed or unavailable to them due to COVID-19; or
    • Their regular care services are unavailable due to COVID-19; or
    • The person under their care is (1) sick with COVID-19 or has symptoms of COVID-19; (2) at risk of serious health complications if they get COVID-19, as advised by a medical professional; or (3) self-isolating due to COVID-19.

Further, applicants cannot be receiving paid leave from an employer for the same week, or be in receipt of another form of government assistance including: Canada Recovery Benefit, Canada Recovery Sickness Benefit, short-term disability benefits, EI benefits or Quebec Parental Insurance Plan benefits.[11]

5. The Canada Emergency Business Account

The Canada Emergency Business Account (“CEBA”) provides interest-free loans of up to $60,000 to small businesses and not-for-profits.  Applicants who have received the original $40,000 CEBA loan may apply for $20,000 in additional financing.  All applicants have until March 31, 2021 to apply for the $60,000 CEBA loan or the $20,000 expansion.  Half of this additional financing will be forgivable if repaid by December 31, 2022.[12]

Eligible applicants must meet the following criteria:

• Have an active CRA Business Number with an effective date of registration on or prior to March 1, 2020;
• Have an active business chequing/operating account with the lender at the time of applying for CEBA, or create a business chequing/operating account at their primary financial institution before applying;
• Have not previously used CEBA and must not apply for support under CEBA from any other financial institution; and
• Intend to continue to operate its business or to resume operations.

The application process follows one of two streams: (1) the Payroll Stream, and (2) the Non-Deferrable Expense Stream.

The Payroll Stream is for applicants with employment income paid in the 2019 calendar year between $20,000 and $1,500,000.  The Non-Deferrable Expenses Stream is for applicants with $20,000 or less in total employment income paid in the 2019 calendar year.  The application process differs for each stream.

These loans have 0% interest and require no minimum monthly principal payments until December 31, 2022.  There is also a $10,000 loan forgiveness available provided that the outstanding balance is fully paid on or before December 31, 2022.[13]

6. Economic Assistance Measures for Businesses and Employers

As part of Canada’s COVID-19 Economic Response plan, the government has announced other economic measures aimed at assisting businesses that include:

• The CRA extended the payment due date for 2019 individual tax returns and 2019 or 2020 corporation or trust returns, as well as for instalments payments, to September 30, 2020.
• The government has extended the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks.  Note that for employers and employees that are participating in a Work-Sharing program, employment insurance benefits received by employees through the program would reduce the benefit that the employer can receive under the CEWS.
• The federal government is providing $1.5 billion through the Regional Relief and Recovery Fund (“RRRF”) to assist businesses and organizations in sectors such as manufacturing, technology and tourism that are important to local economies.  The fund is specially targeted for those businesses and organizations that require assistance to recover from the effects of the COVID-19 pandemic, but have been unable to access other support measures.
• The Northern Business Relief Fund (“NBRF”) provides a non-repayable grant to small and medium-sized territorial businesses that were economically impacted by COVID-19 to help with ongoing operational costs.  The non-repayable grants range from $2,500 to a maximum of $100,000 and cover a maximum period of 4 months, retroactive to April 1, 2020.[14]
• The Large Employer Emergency Financing Facility (“LEEFF”) is administered by the Canada Enterprise Emergency Funding Corporation and is open to large Canadian employers who:

1. have a significant impact on Canada’s economy demonstrated by (i) having significant operations in Canada or (ii) supporting a significant workforce in Canada;
2. can generally demonstrate approximately $300M or more in annual revenues; and
3. require a minimum loan size of “about” $60M.[15]

LEEFF provides bridge financing to Canada’s largest employers when conventional financing is unavailable or insufficient.

• The government has extended time periods for temporary layoffs by up to six months in the Canada Labour Standards Regulations to allow employers more time to recall laid-off employees.  For employees laid off prior to March 31, 2020, the time period is extended by six months or to December 30, 2020, whichever comes first.  For employees laid off between March 31, 2020 and September 30, 2020, the time period is extended until December 30, 2020, unless a later recall date was provided in a written notice at the time of the layoff.[16]

At Sotos LLP, our team of experts has been advising businesses in the automotive, restaurant, grocery, personal, home and professional services, hotel, retail and cannabis sectors as they face challenging economic and financial issues relating to the current pandemic. Please contact us if you wish to discuss your eligibility for any of the government assistance programs, and to determine an effective approach to combatting business challenges caused by the outbreak of COVID-19.

[1] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.html
[2] https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-who-apply.html, https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-how-revenue-drop-subsidy-rate-calculated.html#basedrop
[3] Note that partnerships are only eligible if members of the partnership consist exclusively of individuals, registered charities, or Canadian-controlled private corporations eligible for the small business deduction.
[4] https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2020/april/temporary-wage-subsidy
[5] https://www.edc.ca/en/solutions/working-capital/bcap-guarantee.html
[6] https://www.bdc.ca/en/pages/co-lending-program.aspx
[7] https://www.bdc.ca/en/pages/mid-market-financing-program.aspx
[8]https://www.canada.ca/en/department-finance/programs/financial-sector-policy/business-credit-availability-program.html
[9] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-benefit/crb-who-apply.html
[10] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-sickness-benefit/crsb-who-apply.html
[11] https://www.canada.ca/en/revenue-agency/services/benefits/recovery-caregiving-benefit/crcb-who-apply.html
[12] https://ceba-cuec.ca/
[13] https://ceba-cuec.ca/
[14] https://www.cannor.gc.ca/eng/1587153226618/1587153246025
[15] https://www.cdev.gc.ca/home-ceefc/
[16] https://www.canada.ca/en/employment-social-development/news/2020/06/the-government-of-canada-temporarily-extends-time-periods-given-to-employers-to-recall-employees-laid-off-due-to-the-covid-19-pandemic.html

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On March 17, 2020, the Ontario government declared a province-wide state of emergency that will affect how employers do business in nearly every sector of the economy.

In response to these unprecedented measures, the Ontario government has proposed legislation to enhance the existing emergency leave provisions under Ontario’s Employment Standards Act, 2000 to help ease the financial implications of the crisis for employers and employees.

If passed, Ontario’s new legislation will provide an unpaid job-protected leave to employees where:

• the employee is under medical investigation, supervision or treatment for COVID-19;
• the employee is acting in accordance with an order made under public health legislation;
• the employee is in isolation or quarantine;
• the employee is directed by their employer not to work; and,
• the employee needs to provide care to a person for a reason related to COVID-19 such as a school or daycare closure.[1]

These provisions would stretch back to January 25, 2020, which is the date the first presumptive case of COVID-19 was confirmed in Ontario.

There is currently no limit on the amount of time an employee can take off as an unpaid job-protected leave under the proposed legislation.

Where employees do take an unpaid job-protected leave, they will not be required to and should not be requested to provide a medical note to substantiate their absence.

As these changes have not yet been passed into law, employers in Ontario should continue to provide emergency leave to employees pursuant to the existing provisions of the Employment Standards Act, 2000 [2].

Temporary Lay-Off

Although not a new measure being proposed in response to the COVID-19 outbreak, employers and employees should be aware of the option for employees to be temporarily laid-off as a result of business closures and disruptions.

Under the Employment Standards Act, 2000, employers may temporarily lay-off employees for up to 13 weeks during a 20 week consecutive period and then recall the employee to work.

The purpose of a temporary lay-off is to retain employees and preserve employee seniority instead of terminating their employment outright, which would trigger an employer’s termination pay and severance pay obligations.

Employers should review the employment contracts they have in place and seek legal advice to ensure temporary lay-offs are permitted under their agreements. Without specific contractual language, a temporary lay-off may be considered a constructive dismissal which would trigger termination pay and severance obligations.

Family Status Accommodation

Employers and employees should also be aware of their obligations and rights under Ontario’s Human Rights Code during the COVID-19 outbreak.

The Code prohibits discrimination in employment on the basis of family status. This means that employers must take measures to accommodate employees who require changes to their schedules or working arrangements as a result of family care obligations, up to the point of undue hardship.

Employers should not assume that the extraordinary challenges posed by the COVID-19 outbreak automatically result in undue hardship. Instead, employers and employees should engage in discussions concerning accommodation so that employees may meet their family care obligations and continue to perform their job duties, where it is possible for them to do so.

Employers should consider requests for accommodation on a case-by-case basis and make decisions in conjunction with any internal policies concerning paid or unpaid leave for sickness or other circumstances.

Note that human rights issues can be complex and employers or employees with any concerns stemming from family status and family care obligations during the COVID-19 outbreak should obtain legal advice regarding their specific circumstances.

Federal Government of Canada Supports for Employees and Small Business Employers

In addition to the proposed legislative changes in Ontario, the federal government of Canada is making financial supports available to employees and eligible businesses affected by the COVID-19 outbreak.

Temporary Wage Subsidy

On March 18, 2020, the federal government announced it is proposing to provide eligible employers a temporary wage subsidy for a period of three months.

Eligible employers include corporations eligible for the small business deduction as well as non-profit organizations and charities.

The subsidy will be equal to 10% of employees’ wages paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. [3]

Employment Insurance (EI) Sickness Benefits

EI sickness benefits provide eligible employees with up to 15 weeks of income replacement benefits paid at a rate of 55% of the employee’s weekly earnings to a maximum of $573 per week.

Effective March 15, 2020, employees with sufficient insurable hours of employment who are quarantined because of the COVID-19 outbreak will be eligible to receive EI sickness benefits immediately, foregoing the usual one week waiting period in which benefits are not paid. [4]

Employees claiming EI sickness benefits due to quarantine will not have to provide a medical certificate to the federal government to substantiate their claim.

New Emergency Care Benefit

Effective April 2020, the federal government will also provide income support to individuals who do not qualify for EI sickness benefits.

This benefit will provide income support to new employees who have not accumulated sufficient insurable hours to qualify for EI sickness benefits or for employees who work relatively few hours.

The Emergency Care Benefit provides eligible individuals with payments of $900 bi-weekly for up to 15 weeks.

Individuals eligible for the benefit include workers who do not qualify for EI sickness benefits and are themselves quarantined or sick with COVID-19 or must take care of a family member who is sick with COVID-19.

Individuals who do not qualify for EI sickness benefits and who are parents with children who require care or supervision due to school closures will also be eligible to claim the benefit.

Work-Sharing Programs

Employers may also consider making use of work-sharing programs which help employers avoid layoffs by having employees work a reduced schedule and share available work over a specified period of time while claiming employment insurance benefits to offset the difference in income.

Employees must agree to the arrangement and employers must demonstrate a recent decrease in business activity of approximately 10% and meet other eligibility criteria to participate. [5]

Business Taxes

The federal government will also be extending the amount of time for employers to pay income tax.

The Canada Revenue Agency will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after March 18, 2020 and before September 2020.

As the COVID-19 outbreak continues to evolve rapidly, members of our team will remain available to assist you with any legal questions you may have.

Louis Sokolov is a partner with Sotos LLP, Canada’s largest franchise law firm. He is the team leader for the firm’s employment practice area. Louis has been recognized by Chambers Canada and Canadian Legal LEXPERT Directory. He can be reached directly at 416.572.7316 or lsokolov@sotosllp.com.

[1] Premier Ford Announces Job Protection for Workers during the COVID-19 Situation, News Release,

(March 16, 2020):

https://news.ontario.ca/opo/en/2020/03/premier-ford-announces-job-protection-for-workers during-the-covid-19-situation.html

[2] Employment Standards Act, 2000, s. 50.1.

^[3] Department of Finance Canada, Canada’s COVID-19 Economic Response Plan: Support for Canadians and Businesses:

https://www.canada.ca/en/department-finance/news/2020/03/canadas-covid-19-economic-response-plan-support-for-canadians-and-businesses.html#Support_for_Businesses

[4] Coronavirus disease (COVID-19) – Employment and Social Development Canada:

https://www.canada.ca/en/employment-social-development/corporate/notices/coronavirus.html

[5] Government of Canada, Work-Sharing:

https://www.canada.ca/en/employment-social-development/services/work-sharing.html

https://www.canada.ca/en/employment-social-development/services/work-sharing/temporary-measures-forestry-sector.html

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Canadian franchisors will question how an American legal development will impact their own operations north of the border. The answer is: it won’t – at least, not yet.

In the lead-up to Governor Newsom’s signing of AB-5, those involved in franchising immediately began raising the alarm on the impact it may have on the industry. Forbes, for instance, published an article earlier in September entitled “How do you Spell Trouble? California AB 5”, noting that AB-5 could be “a potential neutron bomb” for franchising.

What is AB-5?

AB-5 follows from Dynamex Operations West v. Superior Court of Los Angeles (“Dynamex”), a 2018 decision of the California Supreme Court. In Dynamex, the Court considered when a worker should be classified as an independent contractor or a full-fledged employee. As part of its analysis, the Court established a stringent, multi-pronged test (labelled the ‘ABC test’) that must be satisfied in order to successfully classify a worker as an independent contractor as opposed to a full-fledged employee. For instance, one prong of the ABC test requires the business to prove that the worker is free from its direction and control.

AB-5 codifies Dynamex, and goes even further by creating an assumption that workers in California are automatically full-fledged employees, requiring businesses claiming otherwise to successfully rebut this assumption and prove that the worker in question qualifies as an independent contractor.

The franchising industry’s primary concern with AB-5 is that the ABC test runs contrary to one of the core elements of franchising: a successful franchise system requires its franchisor to exercise a (limited) degree of control over its franchisees (and as a result, indirectly, their franchisees’ employees) to ensure a uniform standard of excellence across all franchised outlets. As a result of AB-5, franchisors’ attempts to maintain this uniform standard through their limited control of franchisees could result in the classification of franchisors, together with their franchisees, as “joint employers” of the franchisees’ employees.

In August 2019, over 160 prominent franchise brands wrote to California lawmakers warning of the impact AB-5 could have on the franchise industry. The letter notes that the brands “are gravely concerned that, if enacted as currently drafted, AB-5 could mean the death of the franchise model in California, with devastating economic consequences.” This is based on a concern that “the ‘ABC test’ for employee status which would be adopted under AB-5 fails to recognize the unique nature of the franchise model.” A copy of this letter to California lawmakers can be read here.

In response to advocacy by a variety of industry sectors, including by the International Franchise Association, the bill’s sponsor has stated that a follow-up to AB-5 will be introduced in 2020 which may introduce certain industry exemptions. Whether these changes will be responsive to concerns raised by the franchising community remains to be seen.

Should Canadian Franchisors be Concerned?

Franchisors in Canada are all too aware of the ever-present risk that they may be deemed a “joint employer” (along with their franchisees) of their franchisees’ employees. Such designation may expose a franchisor to a variety of employment-related obligations, including the requirement to provide the workers additional minimum compensation, vacation pay, overtime pay, and additional payment on termination. It may also leave the franchisor vicariously liable for the acts of these workers, despite the franchisor having limited or no involvement in their hiring, training, or management.

Canadian franchisors active in California should consider the potential implications that AB-5 may have on their operations there, and consult their California legal advisors for further advice. Otherwise, Canadian franchisors can temporarily exhale, knowing that AB-5 applies only to California franchise operations.

Nonetheless, the passing of AB-5 should concern Canadian franchisors. Proposals which partially or substantially mirror AB-5 are gaining traction in a variety of jurisdictions, both inside and outside of the United States. Moreover, Canadian systems should keep in mind that many tenets of our own federal and provincial laws (including Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000) were inspired by American legal developments. AB-5’s entrenchment may inspire other jurisdictions – including in Canada – to follow suit.

Although not nearly as consequential as AB-5, Bill 148 (The Fair Workplaces, Better Jobs Act), introduced by the Wynne government prior to its defeat in the 2018 Ontario election, dictated that, among other things, in the event that a worker disputed their designation as an independent contractor, the onus would rest on the employer to prove that this employee was properly classified as an independent contractor. The Ford government’s Bill 47 (The Making Ontario Open For Business Act) later repealed portions of Bill 148, and reaffirmed the onus of a worker disputing their designation as an independent contractor to prove misclassification, but it is clear that considerations similar to the ones that drove AB-5 are gaining traction in Canada.

Although only time will tell if Canadian jurisdictions will adopt AB-5 style reforms, Canadian franchisors should continue to monitor this trend vigilantly, and continue employing best practices to shield themselves from being accidentally designated as a “joint employer” of their franchisees’ employees. In particular, franchisors should ensure that they are exercising no more control than is necessary to maintain uniform standards across their franchise systems, and review their systems and procedures to ensure they are not directly involved in the hiring, firing, training, scheduling, or overall management of their franchisees’ employees. Overreach by the franchisor can also result in franchisees losing their small business taxation treatment.

Sotos LLP has over forty years of experience providing advice to franchisors across all industries, including assisting inbound and outbound franchise systems. Jason Brisebois is an associate in Sotos LLP’s corporate law group, and is admitted to practice in both the Province of Ontario and New York State. For further information on this article, contact him at (416) 572-7323.

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On April 3, 2019, the Ontario Government passed the Restoring Ontario’s Competitiveness Act, 2018 (Bill 66) resulting in significant amendments to the Ontario Employment Standards Act, 2000 (“ESA”)[1] as well as several other pieces of legislation.

1. No Director approval for excess hours

The former version of the ESA prohibited employers from requiring employees to work more than 48 hours in a week unless the Director of Employment Standards approved an agreement between an employee and their employer to increase the weekly limit.

With the amendments, employers can now bypass the Director’s approval and merely enter into a written agreement with the employee permitting excess hours.

2. No Director approval for overtime averaging

The ESA requires employers to pay employees overtime for hours in excess of 44 hours per week. Under the previous version of the ESA, employers (with employee approval) could average overtime hours over consecutive weeks in order to reduce this obligation. However, averaging agreements had to be approved by the Director of Employment Standards in order to be valid.

Under the amendments, similar to the approval of excess hours, the employer now only needs to obtain the employee’s written approval to enter into an overtime averaging agreement. The Director’s approval is no longer necessary.

3. No ESA poster at workplace

The former version of the ESA required employers to post the province’s ESA Poster in the employee’s workplace. The ESA Poster is prepared by the Ministry of Labour and sets out the employee’s rights under the ESA.

With the amendments, employers are no longer required to post the ESA Poster in the workplace; however, they must still provide a copy of the Poster to each employee.

Sotos LLP helps its clients remain current in this shifting landscape. For more information on the impact of these changes on your workplace, contact Louis Sokolov at lsokolov@sotosllp.com.

[1] See Schedule 9.

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