McCarthy Tétrault Advance™
Building Capabilities for Growth
Group Terminations
Calgary, February 19, 2015
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Group Terminations in Alberta
January 1 – February 10
¬ 2014: 523 employees
¬ 2015: 4,544 employees
Overall employment in Alberta rose by
14,000 in January 2015
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1.
LEGAL CONSIDERATIONS
2.
STRATEGIC CONSIDERATIONS
3.
PRACTICAL CONSIDERATIONS
4.
THE PENSIONS, BENEFITS &
EXECUTIVE COMPENSATION
CONSIDERATIONS
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Employer Obligations
¬ Employment
Standards Code
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¬ EI Regulations
¬ Common Law
Employment Standards Code
Notice
(weeks)
Length of Service
1
more than 3 months but less than 2 years
2
2 years or more but less than 4 years
4
4 years or more but less than 6 years
5
6 years or more but less than 8 years
6
8 years or more but less than 10 years
8
10 years or more
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Employment Standards Code
¬ Earnings not to change after
termination notice given.
¬ Final pay, including unused
vacation pay and earned
overtime pay, within 3 days.
¬ Where no notice of termination
is required, earnings to be paid
within 10 days.
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Employment Insurance
Regulations
¬ Record of Employment
within 5 days.
¬ No paper copy or distribution
to employee required.
¬ For group terminations,
Code A – Shortage of Work
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Employment Standards Code:
Group Dismissals
¬ Notice to the Minister of Jobs, Skills,
Training and Labour
¬ 50 or more employees in 4 weeks, at
one location
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Notice
to the
Minister
The notice form
can be found at:
http://work.alberta
.ca/employmentstandards/13605.
html
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Employment Standards Code:
Temporary Layoffs
¬ Permitted if properly carried out (but there is a risk
of constructive dismissal claims).
¬ Employees must be back to work within 60 days.
¬ Failing to meet contractual or Employment
Standards requirements will result in termination of
employment.
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Federally Regulated Employees
¬ Termination of 50+ employees from the same
establishment within a four week period.
¬ Employers must establish a “joint planning
committee” to establish an adjustment program to
minimize the impact of the terminations on the
affected employees.
¬ Code allows application to waive the group
dismissal requirements.
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Obligations on Employers
¬ Legislative
Requirements
¬ Contract and
Common Law
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Employment Contracts
¬ Employee contracts and offer letters should be
reviewed before making a common law
evaluation.
¬ Employers cannot contract out of the
employment standards minimums, but can
contract out of the common law.
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Common Law: Notice
¬ Statutory notice period is only a minimum.
¬ Notice required unless the termination is being
completed for just cause.
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Common Law: Notice
¬ Factors determining notice period:
¬ Position
¬ Length of employment
¬ Employee’s age
¬ Availability of similar employment
Total dollar value of
remuneration employee
would have received
over notice period
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=
¬ The same
factors should
be used to
calculate
severance
proposals
Damages for wrongful
dismissal
Stock Options and Bonuses
¬ What will be paid in the case of termination
can be determined in a contract.
¬ Under the common law, employees who are
dismissed are entitled to receive the benefit of
bonuses, stock options, and other forms of
remuneration that they would have received
had they worked through the period of
reasonable notice.
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Labour Relations
¬ Ensure compliance with collective agreement
¬ Consult with union as soon as possible
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Human Rights
¬ Ensure reasons for selecting employees for
termination are not based on a designated
ground.
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1.
LEGAL CONSIDERATIONS
2.
STRATEGIC CONSIDERATIONS
3.
PRACTICAL CONSIDERATIONS
4.
THE PENSIONS, BENEFITS &
EXECUTIVE COMPENSATION
CONSIDERATIONS
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Strategies for Success
¬ Confidentiality and communication
¬ Notice and severance packages
¬ Documentation
¬ Recruiting
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Confidentiality and Communication
¬ Stay ahead of gossip and rumours
¬ Limit discussions to Senior Management
and Human Resources personnel
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Notice and Severance Packages
¬ Example severance formula for group dismissal
Position
Severance Package
Clerical and labour
2 weeks’ salary
+ 2 weeks for each year of service to maximum 6 months
+ 7% for loss of benefits
Administrative and
junior management
3 weeks’ salary
+ 3 weeks for each year of service to maximum 9 months
+ 7% for loss of benefits
Middle
management
6 weeks’ salary
+ 3 weeks for each year of service to maximum 12 months
+ 5% for loss of benefits
Senior managers
and executives
6 weeks’ salary
+ 4 weeks for each year of service to maximum 15 months
+ 5% for loss of benefits
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Documentation
¬ Termination Letter
¬ Severance Package
Proposal
¬ Release
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1.
LEGAL CONSIDERATIONS
2.
STRATEGIC CONSIDERATIONS
3.
PRACTICAL CONSIDERATIONS
4.
THE PENSIONS, BENEFITS &
EXECUTIVE COMPENSATION
CONSIDERATIONS
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Stand Firm on the
Severance Package Proposal
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Provide Outplacement Counselling
¬ Improves
morale
¬ Lower chance
of wrongful
dismissal suits
¬ Demonstrates
good faith
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Employee Assistance Programs and Other
Post-Dismissal Benefits
¬ Provide access to EAPs
¬ Should not be conditional
on a release.
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Economic Downsizing vs
Merger and Acquisition Downsizing
¬ Are the employees needed to work out the
notice period?
¬ Conditional
severance
packages
¬ Confidentiality
agreements
¬ Communication
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Recruiting
¬ Consider independent contractors or fixedterm employment agreements where
appropriate.
¬ Ensure employment agreements contain clear
termination clauses.
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1.
LEGAL CONSIDERATIONS
2.
STRATEGIC CONSIDERATIONS
3.
PRACTICAL CONSIDERATIONS
4.
THE PENSIONS, BENEFITS &
EXECUTIVE COMPENSATION
CONSIDERATIONS
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Agenda
1.
2.
3.
4.
5.
Pension Plans & Group RRSPs
Health & Welfare Benefit Plans
Incentive Compensation Arrangements
Common Law Requirements
Other Jurisdictions
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1. Pension Plans – Communications
¬ Administrator must provide a “termination of
active membership statement” within 60 days
of termination date(s)
¬ Increased burden to meet this timeline with a
mass termination; administrators should give
actuaries/record-keepers as much advance
notice as possible
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Pension Plans – Commuted Value
Transfers
¬ Terminated members entitled to transfer DC account
balance and/or “commuted value” of DB pension benefit
¬ “Commuted value” of DB benefit determined by actuary
¬ General rule: commuted value higher when interest rates
are low
¬ In today’s low interest environment, terminated members’
commuted values will be inflated, and there may be a
corresponding outflow of capital from the pension fund
¬ If a DB plan is underfunded on a solvency basis, the
administrator may transfer out only a portion of the commuted
value; employer must then make up the rest within 5 years (or
immediately, if desired)
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Group RRSPs
¬ Not subject to pension standards legislation
¬ Terminated employees’ RRSP accounts are theirs, but they
will no longer be eligible to participate under the employer’s
“group” contract (which may offer preferential fees or
investment options)
¬ Employers have a duty (arguably, a fiduciary duty) to
ensure that terminated employees understand the
consequences of losing group coverage:
¬ Higher fees; less preferential investment options
¬ Right to transfer account to another financial institution
(financial institution under the group contract may not be
forthcoming with this information)
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2. Health & Welfare Benefit Plans
¬ Review agreements and insurance policies before a mass
termination
¬ Insurance industry “standard” terms include right to unilaterally raise
premiums on a significant reduction in workforce headcount
¬ Some agreements give insurers right to unilaterally terminate if the
number of “insured lives” falls below a specified threshold
¬ Employers need to consider: (a) if they can bear increased
premiums; and (b) if there is a unilateral right of
termination, how quickly they can arrange for replacement
coverage at reasonable rates
¬ Better yet, do not accept these terms when negotiating
agreements with insurers
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3. Incentive Compensation
Arrangements
¬ Review existing arrangements to determine the rights
and exposure arising on mass terminations
¬ Many stock and/or cash-based performance incentive
plans provide for accelerated vesting of awards (either
in full or in part) upon termination of employment
without cause
¬ Terminations within a certain period after a business
acquisition may trigger “change of control”
entitlements (e.g., “golden parachutes”) under
incentive plans
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4. Common Law Requirements
¬ Unless expressly excluded, the contract of
employment is generally considered to provide for
value of forgone pension and benefit entitlements
in lieu of notice of termination of employment
¬ When developing severance packages (e.g.,
lump-sum payouts), it is important that package is
in satisfaction of all common law notice
requirements (including value of forgone pension
accruals and other benefits)
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5. Requirements in Other Jurisdictions
¬ Additional requirements in other jurisdictions, e.g.:
¬ Terminated employees in Ontario are entitled to continue
pension and benefit plan coverage after termination of
employment for the Employment Standards Act, 2000’s
“statutory notice period” (up to 8 weeks)
¬ Terminated members of a DB pension plan employed in
Ontario & Nova Scotia may be entitled to generous “grow in”
benefits if age + years of service at termination = at least 55
¬ Mass terminations can trigger “partial wind ups” of DB pension
plans in some jurisdictions (e.g., federal), which crystallize
funding shortfalls
¬ Pension rights in other jurisdictions apply even if the pension
plan is registered in Alberta
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39
Thank you
McCarthy Tétrault LLP
Will Cascadden
403-260-3521
[email protected]
Randy Bauslaugh
416-601-7695
[email protected]
Dylan Snowdon
403-260-3682
[email protected]
Mark Firman
403-260-3589
[email protected]
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