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COVID-19, Mass Layoffs & Wage Reductions, Forced Resignation, and EI Applications
Employment Law

COVID-19, Mass Layoffs & Wage Reductions, Forced Resignation, and EI Applications

The recent global pandemic COVID-19 has led to a significant slowdown in Canada’s economy.

In light of the ongoing financial stress and anticipated recession faced by many consumer-based businesses like restaurants, retailer stores, and airline companies, many employers have decided to downsize their workforce and lower salary standards indefinitely. In this dilemma between staying with current employers and finding alternative jobs with higher compensation, employees often fear that resigning from their current job with reduced pay will disqualify them from EI entitlement, making their lives even harder by starting a job search without any sources of income.

Employment Insurance Act

The entitlement to EI depends on whether employees voluntarily quit their job and have just cause to do so. Section 29 (c) of the Employment Insurance Act provides a list of factors of just cause for voluntarily leaving an employment, including but not limited to, sexual harassment, discrimination, and significant modification of terms and conditions respecting wages or salary.[1]

Relevant Jurisprudence

The Federal Court of Appeal has provided a clear interpretation and application of s. 29 (c) in Canada (Attorney General) v. Peace.[2] In December 2001, the respondent resigned from his job as a Logistics Project Manager after his employer announced that the salaries of all of its 1200 Canadian employees would be reduced by 10% as a result of a decrease in company sales. While the employer indicated that the decrease was only for the year 2002, no guarantees respecting wages were given for 2003. To compensate for the 2002 salary reduction, the employer offered stock options to employees.

The respondent took the position that salary was a fundamental element of his employment contract, and that his employer’s unilateral 10% reduction to his salary amounted to constructive dismissal, entitling him to treat the employment contract as having come to an end.

In February 2002, the Canada Employment Insurance Commission (the “Commission”) denied the Respondent’s application for EI benefits on the grounds that he voluntarily left his employment without just cause.

Court’s Decision

The Court stated that the determination of whether an employee has voluntarily left his employment is a simple one. The question to be asked is as follows: did the employee have a choice to stay or to leave?

Where an employee has left voluntarily, the only test under the Act to determine whether or not the employee is entitled to receive EI benefits is whether he had just cause for leaving pursuant to paragraph 29(c) and subsection 30(1); this involves asking whether leaving was the only reasonable alternative for the employee considering the factors set out in paragraph 29(c) of the Act.

The Court concluded that the Board erred in law by overlooking subparagraph 29(c)(vii) of the Act, which provides that in certain circumstances a significant salary modification may constitute just cause for leaving employment.

The Court allowed the application, set aside the Umpire’s decision, and refer the case back to the Board for a redetermination.

Cautions

While recognizing s. 29 (c)(vii) of the Act, the Court did not decide whether wage reduction by 10% with stock option compensation had met the test of “significant modification of terms and conditions respecting wages or salary”. The determination of whether leaving was the only reasonable alternative for the employee is on a case-by-case basis. If you are facing a similar employment issue now, please contact our law firm and book a consultation.

[1] Employment Insurance Act (S.C. 1996, c. 23), s. 29 (c).

[2] Canada (Attorney General) v. Peace, 2004 FCA 56 (CanLII).

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