McCarthy Tétrault Advance Building Capabilities for Growth. Group Terminations. Calgary, February 19, McCarthy Tétrault LLP / mccarthy.

Transcription

1 McCarthy Tétrault Advance Building Capabilities for Growth Group Terminations Calgary, February 19, 2015

2 Group Terminations in Alberta January 1 February : 523 employees 2015: 4,544 employees Overall employment in Alberta rose by 14,000 in January 2015

3 1. LEGAL CONSIDERATIONS 2. STRATEGIC CONSIDERATIONS 3. PRACTICAL CONSIDERATIONS 4. THE PENSIONS, BENEFITS & EXECUTIVE COMPENSATION CONSIDERATIONS

4 Employer Obligations Employment Standards Code EI Regulations Common Law

5 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

6 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.

7 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

8 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

9 Notice to the Minister The notice form can be found at: html

10 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.

11 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.

12 Obligations on Employers Legislative Requirements Contract and Common Law

13 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.

14 Common Law: Notice Statutory notice period is only a minimum. Notice required unless the termination is being completed for just cause.

15 Common Law: Notice Factors determining notice period: Position Length of employment Employee s age Availability of similar employment The same factors should be used to calculate severance proposals Total dollar value of remuneration employee would have received over notice period = Damages for wrongful dismissal

16 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.

17 Labour Relations Ensure compliance with collective agreement Consult with union as soon as possible

18 Human Rights Ensure reasons for selecting employees for termination are not based on a designated ground.

19 1. LEGAL CONSIDERATIONS 2. STRATEGIC CONSIDERATIONS 3. PRACTICAL CONSIDERATIONS 4. THE PENSIONS, BENEFITS & EXECUTIVE COMPENSATION CONSIDERATIONS

20 Strategies for Success Confidentiality and communication Notice and severance packages Documentation Recruiting

21 Confidentiality and Communication Stay ahead of gossip and rumours Limit discussions to Senior Management and Human Resources personnel

22 Notice and Severance Packages Example severance formula for group dismissal Position Clerical and labour Administrative and junior management Middle management Senior managers and executives Severance Package 2 weeks salary + 2 weeks for each year of service to maximum 6 months + 7% for loss of benefits 3 weeks salary + 3 weeks for each year of service to maximum 9 months + 7% for loss of benefits 6 weeks salary + 3 weeks for each year of service to maximum 12 months + 5% for loss of benefits 6 weeks salary + 4 weeks for each year of service to maximum 15 months + 5% for loss of benefits

23 Documentation Termination Letter Severance Package Proposal Release

24 1. LEGAL CONSIDERATIONS 2. STRATEGIC CONSIDERATIONS 3. PRACTICAL CONSIDERATIONS 4. THE PENSIONS, BENEFITS & EXECUTIVE COMPENSATION CONSIDERATIONS

25 Stand Firm on the Severance Package Proposal

26 Provide Outplacement Counselling Improves morale Lower chance of wrongful dismissal suits Demonstrates good faith

27 Employee Assistance Programs and Other Post-Dismissal Benefits Provide access to EAPs Should not be conditional on a release.

28 Economic Downsizing vs Merger and Acquisition Downsizing Are the employees needed to work out the notice period? Conditional severance packages Confidentiality agreements Communication

29 Recruiting Consider independent contractors or fixedterm employment agreements where appropriate. Ensure employment agreements contain clear termination clauses.

30 1. LEGAL CONSIDERATIONS 2. STRATEGIC CONSIDERATIONS 3. PRACTICAL CONSIDERATIONS 4. THE PENSIONS, BENEFITS & EXECUTIVE COMPENSATION CONSIDERATIONS

31 Agenda Pension Plans & Group RRSPs Health & Welfare Benefit Plans Incentive Compensation Arrangements Common Law Requirements Other Jurisdictions

32 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

33 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)

34 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)

35 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

36 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

37 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)

38 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

39 39 Thank you McCarthy Tétrault LLP Will Cascadden Randy Bauslaugh Dylan Snowdon Mark Firman

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