HR's "winning strategy" for cost-cutting drama

How can leaders manage both the employee- and business-side of this 'difficult decision'?

HR's "winning strategy" for cost-cutting drama

Be honest, be open, be fair — that is the winning strategy for employers facing cost-cutting measures to survive the hit to their businesses due to the COVID-19 pandemic.

Hendrik Nieuwland, partner at Shields ODonnell MacKillop LLP in Toronto — a labour and employment law firm for business — says all of his clients have reached the stage where theyre looking at implementing layoffs.

“I say if theyre honest with their employees about whats happening, if theyre open with employees about what theyre going to do about it in terms of what is the plan and setting out the cost-cutting measures in a clear manner and if they do so in a fair fashion — meaning in an equitable way so the burden is shared amongst everyone — that is the winning strategy for trying to get through this.”

With Ontario under a state of emergency and Canadians being urged to stay home as much as possible to avoid spreading COVID-19 and hopefully “flatten the curve,” businesses across the country are facing difficult decisions. On March 23, Ontario Premier Doug Ford also announced that only essential businesses could remain open.

Nieuwland says everyone is feeling the pinch and everyone is worried — his clients want to do right by their employees, but they also have to maintain costs so their business can survive. They’re in a difficult spot and it’s hard on a personal level.

“Theyve seen their demand completely dry up and have no income coming in, and they have to take immediate measures or face the bankruptcy of the business,” he says. “A lot of employers are really torn because they know how terribly this is impacting employees.”

Employers engaging in cost cutting should follow a step-wise process. First, they should see if there’s anyone who will volunteer to go on a lay off — “For reasons that are hard to imagine these days because there aren’t that many opportunities,” Nieuwland notes — then next comes voluntary, across-the-board pay cuts which are “very common now because companies need immediate relief.”

Cutting pay involuntarily might run the risk of constructive dismissal claims, but Nieuwland says “people hope in dire circumstances everyone understands this is about the survival of the business and if the business survives then everyone still has jobs even though it’s reduced pay — but it’s better than no job at all.”

“They’re also looking at a reduced work week — that’s another way to cut costs, preferably on a voluntary basis but if not on an equitable, across-the-board basis.”

The last part is most important, and what Nieuwland has been emphasizing to his clients — when you’re introducing cost-cutting measures, it’s really important to be fair and equitable.

“Certain groups shouldn’t bear the burden more so than others, so if you’re going to do a 10% wage cut for everybody it’s everybody — all the way to the top of the house,” he says. “Generally speaking, without exception, every one of my employer clients recognize they’ve got to lead from the top. They can’t expect others to bear the burden, and they don’t.”

Giving advice on cost cutting and layoffs isn’t the difficult part — those rules haven’t changed and it’s relatively straight forward for employment lawyers to give advice in this area, though Nieuwland adds it’s sad “because it’s everyone without exception” — but the province also recently amended the labour law to provide job protection for employees who lose their jobs or have to stay home because of what’s happening as a response to COVID-19.

On top of businesses being unable to sustain workforces at this time, schools and daycares are closed, people are asked to stay home and self-quarantine  if they are sick and some might either get the virus itself or have to care for a family member who does.

Though Ontario changed the laws officially on March 19, they announced the legislation a few days earlier so employers and their lawyers knew generally what was coming.

“The government was clear what the law would provide for so we were able to advise our clients what the leave would be and what it could encompass,” Nieuwland says.

There were a few new things in the legislation, one of which being that the employee can get the unpaid leave of absence if they’re having difficulty getting back to Ontario because of travel restrictions.

“That wasn’t mentioned back when they first announced it, probably because they didn’t realize the scope of the problem,” Nieuwland says. “That was an important thing to add — I have a client who is in Peru and just can’t get out. It’s really important people don’t lose their jobs because they can’t get flights. That’s a fair thing.”

He says all the aspects of the leave are fair in the current circumstances — if people are asked to stay home, they can’t lose their job; if there’s a public announcement which suggests people need to self-quarantine, they can’t lose their job; if they think they have the illness and are undergoing testing, they can’t lose their job.

“That’s all that’s really important and when I was watching the proceedings, that bill was passed with unanimous consent and everyone spoke in favour of it, every single one of the parties. Partisan politics is being put to the side to do what’s needed to protect people’s jobs.”

Although the federal government has introduced an $82 billion aid package to begin rolling out in April, Nieuwland predicts most employers will say it needs to go farther and he hopes more measures are taken soon.

“Everyone being asked to stay home and to self-isolate and engage in social distancing has killed the economy and the measures they’ve implemented — which are helpful because something is better than nothing — are still nowhere close to enough. “

Half a million people have applied for employment insurance since this began. It’s extraordinary, it’s unprecedented, and businesses are going to suffer for it, Nieuwland warns.

“Hopefully the government can provide further aid to make sure we don’t have a massive loss of functioning businesses in our society — that would be just absolutely awful,” he says. “I’m not minimizing the health concerns at all, but the economic consequences of this are potentially catastrophic.”

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