Digest of Benefit Entitlement Principles   Chapter 6 - Section 7

6.7.0 Workforce reduction

6.7.1 Regulatory authority

Under the authority of paragraph 54 (z.2) of the Act , Section 51 of the Regulations reads as follows:

  1. Subject to the Act and these Regulations, but notwithstanding Section 30 of the Act , a claimant who has left employment in accordance with an employer work- force reduction process that preserves the employment of co-workers may be paid benefits where
    1. the claimant accepted an offer to leave that employment voluntarily; and
    2. the employer has confirmed that the claimant's leaving resulted in the actual preservation of the employment of a co-worker whose employment would otherwise have been terminated in the course of the work-force reduction process.
  2. For the purposes of subsection (1), an employer work-force reduction process is a process
    1. that is initiated by the employer;
    2. that has as its objective a permanent reduction in the overall number of employees;
    3. that offers employees the option to leave employment voluntarily; and
    4. the elements of which, including the elements described in paragraphs (a) to (c), are documented by the employer.

6.7.2 Within a particular context

Using the term "workforce reduction" in employment insurance regulations may give rise to some confusion. This term has long been used for personnel management and in collective agreements. It generally deals with a myriad of mechanisms that an employer can use to reduce staff, permanently or temporarily. The term should therefore not be viewed in its usual application but rather applied to a process of limited duration and purpose and within the specific context of Regulation 51. That regulation provides for an exception to the Act Footnote 1 which disqualifies claimants who voluntarily leave their employment without just cause.

Businesses must constantly adapt to market forces. Employers, both large and small, have always had procedures for hiring and releasing personnel. In a restructuring context, employers and workers reach agreements as to who will stay, who will go and what special provisions will be provided to those who leave. Those who leave allow other workers to stay on and the business to be competitive.

A person who voluntarily leaves their employment without just cause is indefinitely disqualified from receiving benefit. However, a regulatory provision Footnote 2 allows workers who agree to leave their employment under a work force reduction process and preserve jobs of their co-workers, to receive unemployment insurance benefits. Of course, they must also meet the other entitlement conditions which are discussed in other chapters of the Digest.

The legislation requires a strictly individual approach to claimants leaving their employment. However, in the context of employer downsizing, a collective approach is acceptable in the sense that all of the workers are affected by the workforce adjustment. As such, the overall number of employees let go will not change, but those who do leave will not necessarily be those who would have been targeted for lay-off under the collective agreement, contract or some other agreement. The end result is that the Commission ends up with the same number of claimants. Whether it is a small, medium-sized or large firm, this Regulation provides firms with the flexibility needed to restructure and reduce their workforce by providing relief from disqualification for those workers who protect the employment of a co-worker under a workforce reduction process.

An employer may resort to attrition to reduce the payroll. Attrition will reduce the workforce by not hiring workers when someone leaves for whatever reason. This will result in a reduction of the total workforce but will not meet the requirements of Regulation 51 as lay-off of employees is not an option when we are dealing with downsizing by means of attrition. Employees who quit their employment when employers reduce their workforce through attrition do not receive the befit of the workforce reduction relief from disqualification.

Besides attrition, an employer may take other measures, such as reducing the work week and sharing the work among all employees or proceeding unilaterally with a lay-off. Neither of these processes would meet the regulatory requirements of Regulation 51.

The fact that an employer has a workforce reduction process does not necessarily mean that all employees who leave their employment during this period do so in the context of this provision. Employees who are not covered by the workforce reduction process and nevertheless decide to leave employment cannot invoke the workforce reduction process to obtain relief from a disqualification under the Act Footnote 3 . They have not left their employment within the framework of a workforce reduction process.

6.7.3 Definition by regulation

The regulation Footnote 4 does not impose any restrictions on an employer who wishes to establish a workforce reduction process. However, employees who voluntarily leave their employment under a workforce reduction process that meets the regulatory text Footnote 5 may come within the exception and not be disqualified from benefits.

This regulation is analysed in two stages.

Stage one:

This initial stage applies to all workers. It involves determining whether a given employer has a workforce reduction process within the meaning of the Regulation Footnote 6 .

Fact finding may be conducted first on the issue of compliance with the regulation Footnote 7 . The results may be distributed to interested parties or to other Commission offices.

A workforce reduction process, as defined in the regulatory text Footnote 8 , must have the following four elements:

  1. The workforce reduction process is initiated by the employer;
  2. The objective of the workforce reduction process is a permanent reduction in the overall number of employees in the business;
  3. The workforce reduction process offers employees the option to voluntarily leave employment;
  4. The elements of the workforce reduction process are to be documented by the employer.

(a) The workforce reduction process is initiated by the employer;

It is the employer who must institute a process designed to reduce the workforce. Whether it is a process affecting only a small sector of the business or involves a larger, national process is of no importance. The number of employees affected, the locations, operations and activities covered by the process; its duration; whether the process grants additional or takes away benefits provided under a collective agreement or by provincial laws, is the employer's responsibility.

It is not the Commission's role to approve or reject the employer's plan. The Commission confines itself to determining, in the case of a claimant who left their employment, whether the workforce reduction measures taken by the employer are consistent with the regulatory text Footnote 9 .

It is extremely important, therefore, that the group covered by the workforce reduction process be identified. If the claimant does not fall within this group, it cannot be said that they voluntarily left employment under this process. The group may be all of the employees, or be limited to a sector, a particular group, or a work site.

(b) The objective of the workforce reduction process is a permanent reduction in the overall number of employees in the business;

The process established by the employer must lead to a permanent reduction in the total number of employees. This means that at the end of the process the business will have a workforce smaller than the one existing before implementation. There are many different combinations of an employer's workforce that an employer must take into account when determining what will be the overall number that must be reduced. Thus, the overall number of employees may also include seasonal, temporary or on call employees Footnote 10 .

In other words, even if no worker took advantage of the employer's offer, the employer would consider laying off from within all categories of workers, including seasonal, temporary or on call, or reduce the possibility or frequency of the recall of these employees, in order to reduce the workforce by the numbers initially anticipated.

Workforce reduction in a small business might conceivably affect as few as only one employee and, if it meets the criteria, allow a claimant who has voluntarily left employment to avoid a disqualification under the Act Footnote 11 .

Favourable economic conditions, a sudden increase in demand, access to new markets, or the marketing of new products are all factors influencing the business and future workforce levels. These factors are not relevant in determining whether the process is consistent with the Regulation. It is the situation that is prevailing at the time the company instituted the workforce reduction process that is relevant and must be considered.

The Regulation does not require that employees who are leaving employment permanently preserve the employment of a co-worker. It is the reduction in the employer's workforce that must be permanent; the saving of the employment of a co-worker does not have the same requirement. Workforce reduction processes that reduce the workforce to a certain level and then, after a few weeks or months, further reduce the workforce to zero, also qualify for the workforce reduction exemption. The employee who takes advantage of the workforce reduction process in this manner during the first reduction of staff is saving the employment of the co-worker who remains until closure.

(c) The workforce reduction process offers employees the option to voluntarily leave employment;

The employer must offer the employees covered by the workforce reduction process the option of voluntarily leaving their employment. All employees, or a particular group of employees, are offered the option of voluntarily leaving employment in order to preserve the employment of a co-worker who would otherwise be let go. Only an employee who has voluntarily left their employment under a workforce reduction process can take advantage of the Regulation.

Employees who leave voluntarily to protect the employment of a co-worker may retain recall rights or some other employment fringe benefit for a period of time after their employment ceases. These recall rights may be retained, for example, in order to be entitled to the payment of severance pay or some other employment benefit. In such cases, as long as permanent workforce reduction exists and the recall rights do not alter that permanent reduction, employees who leave under the program may be covered under the Regulation, if the program meets all the other criteria.

(d) The elements of the workforce reduction process are to be documented by the employer.

The employer must furnish the Commission with information indicating that this is in fact a permanent reduction in the workforce, that personnel were informed, and that the employees covered by this process were given the option of voluntarily leaving their employment.

This might take the form of a letter, a notice, a memorandum or some other relevant documentation. The workforce reduction process may be part of or outside of the collective agreement Footnote 12 .

Hypothetical situations or vague uncorroborated statements concerning possible or potential reductions are not acceptable.

Stage two:

The second stage covers the individual claimant.

Once it has been decided that the employer's work force reduction process meets the conditions specified in the Regulation Footnote 13 , fact-finding is required for each individual claimant. The employer's confirmation can take a number of forms. The employer and the agent responsible for conducting the fact-finding on the workforce reduction process may agree on a procedure that best fulfils the requirements of the parties and this may involve a contact person with the employer.

To facilitate the fact-finding, employers are informed to note the "Comments" block of the Record of Employment (ROE). Even though the ROE is so indicated, it must be confirmed that the employer's workforce reduction process meets the conditions of Regulation 51(2). This is usually done by the process that the Region has in place for exchange of information on workforce reduction.

A worker voluntarily leaving employment under a work force reduction process must complete an application for benefits. The agent will then verify whether it can be concluded from the documents provided to the Commission that the claimant voluntarily left their employment under a workforce reduction process that complies with the regulatory provisions. The agent must also be able to conclude that the claimant's departure resulted in the preservation of the employment of a co-worker who would have otherwise been let go in the course of the workforce reduction process. This conclusion can only be made after confirmation by the employer.

It is not necessary to identify by name the co-worker who preserved their employment through the claimant's departure. However, the employer must confirm that someone would have lost their employment under this workforce reduction process and that the claimant's departure under this process resulted in the preservation of a co-worker's employment.

6.7.4 Distinct responsibilities

An employer may consult with the Commission when initiating a workforce reduction process. The Commission will provide an explanation of the applicable elements and conditions set by the Regulation Footnote 14 , so as to avoid any confusion concerning respective responsibilities.

While the Commission cannot provide a blanket decision to an employer that applies to all employees, the Commission can provide prior confirmation that the employer's workforce reduction process meets the conditions of the regulatory text Footnote 15 . At that time the officer would explain the requirement for confirmation on an individual basis that the claimant by voluntarily leaving saved a job of a co-worker and establish the mechanism by which that information will be provided.

6.7.5 Important questions

The conditions set out in the Regulation will be met when each of the following questions can be answered in the affirmative:

  • Did the claimant voluntarily leave his or her employment?
  • Does the claimant belong to a group of employees covered by the workforce reduction process?
  • Is this employer workforce reduction process one that:
    1. was initiated by the employer?
    2. has as its objective a permanent reduction in the overall number of employees?
    3. offers employees the option to voluntarily leave employment?
    4. is documented?
  • Does the employer confirm that the claimant's leaving resulted in the preservation of the employment of a co-worker who would otherwise have been let go in the course of the workforce reduction process?
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