COVID-19: Update on Canada’s Economic Response Plan for Businesses

The Government of Canada has announced a number of significant economic support systems available for businesses in order for them to retain employees, reduce layoffs, and weather the economic fallout from COVID-19. This update is intended to provide employers with an overview of some of the programs that have been developed to avoid layoffs and allow employers to rehire employees.

Canada Emergency Wage Subsidy

On April 11, 2020, the federal government enacted the COVID-19 Emergency Response Act, No. 2, which implements the Canada Emergency Wage Subsidy (“CEWS”) Program.

The CEWS provides a temporary 12-week subsidy to employers in an amount equal to 75% of the employee’s remuneration paid, up to a maximum of $847 per week per employee. It is retroactive to March 15, 2020 and will extend to June 6, 2020. The intention is to allow eligible employers to keep on employees or rehire employees that have been laid off.

Eligible Businesses

In order to be eligible, businesses[1] must have had a business number on March 15, 2020, and must be able to demonstrate a drop in revenue using one of two models:

• Model 1 – Employers must demonstrate a drop in revenue comparing the same monthly period from 2019; or
• Model 2 – Employers must be able to demonstrate a drop in revenue using the “alternative benchmark.” The alternative benchmark allows employers to compare their revenue using an average of their revenue earned in January and February 2020. This alternative benchmark model should allow new businesses or businesses with less stable revenues to demonstrate the required reduction in revenue.

The applicable drop in revenue is based on the following table:

Eligible Employees

To be considered an “eligible employee”, the employee must be an individual in Canada who has not been without remuneration for more than 14 consecutive days in the eligibility period.

Eligible Remuneration

The remuneration that is available for eligible employees is the lesser of either:

1. the “eligible remuneration” paid, up to a maximum of $847/week; or
2. 75% of the employee’s baseline “eligible remuneration.”

Baseline remuneration is based on the eligible employee’s pre-crisis remuneration. This is based on the average weekly eligible remuneration paid between January 1 and March 15, 2020, inclusively. Please note that there are special rules for employee’s that do not deal at arm’s length with the employer.

Eligible remuneration consists of salary and wages. It may also include other remuneration which employers would generally be required to withhold or make statutory deductions on and remit them to the CRA, such as taxable benefits. Certain fees, commissions and other amounts for services earned may also be eligible. Please note that retiring allowances and stock option benefits are specifically excluded.

Application

In order to apply, businesses can use their CRA “My Business Account” portal or the web-based application (more details on this are to come from the government shortly).

Please note that the federal government has been clear that the wage subsidy must be used for its intended purpose: retaining employees or re-hiring employees. It has stated that there will be “severe” penalties if it discovers that the subsidy has been used for unintended purposes. Therefore, employers will need to ensure that they keep detailed records relating to (a) the drop in revenues and how such drop was calculated, and (b) the remuneration that was paid to the employees. If it is discovered that the employer was not eligible or has misused funds, the subsidy may need to be repaid in full and/or the employer may face serious penalties.

Additional details on the CEWS can be found here.

10% Temporary Wage Subsidy

Prior to the creation of the CEWS, the federal government had announced a 10% Temporary Wage Subsidy to help certain small businesses. Businesses who do not qualify for the CEWS may be able to still claim the previously enacted 10% Temporary Wage Subsidy.

For employers that are eligible for both the CEWS and the 10% Temporary Wage Subsidy for a period, any benefit from the Temporary 10% Wage Subsidy for remuneration paid in a specific period will generally reduce the amount available to be claimed under the CEWS in that same period.

Work Sharing Program

The Work Sharing Program has been in existence long before the onset of COVID-19 and many employers will be familiar with this process. The Work Sharing Program is intended to allow employers and employees to jointly apply for a subsidy by way of a “Work Sharing Agreement”. The Program allows for employers to reduce the hours of employees while retaining their employees, and allows employees to keep their jobs and receive Employment Insurance benefits.

A detailed guide to applying for the Work Sharing Program has been published and can be found here.

Please note, however, that as a result of the COVID-19 pandemic, the federal government has amended some of the requirements that previously applied to the Work Sharing Program (i.e. the above Work Sharing Applicant Guide has been modified). In particular:

• Application Time - Employers are now requested to submit their applications 10 calendar days prior to the requested start date. Previously, employers were required to submit their applications at least 30 days in advance of their requested start date.
• Extension of Agreement – The Work Sharing Agreement was previously limited to a maximum possible duration of 38 weeks, and has been increased to 76 weeks as a result of COVID-19.
• Recovery Plan – Employers were previously required to provide a detailed recovery plan, outlining how they intended to become self-sustainable. This requirement has been temporarily replaced with a single line of text that is in the application form itself.
• Increased Eligibility – Employers who have only been in business for 1 year are now eligible to apply for the Work Sharing Program, whereas previously employers had to demonstrate that they were in business for at least 2 years.
• Reduction in Sales – As part of the application process, employers were previously required to produce detailed sales/production figures to demonstrate a decrease of at least 10% in their sales or production levels in the last 6 months. This requirement to produce these sales and production figures has been eliminated.
• Eligible Employees – The pool of eligible employees has been increased to also include previously excluded “essential” employees, such as technical employees or sales and marketing agents.

Employers interested in applying for the Work Sharing Program must get the agreement of the employee Work Sharing Unit and complete the Work Sharing Agreement Form. It is important that all of the formalities associated with completing these forms are adhered to or it may impact or delay your organization’s approval for the Work Sharing Program.

Canada Emergency Business Account

The Canadian Government has worked with financial institutions to develop the Canada Emergency Business Account (“CEBA”). The CEBA provides an interest-free loan of $40,000.00 for qualifying businesses, with up to $10,000.00 of that amount being eligible for complete forgiveness if $30,000.00 is fully repaid on or before December 31, 2022. The loan may become interest bearing after December 31, 2022.

In order to qualify, businesses need to demonstrate that they had a payroll of between $50,000.00 and $1 million in 2019.

In order to apply, businesses should apply with the financial institution that they have their business deposit or operating account with. There are minimal additional qualifying criteria that will be processed with your financial institution, such as confirmation that your organization was registered and operational prior to March 1, 2020.

Conclusions

As a result of the passing of COVID-19 Emergency Response Act, No. 2, there are a number of options available to employers who are experiencing financial difficulties as a result of the COVID-19 pandemic.

We encourage employers to consider these options carefully prior to laying off employees or as they approach the end of the temporary layoff period (addressed in our previous newsletter, which you can find here). These programs may allow your organization to avoid layoffs or recall employees, thereby reducing your liability in the face of potential constructive dismissal complaints or claims for notice and severance under the Employment Standards Act, 2000.

This is part of a series of our COVID-19 alerts providing clients with practical advice on measures they can take to navigate through these troubled times. Please note that this bulletin is intended for informational purposes only and does not constitute legal advice or an opinion on any issue. If you require legal advice with respect to your particular circumstances, please contact the authors or your Miller Canfield lawyer with further questions.

[1] Eligible business structures include: Sole Proprietorships, Taxable Corporations, Non-Profit Organizations, Partnerships, and Registered Charities.

Contact

Jeffrey Patterson
+1.519.946.2161
patterson@millercanfield.com 

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