COVID-19 has shuttered my business. Can I lay off my workers? Should I abandon my lease?

The novel coronavirus has disrupted British Columbia’s economy and the province may not fully recover from the effects of social distancing for months to come. For many business owners, working from home is either not possible with social distancing orders, or it provides limited (if any) economic benefits. Businesses are facing massive difficulties in trying to navigate these perilous economic waters.

With no end in sight to this crisis, companies are considering all of their options. They cannot continue to shoulder the financial liabilities as if their businesses were operating normally. With increased frequency corporate counsel has been responding to questions from employers related to their two prime areas of liability; labour costs and lease obligations.

Labour costs & lease obligations

Employers want to know if they can, or should, lay off all or part of their workforce. They want to know if they can, or should, walk away from their lease, or perhaps instead request some relief. They want to make sure that when this temporary crisis is over – and remember, it is temporary – they won’t have to deal with a legal maelstrom of their own (accidental) creation.

Certainly, counsel’s answers will depend on the circumstances of the business. The starting point for most of an employer’s questions will be the same no matter what the question is about: is there a written contract and is there an applicable statute?

The contract, be it employment, lease, or otherwise, sets out the terms governing the relationship between the employer and employee. For example, when the employer has secured a written and signed employment contract with an employee that governs indefinite layoffs, the employer might rely on that term in temporarily ceasing remuneration.

Where the contract does not contain an express term governing layoffs, advice will naturally require more context. Employers should be advised that pursuant to the common law an employer does not have the right to lay off an employee. Nonetheless, many employers have been furloughing employees in contravention of the common law hoping for a very short business closure period after which they intend to quickly rehire their employees.

Employers may be better served by getting proper legal advice. For example, should a legal action be commenced and given the unprecedented nature of the pandemic, an employer may be entitled to the defense of frustration in order to make significant and unilateral decisions. Business owners can learn more about the contractual concepts of frustration and force majeure in this recent blog post.

Of course, employers must keep in mind that legislation may alter the common law or render certain terms of a contract unenforceable. With regular amendments to legislation at the federal and provincial levels, employment regulations are changing rapidly.

Like employment contracts, strategically advising on lease agreements also requires a contextual approach. In some cases, a corporate tenant may decide to negotiate with their landlord for a rent deferral, hoping that their lines of liquidity will open once the political reaction to the pandemic has tapered.

For some businesses, a rent deferral may be impossible. Instead, the business owner may strategically decide to leverage their impending credit crisis into a new lease agreement with favourable terms, or, in an extreme case, simply unilaterally terminating their lease by winding up their business entirely.

The bottom line is that the proper decision will inevitably depend on the context. In an ideal case, those decisions are assisted by an enforceable and intelligent contract drafted by a trusted advisor. For help during these novel times, do not hesitate to reach out to corporate counsel who can assist you and your business.

Learn more at our COVID-19 Resource Centre.

Micah Goldberg is an Associate in our Litigation & Dispute Resolution Group with a focus on employment law.