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Downsizing and Restructuring: Navigating the Storm

As the economic downturn has deepened, many employers are trying to figure out how to reduce costs and adjust the size of their workforce. In the restructuring process, terminations may be inevitable. Many terminations may be without cause. Notice periods, severance pay, benefits and pensions are three of the major issues involved and must be properly handled to avoid potential liability.

Philip H. Gennis,
Grant Thornton
So what does your organization need to do to navigate the storm that will likely erupt as you go through this difficult period? First, you should become well educated on your rights as an employer and the rights of your employees in order to handle the situation and reduce your exposure to costly litigation. Secondly, you should get some expert advice. That’s what IPM did when we started to research this article.

One of the sources we looked to was Richard Nixon of Davis LLP who presented at the IPM Conference in Toronto in May 2009. One of the first things he focused on in helping employers minimize risk was to consider alternatives to downsizing before heading down the layoff or termination route. That may not always be possible, but things like voluntary retirements and reduced work weeks might cause an organization a lot less pain and money than going through a complete downsizing exercise.

If you have to consider layoffs, then a number of other factors and legal considerations have to be taken into account before you move forward. These include notice periods, severance packages, and benefit and pension issues. Even if your company or organization goes bankrupt, you may still be required to make some of these payments under the new Wage Earner Protection Act.

If you have to move to terminations, one of the first considerations should be how and when you will provide notice to employees of their impending layoff. You will need to research the Employment Standards Act in your province or territory in order to find out the minimum notice requirements. In Ontario, no notice period is required for employees less than three months, one week for employees over three months and up to a year, and an additional week of notice for every year of service to a maximum of eight weeks for longer term employees.

Richard Nixon
B.A., M.B.A., LL.B.
Davis LLP
Notice of termination must be given in writing to the employee or the employer may provide pay in lieu of notice in the specified amount based on time of service if they wish to immediately terminate the employee. There are also special rules to follow under most Employment Standards Acts if there are mass terminations, usually more than fifty employees being terminated within a four-week period.

You will also need to review the need to provide severance payments to longer term employees. In Ontario for example, the Employment Standards Act specifies that in order to qualify for severance pay, the employee has to have worked for the employer for five or more years and the employer has to have a payroll of at least two and half million dollars. Special conditions also apply in Ontario and some other jurisdictions in the case of mass terminations as noted above. Severance pay is usually calculated as one week per year of service to a maximum of twenty six weeks and it must be paid as a lump sum payment unless there is a written agreement to do otherwise.

It is important to note that provisions in collective agreements and employment contracts may offer more than the minimum required under the Employment Standards Acts. If your workplace is unionized or you have written employment contracts, you should review these with employment and labour law specialists before providing notice or calculating severance payments.

Pension and benefit issues must also be taken into account as you proceed through your termination process. When it comes to pension obligations, you should get advice from a pension legal expert. Mitch Fraser from Torys LLP advises that unless the company or organization is being dissolved, all existing pension responsibilities remain with the employer, who must make contingency plans to ensure that these pension responsibilities are secured. Even in the case of bankruptcy, there may still be a requirement to pay out pension benefits but we will discuss this further in the next section of this article.

Another point to note is that pensions are governed under provincial legislation but monitored by the Federal Government, except in the case of federally regulated industries like transportation and banking. When in doubt consult a legal expert. It could save you time, money, and litigation later on.

With regard to benefits, normally all employee benefits cease at the end of the notice period, unless there is a specific requirement to continue paying benefits as part of an employment contract or collective agreement. There is however a requirement to continue to make any employer contributions to employee benefit plans during the notice period and this provision will be covered by your respective Employee Standards Act.

What if the company or organization becomes bankrupt or is forced into receivership? What protection is afforded employees? According to another of our experts, Philip Gennis from Grant Thornton Ltd., amendments to the federal Bankruptcy and Insolvency Act grant a priority claim to employees over the current assets of an employer for wages and vacation pay unpaid during the six months preceeding the insolvency to a maximum of $2,000. In the event that the current assets of the employer are not sufficient to discharge this priority claim, employees can then turn to the Wage Earner Protection Program Act (WEPPA) which allows employees to apply for and receive up to $3,000 on account of unpaid wages, vacation pay, severance and termination (where applicable). In addition to wages, unfunded pension contributions are also granted new security in bankruptcy or receivership thereby granting further protection to employees when their employer fails. Obviously, the security for unfunded pension contributions is only as good as the assets available. There is no companion provision in WEPPA for these sums.

Navigating these very murky waters can be difficult for any director, manager or senior executive from any organization. We suggest that you seek advice from legal and financial experts who deal with these issues on a daily basis in order to avoid costly litigation later on. Also, stay in touch with IPM. We will have more information and articles in upcoming publications and at our events across the country.

Let us help ensure that your voyage is a successful one!i

Fraud – the ultimate illusion

The best stage illusionists use distraction and misdirection. Their illusions are clouded by mystery and secrecy. They make you believe in something that’s just not real.

Fraud too allows us to believe that something is there when in fact it is not, or shows that it was used in one way when it was, in fact, used in a completely different manner. Both have the appearance of reality and both will deceive even the brightest—for short periods of time.

Derek Malcolm,
Partner, Grant
Thornton LLP
Consider the examples of Bre-X, Enron, WorldCom and, more recently, the alleged Madoff Ponzi scheme and Stanford investment scam investigation by the SEC. In each of these cases things appeared too good to be true and were even accepted as such. They were, however, illusions—based on a plausible starting platform, built on perceived reputations, greed and temptation—using distraction, misdirection and secrecy to succeed in keeping attention away from the truth.

So why, when we so often suspect the truth, do these illusions succeed? Sigmund Freud provides one answer: “Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead…” But as we all know, the pleasure is always brief and leads down the path to great pain later.

The reality of fraud
With the good times over, many organizations are under significant pressure to take all possible steps to control costs and stem financial losses. With human resources often reduced or redirected to other corporate survival matters, holes begin to develop in an organization’s internal control system designed to reduce and detect fraud. The symptoms resulting from downsizing or rightsizing provide increased motivation to defraud—significantly changing the risk profile of an organization.

Acts of fraud that may have flourished undetected in the shadows of prosperity begin to emerge in the light created by increased operational scrutiny that occurs in times of economic decline. Organizations should be prepared for this reality and be ready to deal with feelings of betrayal such findings elicit. Despite the need to cut expenditures, organizations that are victims of fraud are now faced with the expense of having to investigate to determine what cash and other vital assets have been taken and then pursue legal action in an attempt to recover it. Measures must then be put in place to prevent fraud from happening in the future.

Seeing the light
What steps can private businesses take to coax the illusion of fraud out from the shadows? Seeing it through the eyes of the illusionist is a start. A forensic accountant puts on the magic glasses necessary to see through the smoke and mirrors—bringing the act of fraud and its consequences out into the light for all to see.

Regardless of what position an organization finds itself in during times of economic downturn, there are measures that should always be in place when it comes to safeguarding from acts of fraud including:

  • Continuously reviewing and monitoring your internal control systems to ensure that they are in place and working as designed;

  • Establishing an investigation protocol/fraud policy for your organization now. Having a logical process already in place will keep emotions in check—helping to ensure you’ll do the right thing at the right time;

  • Implementing or improving a confidential reporting process, such as the Grant Thornton C.A.R.E (Confidential, Anonymous, Reporting for Employees) program, for employees to report suspicions of fraud and other acts of wrongdoing;

  • Trusting your instincts and investigating the “too” good as well as the bad; and

  • Staying informed—ask questions, keep good notes and records, and follow up until the issue is resolved.

    Despite having anti-fraud measures in place, sometimes even the most secure of businesses may find it necessary to call in expert help in order to get to the bottom of a situation. Early involvement of legal counsel and forensic accounting and investigation specialists can save considerable time and money later on. More importantly, professionals trained in fraud investigations release your vital internal resources to continue to look after the going concern of the business.

    Derek Malcolm is Partner, Forensic Accounting and Investigative Services with Grant Thornton in Calgary, AB.

    Engaging and Retaining Boomers

    With experts from Statistics Canada and the Conference Board of Canada predicting millions of baby boomers will retire soon, employers could find themselves in a tight labour market once the economy rebounds. As a result, they need to start planning for these societal changes that will affect how they attract and retain a skilled workforce in the future.

    Maureen Catania
    But wait a minute! Boomers, born between 1946 and 1964, have established themselves as the workaholic generation. This highly experienced, well-educated and ingeniously resourceful generation is interested in staying active, involved and engaged at work beyond the age of 65. So do employers need to be concerned about retaining talented boomers? Absolutely!

    This generation of workers is rethinking their careers and looking at a wider range of work opportunities – especially those whose careers are not serving them well. Their decision to stay put is largely influenced by working conditions rather than money. Talented boomers have other options including self-employment and second-career training, so engaging them early to retain them longer will ensure your company will have the workforce it needs for business success.

    The number of baby boomers retiring is unknown, as is the number who plan to continue in their jobs or pursue second careers, thus workforce planning is now a key component to any company’s strategic planning process.

    Workforce planning begins with getting a current demographic profile of your workforce; measuring the level of employee engagement; and examining all the elements needed to improve the performance and productivity of your staff. These steps will help prepare your company for the reality of managing a workforce in a tight labour market.

    Once you have the above information, you’ll want to assess it. For example, what impact could the demographic profile have on your organization? What are the retirement plans of each group? Is there a succession process in place for “business critical” employees and has your company identified potential internal candidates to step into these positions? Should steps be considered to encourage staying beyond “normal” retirement age? Then you can determine what you have and what you may need in terms of manpower.

    After you measure the level of engagement of your current workforce, you’ll want to look at what you can do to improve it. The more engaged your workforce is, the more productive it is -- and the manpower required can be reduced and/or re-allocated.

    To improve engagement, you can break down the process to identify a systematic performance development methodology, both for individuals and groups. There are five basic steps in this process:

    Step 1 – Understanding employee fit and compatibility to current job
    In most cases, when an individual doesn’t perform well in a job, it’s because of two elements: poor fit with the job and/or poor interaction with a supervisor and/or fellow workers. (This also has a direct correlation on people who are top-performers in their job.) It is therefore important to evaluate job fit and compatibility for as many employees as possible. Some boomers may be planning to leave their job once the economy rebounds because the fit isn’t right anymore. They may have outgrown the work they do in their current job. People’s strengths and interests evolve over the years. But they may also be in the wrong job with the right company.

    Matching a person’s cognitive ability, occupational interests and work-related behaviour to a job are key elements to predicting a person’s success at work, according to an extensive study conducted by the Harvard Business Review. Progressive employers are already using this data to make accurate and strategic hiring and promotion decisions, and they are also using it to develop their people for greater success. This same information can be used by individuals to make better career moves. A good employer will be invested in retaining its talent, and therefore willing to help employees with a career assessment process.

    Step 2 – Understanding motivation and stress, conflict behaviours and adapting to change
    All people develop a “style” when interacting with their supervisor or fellow employees. For many that style is a natural extension of who they are. For some, role playing is involved. Knowing how a person reacts to stress and what motivates an individual gives a manager insight into how to motivate the person individually rather than in a group.

    Step 3 – Optimizing working relationships with a direct supervisor
    Too many people have some conflict with their supervisor. Knowing what, why and how to address these situations will have extraordinary positive effects on job performance. With significant generational differences in the workplace, employees need to know more about their working styles and others they work with, work for or supervise.

    Step 4 – Optimizing relationships with work teams
    “Teamwork” may be an overused expression, but companies frequently talk about it and need to better learn how to facilitate it. The ability of a team to work together effectively is greatly influenced by the compatibility of the team members. While some teams can adjust to accommodate compatibility issues, the fewer the adjustments, the more efficient the team will function. By understanding the characteristics of the team members, the more focused the management of that team. Increased synergy among teams and team members always results in greater productivity.

    Step 5 – Optimizing leadership skills
    A bad manager negatively affects attitudes, productivity and turnover. The relationship an employee has with their manager is often a key factor in maintaining their employment with a company. It is often quoted, “People don’t leave companies – they leave managers.” Helping leaders identify their strengths and areas that need improvement will give them the opportunity to develop the competencies that are most important to their professional growth and success.

    Through the use and application of workforce assessments, you can apply each of these performance development steps and gain a better understanding of how your employees think, work and feel in relation to their jobs. Knowing this information about your people will help you to engage them now and retain them longer, so your company will have the employees it needs to succeed going forward.

    Maureen S. Catania, is the managing director of Learningmeasures Inc., a company that specializes in human resource management solutions & employment assessments. Maureen can be reach at 905-841-9841 or maureen@learningmeasures.com

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