Mining companies ? big and small ? are grappling with weak commodity prices and high costs, while investors have turned off the financing tap. The result is a serious cash crunch. Desperate times call for desperate measures, and downsizing is one of the options.
?They?re facing what I?m calling a temporary financing freeze,? says Geoffrey Howard, a partner in the Vancouver office of Gowling Lafleur Henderson LLP who specializes in employment and labour law. ?They?ve no alternative except to cut their staff cost.?
It?s difficult for miners to contemplate such cuts. Companies fight hard to recruit geologists and engineers. These are skilled individuals who are in long-term demand, yet who can be costly to keep during a short-term cash flow crunch. Yet it can be equally expensive to let some of them go. Mining executives tend to have rich termination provisions in their employment agreements.
?When we were in our last boom period, some of the employment contracts provided for astronomical severance packages,? says Andrea Raso Amer, an employment lawyer in the Vancouver office of Dentons Canada LLP.
There?s a lot more at stake than rich payouts. The global expanse of the mining industry and the size of some mining operations means a layoff can trigger a series of important legal consequences.
If a company is considering a layoff or a termination, the first issue is where the employee is situated, explains Rob Sider of Lawson Lundell LLP in Vancouver. If head office in Canada hired an employee here, then sent that person to work in another country, the company may need to observe the employment standards laws of multiple jurisdictions. ?In some of those jurisdictions it can be problematic,? Mr. Sider says. ?Try to find an employment lawyer in the Congo, for example.?
In Canada, workers will be entitled to the statutory minimums provided by provincial employment standards laws. These provisions promise employees a minimum amount of pay in-lieu of notice. The provincial laws can also promise extra payments in the event of a ?mass termination? or ?mass-layoff? as defined by the act. On the other hand, some acts provide relief to employers if it?s possible to argue the layoffs are not permanent, but the result of the ?seasonal nature? of the work.
Some unique case-by-case situations will also arise, says Norm Keith, a partner with Fasken Martineau DuMoulin LLP. The company needs to decide whether it is prepared to let an employee take any special knowledge and expertise to a potential competitor. The company then needs to determine whether that situation would be covered by any non-competition provision of the employment contract. The analysis will be complicated, because there may be common law duties that arise even in the absence of a specific provision in the contract. ?If the contract is silent on the non-competition issue, there are remaining legal obligations, known as fiduciary responsibilities, for senior, C-Suite vice president and maybe director-level employees,? Mr. Keith says.
These issues have companies looking for alternatives to layoffs. Many realize that a mass termination today can leave the company understaffed when things turn the corner down the road. ?They know how things can change so they are cautious and they think long and hard about the decisions that they make before they make them,? says Shelley-Mae Mitchell, a partner in the Vancouver office of Borden Ladner Gervais LLP. ?Instead of doing mass layoffs or mass terminations, they are more thoughtful in how they phase things in.?
Here are some of the things miners are looking at.
1. Negotiate lower pay
This isn?t always easy to do because it requires the consent of employees. Cutting anyone?s pay without consent raises a legal red flag: constructive dismissal. ?The good news is that in this sector, there are a fair number of people who understand the volatile nature of it and who will agree to that type of thing,? Mr. Howard says.
A popular alternative to cutting pay is to offer employees equity in lieu of cash. ?When things do get lean, it?s not a function of having to get rid of people. It?s a function of having to save money. So what you see some miners doing is shifting compensation schemes from cash to equity,? says Richard Press of Davis LLP in Vancouver.
2. Time off
Some companies are offering employees unpaid leave on attractive terms ? say, the chance to take every Friday off or to go on extended vacations. This is the same as a pay cut, so it requires employee consent or else it?s constructive dismissal.
?Let the employee go on safari in Africa or do something else,? says George Waggott, national co-chair of the employment and labour relations group at McMillan LLP. ?It?s a modified form of the temporary layoff because it?s by consent. You go on leave, you still have your job, you?re still accruing service, you still have your office when you come back.?
3. Work-Sharing
Canada?s Employment Insurance regime can provide income support for employees facing a temporarily reduced work week while their employer is trying to turn things around. This can be used to cover some of the lost pay that comes from employees agreeing to take time off, Mr. Howard says.
4. Consulting Arrangements
Some lawyers suggest clients consider getting their employees to become consultants on contract. ?For a major, one of the solutions is to contract out as much as you can,? Mr. Keith says. For the former employees, this can be a benefit in that it might enable them to work for more than one client. But employers need to be careful. These arrangements cannot be used to skirt around the statutory minimums required in employment standards laws.
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