Canadian engineering giant SNC-Lavalin Group Inc. is asking all its employees to take a pay cut for the next three months, a tactic that a growing list of companies is using but that legal experts say comes with some risks and complications.
In an internal memo to employees dated March 26, SNC chief executive Ian Edwards said that as business slows because of the coronavirus pandemic, it is critical for the future of the company that it immediately implements stringent measures to cut costs.
Mr. Edwards asked employees to agree to reduce their pay by either 10 per cent or 20 per cent, depending on job classification. Most SNC executives have already agreed to a 20-per-cent pay cut, he said in the memo.
“These actions will make a vital difference in dealing with the short-term impacts on our business and I thank you deeply for responding to this exceptional call to action,” Mr. Edwards said in the memo. “I hope by doing this quickly and volunteering together, we are able to preserve a stronger future together.”
Employees were asked to advise their manager of their decision by the end of day Monday.
If the company does not hear from a worker, it means he or she has accepted the measures, according to a note sent to SNC Canadian employees on the weekend by Dale Clarke, an executive vice-president at the company. Employees can opt out if their circumstances are “challenging,” Mr. Clarke said.
“The health crisis we have been facing together for the past few weeks, and which we continue to face, is quickly evolving into an economic crisis,” Mr. Clarke said in his note, adding several SNC rivals are mandating similar measures. “Ultimately, we may need to take even further actions,” he said.
SNC spokesman Nicolas Ryan said Monday that the measures are meant to protect jobs in the future. He said it is a voluntary program but added that since the company operates globally, it follows local rules around wage cuts.
SNC-Lavalin generated operating cash flow of $312-million in its latest fourth quarter, the strongest quarterly amount since 2017, and has $1.2-billion in cash and access to more than $2.6-billion in credit. But the company is bracing for a slowdown in decision-making on new business or projects, Mr. Edwards said in the memo.
Montreal-based SNC employed about 46,500 people globally at the end of last year. Most of its employees in Canada are believed to be non-unionized, although unionized workers are also being asked to take steps to help the company conserve cash.
Also Monday, Air Canada said its CEO and finance chief would forgo 100 per cent of their salary for the second quarter while other senior executives will forgo between 25 per cent and 50 per cent of their salary and all other managers will take a pay cut of 10 per cent.
SNC’s call for salary reductions and Air Canada’s announcement are only the latest such moves by a Canadian corporation. In recent days, Cineplex Inc. asked its full-time staff to take a pay cut as its executives agreed to temporarily suspend their pay. Legal software and services firm Dye & Durham of Toronto laid off 20 per cent of its 280 employees and asked the rest to take a 20-per-cent pay cut. Reitmans Canada Ltd. laid off 90 per cent of its store workers and also asked remaining staff to “collectively contribute to on-going cost-saving initiatives.”
Employment lawyers, who all commented on the situation generally, said numerous other employers are considering temporary wage cuts as a survival strategy, with many asking senior executives to take deeper cuts than lower-paid workers.
“It’s absolutely not risk-free [for employers],” said Shane Todd, a partner with Fasken Martineau DuMoulin LLP. He noted that seeking agreement from employees is preferable to making unilateral pay cuts, but in either case, companies could face claims of constructive dismissal – when the employment relationship changes so much that the employee has effectively been fired – and demands for severance payments.
Gowling WLG Canada partner Neena Gupta says the crisis could shape how courts respond to such claims. “Given the overwhelming situation of COVID-19, there might be more sympathy for employers in these situations." She said she believes judges would likely expect workers to mitigate their losses by continuing to work at the lower rate and any monetary damages awarded would likely be limited to the difference between the normal and reduced salaries.
Ms. Gupta – who is based in Gowling’s Waterloo, Ont., office – advises many high-tech companies and says some are offering wage deferrals in exchange for stock options or other equity stakes in the future. In other cases, she’s seen employers ask workers for wage cuts ranging from 20 per cent to 50 per cent, but all on a temporary basis.
Workers have generally been willing to consider pay cuts rather than face prolonged unemployment, said Fasken’s Mr. Todd, who noted that employers should provide enough time to consider the request, ideally five to seven days.
Michael Wright, a lawyer at Wright Henry LLP who advises unions and employees, says this is a relatively straightforward legal issue in that there is nothing improper about asking workers to take a pay cut voluntarily. But it can create tensions in the workplace if most, but not all, employees accept a cut. “From a morale perspective, that looks problematic.”