Be Careful How You Downsize

July 4, 2018 | Dirk L. Van de Kamer

Many employers face the need to downsize from time to time.  Instead of proceeding with layoffs, some offer voluntary severance packages (VSPs) in the hope of achieving staffing reductions in a relatively pain and conflict free manner.

A recent Ontario arbitral ruling suggests that this route may not be as pain and conflict free as one would think.

In Yellow Pages Group Co., the employer rolled out a VSP for employees with at least five years’ service, reserving the right to decline VSP requests.  When a long-service, but not particularly elderly, employee requested a VSP, her request was declined as the employer decided to make the VSP available to employees who were closer to the age of retirement and, therefore, the most pension eligible.

The employee grieved and the matter proceeded to arbitration, with the employer maintaining that it retained the discretion to decide which employees would be offered the VSP.

The arbitrator disagreed, finding the employer violated both the collective agreement and the Ontario Human Rights Code (the “Code”).  As to the collective agreement, the arbitrator concluded the employer had a duty to administer its VSP initiative in a non-arbitrary, good faith manner. By focusing on employees’ ages in deciding who would be offered its VSP, the employer had failed to do so.  As to the Code, the arbitrator ruled that by denying the VSP to an employee on the basis of her age, it had violated the Code.

To redress the collective agreement violation, the employee was awarded the value of denied VSP (a figure in excess of $100k), notwithstanding the fact that the employee had not been denied any wages, benefits or entitlements flowing from the collective agreement.  In addition, the arbitrator ordered the employer to pay the employee $15k in damages for injury to dignity, pursuant to the Code.

This ruling suggests caution must be exercised when rolling out VSPs, as there may be legal pitfalls well outside the black and white of the collective agreement.

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