Earnscliffe Update: Wage Subsidy Changes Fast-Tracked

Earnscliffe Update: Wage Subsidy Changes Fast-Tracked

PARLIAMENT RETURNS

The House of Commons resumed sitting this past Monday under normal rules to consider the government’s new COVID-19 response legislation, Bill C-20. The bill has three objectives: to amend and adapt the wage subsidy program, authorize a special pandemic payment to people with disabilities and extend legal deadlines for some legal cases.

The special order governing House sittings during the pandemic requires all-party support for the consideration of legislation to proceed.  Because the government was unsuccessful in securing unanimous consent to deal with Bill C-20, the only alternative was to reopen Parliament under the normal rules, in which the legislation would be subject to full debate and need a majority to pass.

Since the Bloc Quebecois signalled its support for the legislation last weekend, the ultimate passage of the bill was never in question, but the government took extra steps to limit debate and ensure its speedy passage. The first order of business on Monday was the negotiation of a unanimous agreement among parties to fast-track the bill through all stages of consideration, regardless of where parties stood on its contents.

The deal meant “warp-speed” passage of the bill through all stages by the end of Tuesday’s sitting, with the result that the bill is now in the Senate.

The Senate has issued a statement stating it will sit on Monday.  It is not yet known if the Senate will respect the government’s urgency with this legislation and pass all stages within a day or two. The general mood has been to not drag out debates unnecessarily, or to filibuster to make political statements; however, the Senate has full rights to introduce amendments if it feels the bill needs to be improved.

CHANGES TO THE CANADA EMERGENCY WAGE SUBSIDY (CEWS)

A lengthy and detailed backgrounder on Bill C-20’s changes to CEWS and how they effect employers facing a variety of circumstances has been provided by Finance Canada.

CEWS was initially established for a 12-week period running for March 15 to June 6, to provide a wage subsidy of 75 per cent for all eligible employers.  On May 15, the program was extended for an additional 12 weeks to August 29.

Almost from the beginning, CEWS attracted criticism for being too restrictive and insufficiently flexible to meet the complex revenue decline situations faced by employers.  As a result, the take-up for the program was much lower than expected and instead, millions of people funnelled into the much simpler Canada Emergency Response Benefit (CERB), which provides $2,000 per month to the unemployed.  As a result, just $18 billion out of the $73 billion originally set aside for CEWS was spent. Reflecting the anticipated added utilization of the revised wage subsidy due to the changes in Bill C-20, the recent Snapshot Economic Update increased the government’s allocation for CEWS by $50 billion to $82.3 billion.

Finance Minister Morneau’s May 15 announcement of the CEWS extension to the end of August was accompanied by a consultation to ensure that the program would be sensitive to employer needs as the national economy began to reopen. The consultation confirmed a number of design flaws in the original program:

  • The original program design created a “cliff” in that support was not available for employers whose income had dropped by less than 30 per cent, resulting in calls for the adoption of a gradual reduction of CEWS support if year-over-year revenue losses were less that 30 per cent.
  • Many employers argued that the revenue test was too stringent and created an “all or nothing” situation, and that revenue drops of just less than 30 per cent still had significant impacts.
  • Concern was expressed that the proposed end to the program on August 29 was too early for companies in sectors that would continue to struggle with a slow recovery beyond that date.

Bill C-20 contains several fixes that respond to the complaints heard by Finance Canada in the consultation, making the changes retroactive to July 5:

  • The life of the program is extended to December 19, 2020.
  • Any company with a decline in revenues will now qualify. The base subsidy begins at 60 per cent for companies with less than 50 per cent losses and declines in 20 per cent increments.
  • A top-up subsidy has been introduced to provide up to 25 per cent for any company experiencing worse impacts, i.e., a revenue loss more than 50 per cent. The top up declines on losses less than 70 per cent and disappears at 50 per cent.
  • The changes provide for a gradual reduction in the maximum weekly benefit per employee, from $667 in the current qualification period to $226 in the final period running from October 25 to November 21. This does not include a sliding scale top-up that will be available to particularly hard hit industries.
  • A separate CEWS rate structure has been created to apply to furloughed employees.

Detailed information on the base rate structures and the reference periods to which they apply, and for various top-up subsidies and how they work are all included in the Finance Canada identified above.

As announced earlier, eligible employers include the following groups:

  • Partnerships that are up to 50-per-cent owned by non-eligible members;
  • Indigenous government-owned corporations that are carrying on a business, as well as partnerships where the partners are Indigenous governments and eligible employers;
  • Registered Canadian Amateur Athletic Associations;
  • Registered Journalism Organizations; and
  • Non-public colleges and schools, including institutions that offer specialized services, such as arts schools, driving schools, language schools or flight schools.

STAKEHOLDER REACTION

The government appears to have succeeded in satisfying employers’ concerns and meeting its broader objectives with Bill C-20.  Importantly, it ends the uncertainty faced by employers over the future of the program. A report by TD Economics said the changes “should provide a boost to employment, helping support household incomes, particularly as the earliest CERB recipients’ payments stop in late summer.”

More flexibility in the qualification criteria answers the call of many industry groups and will make the wage subsidy more accessible to a broader range of employers. This will help many struggling employers with less than a 30 per cent revenue loss to obtain support to keep and bring back workers, while also ensuring those who have previously benefited may still qualify, even if their revenues recover and no longer meet the former 30 per cent revenue decline threshold.

The introduction of a top-up subsidy of up to an additional 25 per cent for employers that have been most adversely affected by the COVID-19 crisis will be particularly helpful to employers in industries and sectors that are recovering more slowly.

The proposed changes also include a ”safe harbour” rule to ensure that for Periods 5 and 6, an eligible employer, with a revenue decline of 30 per cent or more, would be entitled to a CEWS rate not lower than the rate that they would be entitled to if calculated under the CEWS rules that were in place for Periods 1 to 4. This will provide certainty to employers that have already made business decisions for July and August by ensuring they would not receive a subsidy rate lower than they would have under the previous rules.

All that said, there have been some criticisms of the government’s CEWS changes.  Some observers argue that the phase-out of CEWS mandated by the legislation is too quick given current forecasts of economic recovery.  A survey released last week by the B.C. Chamber of Commerce, the Business Council of British Columbia and the Greater Vancouver Board of Trade reported that “Two-thirds (65%) of respondents said they are using some form of government support and they expect a substantial “second wave” of negative impacts should these programs expire too quickly.”

Finally, it’s important to note that Bill C-20’s changes will smooth the way towards moving recipients off the Canada Emergency Relief Benefit (CERB) to CEWS.  The final step in the transition to economic recovery will be to decide on the futures of CERB and Employment Insurance, and whether they will be merged or remain apart.

PAYMENT FOR PERSONS WITH DISABILITIES

Bill C-20 includes provisions to allow for the sharing of information to facilitate the delivery of a one-time payment for persons with disabilities: a non-taxable and non-reportable payment of up to $600 to approximately 1.7 million eligible individuals who:

  • Are holders of a valid Disability Tax Credit certificate (eligible persons not yet in possession of such a certificate would be able to apply for one up to 60 days after Royal Assent to be considered for the one-time payment);
  • Currently receive Canada Pension Plan disability benefits or Quebec Pension Plan disability benefits; or
  • Are in receipt of disability supports provided by Veterans Affairs Canada.

REGULATORY TIME LIMITS

Bill C-20 enacts a new statute that would suspend limitation periods in civil litigation proceedings and enable the extension or suspension of select regulatory time limits. The Time Limits and Other Periods Act (COVID-19) would ensure the continued protection of Canadians’ rights in the context of civil legal proceedings, by ensuring that individuals are not prevented from asserting their rights because of the passage of a time limit. It would also ensure that Canadians, Canadian businesses and the government are able to avoid irreversible legal consequences.