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  • E-commerce: Your Obligations regarding Consumer Protection and Competition Matters

    Before selling your products and services online, you will need to determine the form and content of your contract, and ensure that you comply with the provisions of the Consumer Protection Act (the “CPA”). The CPA applies to any contract between a consumer and a merchant entered into in Quebec, including online contracts of sale, which are known as “distance contracts.” Rules applicable to contracts entered into on the internet Form Contracts concluded on the internet must be in writing and must contain the name and address of the merchant, as well as the date of the transaction. In addition, certain information must be provided to consumers before a contract is concluded, in particular: information identifying your business; a detailed description of the goods or services you are selling, including their characteristics and technical specifications; the price of each item or the terms of payment; all the applicable fees, whether required by law or charged by the merchant; the delivery date or the date on which the service will be provided; and other details regarding delivery, cancellation policies and any other applicable restrictions or conditions. This mandatory information must be presented prominently and in a comprehensible manner, and be expressly brought to the consumer’s attention. This could be done through a web page containing said information, which must appear on the screen before the consumer pays for the items in the shopping cart. It is good practice to ensure that the information is easy to print or save in PDF format. Acceptance Before the contract is entered into, the merchant must provide the consumer with an express opportunity to accept or decline the offer and to correct any errors. Copy The merchant must provide the consumer with a copy of the contract within 15 days after the contract is entered into, in a manner that ensures that the consumer may easily retain it and print it. Delivery A consumer may cancel a contract if the goods are not received (or the service is not performed) within 30 days after the date specified in the contract or within 30 days after the contract is entered into in the case of a contract that does not specify a delivery date. Note that goods for which delivery was attempted on the agreed date will be considered delivered. Cancellation The CPA allows consumers to cancel the contract in a number of cases, in particular when the merchant does not comply with the provisions set out above. Each merchant is free to establish a cancellation policy and set its conditions, so long as these are in accordance with laws of public order. The consumer must be informed of said policy before entering into the contract, which must include the cancellation policy. Warranties Legal warranty The Consumer Protection Act provides for a legal warranty that automatically applies to a good, whether purchased in store or remotely. Under said legal warranty, goods must be fit for the purposes for which goods of the kind are ordinarily used, durable for a reasonable length of time, having regard to their price, the terms of the contract and the conditions of their use. Goods must also match their description under the contract. Finally, a consumer is also entitled to a recourse against the merchant should there be a latent defect in the good. Additional warranty A merchant may offer consumers an additional online warranty, provided that said warranty complies with the relevant provisions of the CPA. Application and exceptions It is noteworthy that the aforementioned rules are the consumer protection rules which generally apply to the sale of goods and services, but they may not apply in certain instances, such as in the case of contracts for the sale of goods which are likely to deteriorate rapidly, such as food. One must be mindful that the Consumer Protection Act contains exceptions or provisions that are specific to certain commercial sectors. Different laws and regulations may also apply to certain types of goods and services that are sold. Competition law issues The CPA contains competition-related obligations that are specific to Quebec. All merchants in Quebec must also comply with the provisions of the Canadian Competition Act. The purpose of the Competition Act is to (i) maintain and encourage competition between businesses in Canada, (ii) provide consumers with competitive prices and product choices, and (iii) to protect consumers from fraudulent or prohibited practices. Prohibited business practices Misleading price display Under the CPA, when you advertise the price of a product or service, you are required to advertise an “all-inclusive” price, which includes all amounts that the consumer will have to pay for the product or service. The all-inclusive price should be more prominent than the sums of which it consists. Taxes (GST/QST), among other things, may be excluded from the advertised price, but must be added at the time of payment. Price-related representations and price display are also subject to specific rules under the Competition Act. False or misleading representations Advertising that contains false or misleading representations, or fails to mention an important fact is prohibited under the CPA. The Competition Act prohibits the making of materially false or misleading representations to the public. The provisions of the Competition Act dealing with false and misleading representations apply to a number of cases, including the following: Performance representations not based on adequate and proper tests: The making of representations to the public about the performance, efficacy or longevity of a product, which is not based on an adequate and proper test, is prohibited. Untrue or unauthorized use of tests and testimonials: The unauthorized use of product performance tests and testimonials (e.g., scientific tests, consumer testimonials, etc.) is prohibited. Needless to say, these cannot be distorted. Misleading warranties: Giving a consumer a warranty containing materially misleading representations that could influence the consumer’s decision to purchase goods or services is prohibited. The overall impression conveyed by a representation and the literal meaning of said representation is used to determine whether the warranty is misleading. Misleading promotional contests: Certain information related to the holding of promotional contests must be disclosed to the public. In addition, the sending of any documentation that would mislead the recipient into believing that he or she has won a prize or other benefit is prohibited. It is noteworthy that in Quebec, there are specific rules related to promotional contests. Other prohibited practices The Competition Act aims to prevent abuse of a dominant position and therefore provides stricter standards that apply to businesses holding a dominant position in a market. Conspiracy provisions aim to prevent a business from unduly reducing competition or unreasonably increasing the price of a product. This law also prohibits the refusal to sell a product, insofar as a business has no right to harm a customer by refusing to supply it sufficiently under normal market conditions. Finally, vertical restraints, that is, practices such as exclusive dealing, tied selling and market restriction, are prohibited, as they generally impose conditions that restrict the freedom of consumers. The CPA prohibits making use of commercial advertising directed at persons under thirteen years of age. Penalties Both the Consumer Protection Act and the Competition Act provide for penalties for prohibited practices. Judges can order punitive damages for certain violations of the CPA. Under the Competition Act, certain acts are considered criminal if a person does them knowingly or recklessly, regardless of the consequences they may have on the public.

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  • E-commerce: Some Laws and Rules You Should Be Aware of

    Various ways of doing e-commerce E-commerce can take different forms. For the purposes of this article, we will refer to e-commerce where the contract of sale or of supply of services is concluded by electronic means, E-commerce will be said to be “direct” when the product or service is delivered electronically, such as in the online conclusion of a contract for a subscription to an online-only publication, and “indirect” when the item sold is tangible or the service is rendered otherwise than online. E-commerce can be conducted entirely online or in a hybrid manner, where the vendor operates both online and through brick-and-mortar stores. It is considered “closed” when it is between a relatively small number of participants who already have a contractual or professional relationship with each other. It can be conducted between a business and a consumer, in which case it is called “B2C,” or between a business and another business and is then known as “B2B.” E-commerce poses particular challenges for businesses and if these challenges are not properly addressed, they are likely to expose the business to additional liability. This means that e-commerce can be particularly risky for novice businesses that start to do carry out business electronically, without adequate preparation. For example, a merchant who transacts electronically will necessarily have to take direct possession of some of its customers’ personal data, such as their names, addresses and credit card numbers, or have an e-commerce service provider take indirect possession of it. The use of such personal data is subject to the provisions of privacy laws, and, given that the data is of great value to potential thieves or fraudsters, it must be protected. A merchant may also be the victim of fraudulent orders or payments made with stolen credit cards numbers. To better control its risks, a novice in e-commerce may be better off doing business with established e-commerce service providers such as Shopify, BigCommerce, Squarespace or GoDaddy, which have set up robust infrastructures for their customers. A corporation should nonetheless do its homework before choosing an e-commerce service provider. It should, for example, inquire about the terms and conditions of the service agreement to be entered into with the chosen provider, and, in particular, about the services offered (including how returns and chargebacks are handled), how the service provider protects its customers in the event of data theft or fraud, what fees are charged, and so forth. In all cases, whether or not a corporation does business with an e-commerce service provider, it should ensure that the information kept on its own servers and computers is limited to what is absolutely necessary. Likewise, once a transaction is completed, it should avoid, as far as possible, keeping personal data belonging to its customers, such as their names, addresses and credit card numbers. Moreover, a corporation that decides to engage in e-commerce must be aware of certain specific legal aspects relating first, to the particularities of e-commerce itself and second, to the fact that its customers may be located anywhere in the world. For the purposes of this article, we will focus on the rules generally applicable to all types of e-commerce. A future article will deal with the specific rules provided in the Consumer Protection Act (Quebec). Consumption tax The majority of governments impose a consumption tax on goods (and sometimes services) sold within their jurisdiction. Applicable consumption tax laws generally provide that businesses with a presence in a jurisdiction must collect applicable taxes and remit them to the competent tax authorities. For a corporation that is otherwise not present in a jurisdiction, the mere fact of selling goods in that jurisdiction is generally not sufficient to require registering with its tax authorities and collecting and remitting applicable taxes. However, the definition of what constitutes a sufficient presence to require business registration and the collection and remittance of consumption taxes varies from one jurisdiction to another. A corporation wanting to sell its goods and services electronically must therefore ensure that it is aware of the applicable consumption tax rules in the main jurisdictions where it will sell these goods or provide these services. Licences and permits Although it is generally not necessary for a manufacturer or seller to obtain a license, permit or other governmental authorization for the vast majority of goods typically sold online, they  may be required before certain products, in particular medical or pharmaceutical products, can be sold online or otherwise, domestically or internationally. It is also important to note that a licence, permit or other authorization may not be required to sell goods in a jurisdiction while the sale of the same goods in another may require such license, permit or other authorization. Thus, if a merchant wants to sell its product in a jurisdiction where a permit, licence or other authorization is required, it will be required to obtain it before proceeding with any sales. In addition, in some territories, the sale of certain goods must necessarily be done through a State monopoly. For instance, such restrictions are still the norm in Canada for the sale of alcoholic beverages. For example, a resident of Ontario may not order alcoholic beverages directly online from a producer in another province and have them delivered to Ontario, which prevents a small-scale producer of alcoholic beverages in Quebec from selling its products online to Ontario customers, for delivery in Ontario. Shipping Not all goods can be shipped in the same way. Some must be specially packaged, and some may even not be shipped by regular means, such as Canada Post and major courier companies. For example, Canada Post requires that fish, game, meat, fruit, vegetables or other perishable products be properly prepared and meet certain other applicable requirements for mailing. Other products, such as objects classified as hazardous materials, may simply not be shipped by mail. To ship these products, it will be necessary to deal with a specialized courier service. Finally, Canadian laws prohibit the export of certain goods or require special permits for their export. In addition, merchants must ensure that the laws of the destination jurisdiction allow the goods shipped to be imported into that jurisdiction. Indeed, all countries either prohibit the import of certain goods into their jurisdiction or require the importer to obtain a permit or licence issued by their government. Age restrictions Under applicable laws and regulations, certain goods may only be sold to persons who have reached a certain age or may not be sold to children. These restrictions vary from jurisdiction to jurisdiction. For instance, in Quebec, one must be 18 years old to legally buy alcohol, while elsewhere in Canada the age is 19 and in the United States, 21. Merchants wishing to sell alcoholic beverages online must take these restrictions into account. The same applies to the sale of any other goods that are subject to age restrictions. PCI DSS compliance In 2006, the main credit card issuers, American Express, Discover Financial Services, JCB International, MasterCard and Visa formed the PCI Security Standards Council to standardize the rules and standards applicable to payments made with their credit cards. The council adopted a set of rules called “Payment Card Industry Data Security Standard,” better known by its acronym, PCI DSS. All merchants wishing to accept credit card payments, including direct online payments, must adhere to these rules. Any merchant, regardless of its size, wishing to process credit card payments on its website must also be PCI DSS compliant, unless it is doing business through a compliant payment service provider. The PCI DSS include the following 12 compliance requirements, which are grouped into six categories called “control objectives.” The following table, taken from the document entitled “Payment Card Industry (PCI) — Data Security Standard — Requirements and Security Assessment Procedures”1, provides a summary of these requirements.   Control objectives PCI DSS conditions Build and Maintain a Secure Network and Systems 1. Install and maintain a firewall configuration to protect cardholder data 2. Do not use vendor-supplied defaults for system passwords and other security parameters Protect Cardholder Data 3. Protect stored cardholder data 4. Encrypt transmission of cardholder data over open, public networks Maintain a Vulnerability Management Program 5. Protect all systems against malware and regularly update anti-virus software or programs 6. Develop and maintain secure systems and applications Implement Strong Access Control Measures 7. Restrict access to cardholder data by business need to know 8. Identify and authenticate access to system components 9. Restrict physical access to cardholder data Regularly Monitor and Test Networks 10. Track and monitor all access to network resources and cardholder data 11. Regularly test security systems and processes Maintain an Information Security Policy 12. Maintain a policy that addresses information security for all personnel   Although the PCI DSS are mandatory, only Visa and MasterCard require merchants and service providers that accept their cards to comply with these standards. However, a non-compliant corporation will nevertheless be held fully liable if fraud associated with theft of cardholder data occurs. In addition, should a security breach occur, all exposed merchants that are not PCI DSS compliant will be fined. It is up to merchants and service providers to achieve, demonstrate and maintain compliance through annual validations. Merchants may use the services of specialized service providers to help them comply with PCI DSS standards. Useful tools to ensure compliance are also available online for these purposes2. Should a merchant not wish to go through the PCI DSS compliance process, it may always use the services of a PCI DSS compliant payment service provider3.   PCI Security Standards Council, Payment Card Industry (PCI) Data Security Standard Requirements and Security Assessment Procedures (Version 3.2.1, May 2018), online (PDF): Official website of the PCI Security Standards Council These can be found through a search using the keywords “PCI DSS compliance” or “PCI DSS conformity.” These can be found through a search using the keywords “PCI DSS Payment Gateway.”

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  • Why and How Should Companies Manage their Post‑Crisis Recovery?

    When Crisis Increases Risk Since the beginning of the crisis, we have been witnessing a spectacular collective effort marked by solidarity and the determination to ensure everyone’s health and safety. The COVID-19 pandemic has created many challenges for all levels of government, for employers and for employees. Employers have had to adapt their methods by changing the way work is organized. The state of emergency caused by the crisis has quickly engendered additional risk exposure. At the same time, employees have generally been understanding and flexible regarding the measures announced by employers. Going forward, however, employee cooperation, force majeure, and health and safety challenges may no longer be sufficient to maintain the kind of flexibility employers and employees shared during the crisis. As a result, it is important to get back on track right away, taking only calculated risks and returning to the conventional legal framework that governs the employer-employee relationship. Short-Term Crisis Recovery: Anticipating Challenges and Minimizing Risk Well organized companies focused on the challenges of recovery will likely be capable of successfully commencing their recovery while keeping any associated risks linked with new measures to a minimum.  The following are some suggestions on how to do so: It is essential to maintain, re-establish and/or preserve an effective, open channel of communication with employees. Workers will need assurance that their return to work is being properly managed and that their health and safety is a top priority for the company. Develop and implement health and safety measures for workers, or ensure that the measures already in place are adapted to the context of COVID-19. Employers have an obligation to ensure the health and safety of their workers and implement methods to identify, correct and control risks. Establish a policy for working at home (a subject recently discussed by our expert colleagues). Expect unusually high rates of absenteeism and work refusal situations and establish a plan to manage problem cases, keeping the rights and obligations of everyone involved in mind. Make sure these measures are applied in a consistent, unequivocal and uniform manner when it comes to your employees. Train managers on your organization’s key messages and positions in order to ensure that you are conveying a unified message. Coaching front-line managers will become even more important in the context of the recovery. Employers can evaluate the potential use of the Quebec government’s PACME program (which we have reviewed) as part of their recovery plan.  The most significant challenge businesses will face in the medium-term (and probably in the long-term as well) is the very unstable economic situation and potentially declining employee cooperation. Though many are current focused on short-term recovery, it is crucial to begin thinking of ways to help our organizations manage the crisis in the medium-term. The economic instability that will characterize this period will also create opportunities. In order to seize them, it is essential for companies to be flexible and agile. Every organization must set a solid action plan in motion now so that their human resources can operate with the flexibility that the unstable economic situation will require. Our Labour and Employment team is prepared to support companies facing this immense challenge. We can help you. Despite the challenging circumstances, crisis can often reveal new opportunities.

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  • What are the Duties and Responsibilities of Corporate Directors during the COVID-19 Crisis?

    This publication was written in collaboration with André Laurin. By all accounts, the coronavirus pandemic and the measures implemented by the government have created a particularly difficult and delicate situation for almost all organizations. Despite this extraordinary situation, the general duties of directors (duty to comply with the law, duty of care and duty of loyalty or fiduciary duty) as required by the relevant laws of incorporation and by the Civil Code of Québec remain the same. However, in the current context, the directors of a legal person must greatly improve and intensify their thinking process and their actions, in order to ensure that they respect these duties and, in particular, to ensure that they act in the best interests of the legal person in question. According to the incorporation laws and the Civil Code of Québec, the board of directors is responsible for the management of the legal person or, as the case may be, for the supervision of the management performed by the persons to whom they have delegated their powers, namely the legal person’s management team. Duty of care For directors of legal persons, respecting their duty of care involves, now more than ever: an understanding of the challenges and risks associated with the impact of COVID-19 on the legal person’s business, clients, employees, suppliers, etc.; identifying the best management measures available, relying upon what they reasonably consider as being the best practices under the circumstances; attentively monitoring the implementation of the decisions made and making the appropriate adjustments as things evolve. On this subject, please note that the business corporations acts specify that directors are considered to have complied with their duty of care if their decisions rely in good faith on the reports of a person whose profession lends credibility to his statements. Duty of loyalty As well as a duty of care, the law also imposes a duty of loyalty, also referred to as a fiduciary duty, on directors of legal persons, which, among other things, requires them to act in the best interests of the legal person. The Supreme Court of Canada provided interpretations of the duty of loyalty in its 2008 BCE decision1 (many of these interpretations have been explicitly integrated into recent modifications to the Canada Business Corporations Act2): characterizing the interests of the legal person as being those of a responsible corporate citizen (or “good corporate citizen”); highlighting that directors pursuant to this duty of loyalty may consider the interests of the stakeholders, such as shareholders, employees, retired persons, creditors, consumers, governments and the environment, who may be affected by their decisions; specifying, however, that if the interests of the various stakeholders cannot be reconciled with the best interests of the legal person, the long-term best interests of such legal person viewed as an ongoing concern must prevail. In practice, in order to respect this duty, directors cannot disobey the law. They must also, in particular: ensure that the legal person takes necessary measures to respect the directives of public authorities; ensure that the legal person takes appropriate measures to protect the health of its employees, clients and suppliers; not tolerate practices that are generally detrimental to the legal person or that aim to fraudulently profit from the current crisis; prioritize measures that have the best chance of enabling a substantial part of the legal person’s business to survive and restart the majority of its operations once the situation returns to normal3. We believe that in the current circumstances, it would be consistent with best practices for directors to consider the interests of stakeholders. This involves identifying those interests and evaluating them reasonably and fairly, as well as evaluating whether they can be reconciled with the legal person’s best interests. It is clear that the current situation does not easily allow for reconciling, at least in the short term, the interests of all of stakeholders with the interests the legal person, which must prevail. Maintaining the conditions and relationships that existed before the crisis will be, in most cases, difficult to reconcile with the long-term best interests of the legal person, as defined and interpreted by the law and the courts. Directors therefore must arbitrate between these interests in a reasonable way, prioritizing the interests of the legal person, even if it is difficult to do so. This crisis, the government directives and their effects require leadership and creativity on the part of directors. As has been written by several observers, the current crisis will necessitate new approaches when the pandemic is over. In this endeavour, directors must be proactive and must help management find solutions to limit the negative effects of the crisis and plan on potential new ways for the carrying out of the legal person’s operations in the coming years.   BCE Inc. v. 1976 Debentureholders, [2008] 3 S.C.R. 560, 2008 SCC 69. See subsection 122 (1.1) of the Canada Business Corporations Act, RSC 1985, c C-44. A very apropos article on the way directors can fulfill their duties of diligence and loyalty was posted on the Harvard Law School Forum on Corporate Governance on March 29, 2020: GREGORY, Holly J., GRAPSAS, Rebecca and HOLLAND, Claire, Ten Considerations for Boards of Directors, Cambridge, Harvard Law School Forum on Corporate Governance, online: https://corpgov.law.harvard.edu/2020/03/29/ten-considerations-for-boards-of-directors/.

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  • Managing Employment Injuries in the Age of COVID‑19

    The management of employment injury claims has not halted due to the current pandemic. Not only are new employment injuries taking place and claims being filed, ongoing claims are still being processed.  Managers must be vigilant in order to limit the financial impact of the pandemic with respect to employment injury claims. They can act in one of two (2) ways: Investigating the circumstances in which the worker contracted COVID-19 in order to determine whether it can be considered an employment injury; Monitoring employment injury cases to identify the impact of the pandemic on the way cases are treated to then try to obtain a reduction in financial consequences for the employer by an assignment of costs. Can COVID-19 be considered an employment injury? Although a worker infected with COVID-19 is at liberty to file an employment injury claim, they are responsible for proving that they contracted the disease or came into contact with the virus due to or in the course of their work. According to the current laws and jurisprudence, a COVID-19 diagnosis does not trigger the application of any legal presumption facilitating the acceptance of a worker’s claim under either the category of occupational disease or that of industrial accident. Helpful tip: If one of your employees has contracted COVID-19, investigate the origin of the infection. Ask the following questions and document the answers you receive: Has the worker travelled recently? Where and when? When did they return from abroad? Has one of their loved ones recently been diagnosed with COVID-19? Have one or more colleagues, clients or business partners contracted the disease? What symptoms did they experience, and when did they begin experiencing them? What was their schedule and who did they work with in the days before they began experiencing symptoms? Why do they believe they contracted the disease at work? What hygiene, preventive and protective measures and distancing did they use in the workplace? Can employers apply for an assignment of costs due to COVID-19? In terms of employment injuries, the pandemic can have many consequences, such as treatments and temporary assignments of work being temporarily interrupted and medical assessments and examinations by the Bureau d’évaluation médicale (BEM) being cancelled or postponed for an indefinite period. This situation will inevitably prolong the period during which employment injury benefits are paid, potentially significantly in some cases. Employers could apply for an assignment of costs for these claims in order to reduce the financial impact of the pandemic by demonstrating, for example, that the treatments necessary to consolidate the worker’s injury were suspended due to the pandemic, delaying consolidation or increasing the consequences o permanent impairment. A pandemic the size of COVID-19 is probably very much outside the scope of risks most employers generally have to face. When applying for an assignment of costs due to “undue burden”1, the employer will need to demonstrate that the consequences stemming from the pandemic such as delayed consolidation or more substantial permanent consequences represent a significant proportion of the costs attributable to the employment injury.  Helpful tips: If you have workers who are currently receiving income replacement benefits, find out whether their treatments or medical care have been interrupted due to the pandemic, if they have had medical or surgical appointments cancelled, etc. Document this information. The impact of these events on the cost of the claim can be documented retrospectively. Keep in mind, however, that applications for an assignment of costs due to “undue burden” must be submitted within the time limit established by law, as interpreted by jurisprudence2. The members of our Labour and Employment team are available to answer any questions you may have about occupational health and safety measures you are considering or the solutions you are seeking given the realities of your organization and its activities.   Section 326 of the Act respecting Industrial Accidents and Occupational Diseases (“AIAOD”). Section 326 of the AIAOD states that the application must be made in writing within the year following “the date of the accident”, and must include an explanation of the reasons for the application. However, the Court of Appeal has interpreted this time limit as being able to start from the day the right to the exception begins in Commission de la santé et de la sécurité du travail v. 9069-4654 Québec inc., 2018 QCCA 95 (known as the “Supervac 2000” case), as has the majority of the Tribunal administratif du travail jurisprudence that followed.

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  • What solutions for Startups Affected by COVID‑19 in Their Search for Financing?

    The impact of COVID-19 is particularly strong on start-ups in need of short-term financing and venture capitalists, whose contribution is essential to support the growth of these companies and who must make investment decisions in a context of widespread uncertainty. Like others, we have noticed the slowdown in investment activity and that many start-ups are now finding it difficult to close rounds of financing or even get time or attention from potential investors. In this context of uncertainty, we advise entrepreneurs who anticipate the need to soon close a round of financing to consider the following items: Current investors First and foremost, it is vital to consider the rights of your business’s current investors, contained in corporate documents and agreements between the investors and the corporation, as they could impact your round of financing’s feasibility. For example, if a valuation was obtained a few months ago and it is presently impossible to find a new investor to offer to purchase the corporation’s shares at an equal or higher valuation, the consequences of proceeding “down round” will have to be considered. In some circumstances, the success of a new round of financing may even depend entirely on existing investors’ support and consent. It is also possible that, under certain conditions, existing investors may be willing to take a share of the risk faced by the corporation by participating in a new round of financing, thus eliminating the need of seeking funding from new investors. Lastly, especially if one of the current investors is a venture capital fund or an active investor, it is likely that the corporation has agreed to specific milestones with that investor that could add to the difficulty of operating the business during a pandemic (for example, aggressive sales or production growth targets). But it is possible that your investor will be understanding and accept to review these milestones and associated timelines, which could lead to a positive impact on the corporation’s burn rate and give it  more leeway to weather the crisis. In all cases, we recommend transparency between the corporation and its investors, adopting a “partnership approach” and, above all, not to try to hide the corporation’s situation in its communications with its investors. Potential investors If there is no other option than seeking funding from new financial partners, it will be crucial to know the current situation of any targeted potential investor. As the current pandemic situation affects everyone, understanding the constraints faced by a potential investor is key in order to optimize the search for financing and the pitch process.  For example, if the potential investor has a specific investment thesis or policy, the investor may be even more thesis-driven and show less flexibility than before. Conversely, the investment thesis may be undergoing a re-evaluation. In addition, many potential investors will be impacted by the type of clients they serve. For example, a fund manager whose clients are government institutions may still have as much capital to deploy in the current context as before Covid-19, unlike a fund manager whose clients are high-net-worth individuals who face uncertainty and liquidity problems themselves and put pressure on the fund manager to take a more conservative stance. So, more than ever, you need to target your approach and make sure your potential investor is available to enter into a transaction in the near future. Assistance programs The various levels of government and some Crown corporations have released several assistance programs. In the context of a funding round, Export Development Canada (“EDC”) and the Business Development Bank of Canada (“BDC”) both announced co-investment assistance programs to provide access to additional financing for start-ups that already have a certain level of support from private investors. These programs are a good opportunity for entrepreneurs who need to complete or initiate a round of financing, who are not eligible for certain other government assistance programs, and who are not generating enough cashflow to finance their activities through credit facilities on conditions that are viable for their business. The program announced by EDC proposes a co-investment by EDC of an amount equivalent to that considered in an eligible round of financing, up to a maximum of $5,000,000. As for the program announced by the BDC, the BDC Capital Bridge Financing Program also provides assistance in the form of co-investment in an amount equivalent to the amount the company receives from qualified investors: BDC will offer financing as convertible notes whose default terms include a 20% discount rate on the price per share of the next round of financing and a term of three years. BDC may, however, decide to deviate from these terms and invest under the same conditions as the investors leading the round of financing. The company receiving the investment must be Canadian and have raised $500,000 in external capital in the past. It must also have a proven business model and an existing customer base prior to the impact of COVID-19. The business must have been “specifically impacted by COVID-19.” Unlike some other government assistance programs, this one does not have a fixed scale relative to this criterion. Businesses can demonstrate how the current situation affects them through qualitative and quantitative indicators (e.g. disruptions in their supply or distribution chains, difficulties in getting paid). The important thing will be to show that the lack of cashflow and the difficulty of concluding a round of financing are related to the impact of COVID-19 and not to a situation inherent to the company. The round of financing for which co-investment is being sought must have started after February 1, 2020. The round of financing must be for a minimum amount of $250,000 (prior to investment by BDC) and the overall round of financing must ensure 18 months of runway before additional funding is required by the company. For example, a business with a monthly operational burn rate of $30,000 and $300,000 in financing would meet this criterion since (1) the round, prior to BDC investment, is over $250,000, and (2) the overall round of financing, including co-investment by BDC, would be $600,000 and would ensure 20 months of runway, based on its current burn rate. There are no fixed criteria for determining who is an “eligible investor.” We understand, however, that the investor must be a private firm that has demonstrated its capacity as a lead investor for the funding round in question its ability to conduct the due diligence process. The investor does not have to be Canadian but must be sufficiently known and credible in Canada. We consider this convertible note financing offer to have three main advantages in the current environment: It increases the total “post-financing” value of the business in the form of additional cash, and the size of the funding round without increasing the principal investor’s risk, thus making the investment more attractive. It avoids immediate valuation issues for the company, allowing the lead investor to maintain control over the valuation process through the funding round. It is relatively simple, quick and inexpensive, and should not make the transaction process more complicated or burdensom for the lead investor. In short, these co-investment-based assistance programs are appealing as they can be presented to an investor by a company with financing needs whose planned or ongoing funding round is currently at a standstill due to the situation created by COVID-19. The programs may also be interesting elements to consider for an investor who wishes to have a co-investor or who would like the round of financing to reach a certain threshold to ensure that the company being invested in has sufficient runway after the investment, especially in the current context where it is difficult to predict subsequent rounds of financing. However, the parties wishing to benefit from such programs will have to ensure that their situation meets each program’s criteria and that they evaluate the financing terms offered as part of the assistance program in the context of the transaction. Conclusion Start-ups currently in need of financing should first discuss with their existing investors to try to find room for manoeuvre and assess the possibility of quickly obtaining financing, part of which could come from one of the assistance programs available. In all cases, it will be necessary to measure the impact that additional funding from new investors could have on the rights and obligations that exist between the corporation and its current investors and to ensure that it does not trigger any particular rights or recourse or create ambiguities, contradictions or even events of default. For more information in this regard or to find out about other measures that could help your business, do not hesitate to contact the Lavery team. Our team is following current developments related to COVID-19 very closely in order to best support our clients and business partners. We invite you to visit the web page that centralizes all of the tools and information produced by our professionals.

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  • How to Negotiate Temporary Agreements or Contracts in Times of Crisis?

    The rapid spread of COVID-19 and the introduction of strict government measures are limiting or changing many businesses’ operations. These measures impose unusual restrictions that make it more difficult to meet certain contractual obligations. In such a situation, many companies will want to assess the possibility of modifying certain undertakings and terms of their contracts in order to get through the pandemic and resume their business activities post-crisis. To that end, we have gathered a few thoughts on how to look into negotiating a temporary agreement, some legal principles that can be applied to begin discussions and negotiations, and some other elements to consider in a negotiation approach, which we share with you below. How to do it and where to begin: some ideas It is relevant to review all your contracts and sort them to determine which are essential for your business operations and which have the most significant financial impact.  Think about the other contracting party as well, who may also be affected by the pandemic. Has the other party defaulted of performing its correlative obligations to you, or is your inability to meet your obligations causing it prejudice in any way?  Most of the obligations included in a contract cannot be changed unilaterally. However, contracting parties must still perform their respective obligations in good faith. The occurrence of an exceptional situation such as COVID-19 is likely to force each of the parties to act more flexibly in order to comply with their duty of good faith. It is possible to validate whether some of these contracts, by their very nature, are still relevant or whether they will remain relevant once the curve flattens and economic activity recovers. For less relevant contracts, you can check whether they include provisions allowing for unilateral termination, by the mutual agreement of the parties or by a particular mechanism. Otherwise, you could then consider initiating a discussion with the other contracting party to negotiate certain terms of the agreement in order to mitigate negative impacts, if any, during the pandemic.  For each contract that must be maintained, you can list all the obligations that you are unlikely to be able to meet, in whole or in part, as well as those that your contracting party might not be able to meet, in order to open the door to an out-of-court  negotiation of certain provisions for the coming months. In your analysis, you should pay particular attention to the following clauses: Default: What constitutes a default under the terms of the contract? What are the consequences of defaulting? Does a default under this contract constitute a default under another contract? Does the contract provide for a time period to cure a default? On what conditions? Time limit: Does the contract set specific time limits for the performance of certain obligations? Which ones? Does the contract provide for the possibility of postponing the time limit for its performance? Should a notice be sent to this effect? Does it expire soon? Exclusivity: Is the contract exclusive? Can this exclusivity be overridden? Under what circumstances and on what conditions? Force majeure: Does the contract include a superior force clause (most commonly called a “force majeure”) forgiving a party’s inability to perform its obligations? What happens to each party’s obligations, especially financial obligations, in a context of superior force? Although the Civil Code of Québec defines such a notion, the contract can always provide its own definition. A case of superior force usually requires the presence of an unforeseeable, irresistible event external to the party invoking it. Continuous information: Does the contract provide for the obligation to keep the other contracting party informed when certain events occur? If so, which ones? Is COVID-19 or any other pandemic included? Negotiation: Does the contract provides for the parties the possibility to renegotiate certain terms ? Which ones? When? On what conditions? Payment: Does the contract set out time limits for payments to the other contracting party or for making any other kind of payment, depending on the nature of the contract? Does it provide for additional time limits to proceed to the payments? What is the impact of delaying or not making a payment? Financial performance: Does the contract establish financial performance criteria (e.g. compliance with certain financial ratios)? How often? What are the consequences of not meeting these financial criteria? Penalties: Does the contract contain penalties for late payment of certain amounts or for failure to meet certain contractual obligations? When is this penalty due? What amount can it reach? Liability: Is the liability of the contracting parties unlimited under the terms of the contract or does the contract instead provide for limits on the amount that may be claimed?(maximum/minimum amount)? Is there a predetermined time limit to make a claim? Does the contract provide for a notice to be sent to this effect? Dispute resolution: Does the contract provide for a dispute resolution process? Mediation or arbitration? Under which conditions can these mechanisms be applied? List all the impacts that result from a breach of obligations (e.g., penalties, notice of default, interest), and make a list of viable proposals that you can submit to the other contracting party as an alternative. What legal principles can you use to negotiate a temporary agreement with your contracting party or a postponement of your obligations?  Certain provisions or legal principles may make it possible to terminate a contract or may serve as arguments for a temporary agreement or a postponement of your obligations. Here are a few examples. (This list is non-exhaustive, of course.) Force majeure Some parties to a contract will want to invoke the concept of superior force to terminate or temporarily suspend the effects of the contract. Although this concept is interesting, it applies only to very specific situations and its application is not generalized. As previously mentioned, the Civil Code of Québec1 provides that superior force is an unforeseeable and irresistible event that must not arise from the actions of the contracting parties. Depending on the nature of the obligations covered, a contracting party may be released from its obligations or have its successive obligations suspended during the superior force period. The contract may also provide for other parameters and circumscribe the terms of what may constitute a case of superior force between the parties. The right to invoke superior force requires a case-by-case assessment of each contract and of the relationship between the parties. In any event, a party that is unable to perform its obligations, in whole or in part, must take all steps at its disposal to minimize its damage. You will find more information on the concept of superior force and its application in the bulletin The Impact of COVID-19 on Contracts.  Right to terminate Certain contractual provisions may allow for resiliation (termination) by either party, on specific terms or for specific reasons. Some contracts will provide for a termination mechanism at either party’s discretion or further to their mutual consent.  In the absence of such clauses in the contract, it remains essential to characterize the nature of the contract, since legislative provisions could allow its resiliation. That is also the case of a contract of enterprise or a contract for services, which the client may unilaterally resiliate as permitted by sections 2125 and following of the Civil Code of Québec, subject to certain limits, of course. Before deciding to unilaterally resiliate a contract, it is important to consult your legal advisor in order to properly determine the nature of the contract, validate its terms and conditions with respect to resiliation and determine the possible impacts of such resiliation (e.g., penalties, prejudice to the other party, etc.). Obligation of good faith in contractual performance The obligation of good faith imposes certain contractual duties, including those of loyalty and cooperation. The duty of loyalty entails certain prohibitions such as not increasing the burden on a contracting party, not compromising the contractual relationship, and not engaging in excessive and unreasonable2 behaviour. The duty of cooperation, on the other hand, is more positive in nature and aims for assistance and collaboration between the contracting parties to encourage contract performance. Thus, beyond the contractual relationship between the parties, the obligation of good faith allows for a genuine collaborative relationship, a partnership, even, between the parties. A party being a victim of its contracting party’s actions, which are not in accordance with its obligation of good faith under the terms of the contract or which are implicitly derived from those terms, may be in a favourable position to claim damages. Thus, if a party experiences difficulties in performing its obligations because of an event beyond its control, it is entitled to expect the other contracting party to show good faith in the performance of the contract and to act reasonably. Abuse of rights  A party’s exercise of its contractual rights may, in certain situations, constitute an abuse of rights. For example, a party that is in default of its payment obligations under the contract, due to the closure of its business as required by government authorities, may trigger the application of a contract default clause by the other party. Such other partycould proceed with the immediate resiliation of the contract upon simply providing notice. While the terms of the contract may be clear, the other party’s haste in resiliating the contract may constitute an abuse of rights. Indeed, the nature of the relationship between the parties, the duration of the business relationship and the facts that led to the default have an impact on the way a party may exercise its rights under the contract. The exercise of rights provided for in the contract in such a way as to create devastating or catastrophic effects for one of the contracting parties could constitute an abuse of rights in the performance of the contract. Mediation The contract may provide for dispute resolution processes such as mediation or arbitration. To the extent that a dispute arises between the contracting parties and that the contract provides for recourse to alternative dispute resolution mechanisms, it will be possible or even mandatory to submit the dispute to a process such as mediation before a third party, which will attempt to help the parties find an acceptable common ground. In the event of non-performance by a contractual party, this may be a very good option, insofar as the contract contains a provision providing for recourse to such mechanisms, of course. How can a temporary agreement be negotiated, and are there elements that can be put forward as part of the discussions? Given the exceptional current situation, it may also be appropriate for the contractual parties to communicate and verify the impacts of the pandemic on the contractual performance. In this way, the parties may jointly conclude that there are particular difficulties in performing certain obligations under the contract. In such a case, propose solutions or present scenarios that aim to minimize the negative impacts for your respective businesses. Rely on the mutual aid factor to meet certain obligations and/or suspend others (performance, manufacture, delivery, time limits, forbearance, etc.). It is possible to suggest performing certain obligations in consideration for the performance of your contracting partner’s correlative obligations. Where feasible, consider partial payments, deferred payments, staggered payments over time or a reimbursement based on a percentage of revenues or sales once operations resume after the pandemic. If it is possible, offer additional guarantees to the other contracting party (e.g. collateral security, personal suretyship, third party guarantee). Validate whether your insurance covers the cessation of your operations, business interruption, delays in the performance of your obligations, or financial losses arising from some of your contracts, to enable you to propose viable alternatives.  Determine which suppliers or partners are willing to conclude a temporary arrangement and those who refuse or are less open to it. You can then to try to optimize your agreements with the more conciliatory partners, allowing you to continue performing certain obligations with your more reluctant contracting parties. Innovate! Think about alternatives that might not have been possible, or that you might not have considered before the pandemic, that allow you to optimize your business practices or relationships. In short, think outside the box. A few thoughts before undertaking a negotiation  Do not restrict your thinking to the period of restriction on non-essential activities which is, at the time of writing, until May 4, 2020.  Think instead about the weeks and months that will be required to re-establish your business relationships and resume normal business operations, while performing your ongoing obligations and any deferrals negotiated during the pandemic; The inability to adapt, or the maintenance of a hard line, will bring some businesses to the brink and force them to consider various insolvency processes. You must be in a position to show your contracting parties why a position that is too firm or inflexible will not, in the long term, be satisfactory or serve the parties’ interests, in addition to being detrimental to those parties who are likely to require flexibility in the performance of their contractual obligations. You need to be able to identify the considerations specific to your business and business model, and determine the elements that may influence your decisions, such as the nature of the relationship with the other contracting party, particularly if it is a long-standing customer or supplier, whether it is a relationship that will continue into the future or if it is a one-time contract that is non-recurring, and what impacts and reputational risk your actions may entail. Beyond legal principles, the long-term business relationship must be prioritized and protected. This argument should not be underestimated. The objective of most Quebec businesses is to find satisfactory common ground for the parties involved, while trying to minimize the impacts on both sides. The watchword the parties should keep in mind is “flexibility.” During these times when solidarity is in order, it seems to us that it would be wise for each party to make the effort to reach a duly negotiated temporary agreement. We are sharing these options to provide you with ideas on how to approach the negotiation of ongoing contracts, knowing that each contract, relationship and situation are  unique. For more information, our corporate law team remains at your disposal to accompany you during the pandemic. #WeWillGetThroughThis   Section 1470 para. 2 C.C.Q. Didier Luelles, La bonne foi dans l'exécution des contrats et la problématique des sanctions, Canadian Bar Review, Vol. 83, 2004, pp. 189-190.

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  • Bill C-14 has become law: Are you eligible for the Canada Emergency Wage Subsidy?

    On March 30, 2020, the Government of Canada announced that it would grant the Canada Emergency Wage Subsidy (the “CEWS”) to qualifying entities, no matter their number of employees or their size. Bill C-14 bringing into effect the CEWS, received royal assent on April 11, 2020.  The Government of Canada will subsidize 75% of the first $58,700 of each employee’s wages, for a maximum amount of $847 per week. This measure is retroactive to March 15, 2020. For now, the CEWS covers a 12-week period from March 15, 2020, to June 6, 2020, inclusive. The Canada Emergency Wage Subsidy does not abolish the Temporary Wage Subsidy for Employers, but entities that receive it for a given period will see the CEWS reduced. For more information on the Temporary Wage Subsidy for Employers, click here. Qualifying entities Pursuant to subsection 125.7(1) of the Income Tax Act1 (the “ITA”), to qualify for the CEWS, an entity must first be an “eligible entity.” Eligible entities are the following: Taxable corporations; Individuals; Registered charities (other than a public institution); Partnerships whose members are eligible entities; Agricultural organizations, boards of trade or chambers of commerce2; Non-profit corporations for scientific research and experimental development3; Labour organizations4; and Non-profit organizations5. Subsidies of foreign corporations are also eligible for the CEWS under the same conditions, provided they are incorporated under the laws of Canada. Excluded entities Public institutions6, such as municipalities and local administrations, crown-controlled corporations, public universities, colleges, schools and hospitals, are not eligible for the CEWS. As such, a partnership of which a member is an excluded entity, such as a crown-controlled corporation, would not be eligible for the Canada Emergency Wage Subsidy. Eligibility criteria To qualify for the CEWS, eligible entities will have until October 2020 to file an application for the qualifying periods. Filing will take place via a specific application process. Additionally, a person who has the principal responsibility for the eligible entity’s finances will have to attest that the Canada Emergency Wage Subsidy application is complete and accurate in all material respects. In order to qualify for the CEWS, an eligible entity should also have had a business number before March 15, 2020, for source deductions7 purposes. An eligible entity will need to demonstrate a drop in revenue of at least 15% for the qualifying period of March 2020 and of 30% for each subsequent qualifying period. Qualifying periods and reference periods for eligibility Eligible entities must use one of two methods to attest to the drop in revenue. Eligible entities must compare a current qualifying period to a past qualifying period via either: A year-to-year method (e.g., March 2020 compared to March 2019); or The average of its revenue earned in January and February 2020. An election will need to be made between these two methods in the entity’s first CEWS application. Eligible entities will have to use the same method for the whole duration of the program. Here is the list of the qualifying periods and the corresponding reference periods as announced on the Canada Revenue Agency’s website8: Claiming period Reference period for eligibility Period 1 March 15 – April 11 (reduction of 15%) March 2020 over: March 2019; or Average of January and February 2020. Period 2 April 12 - May 9 (reduction of 30%) April 2020 over: April 2019; or Average of January and February 2020. Period 3 May 10 – June 6 (reduction of 30%) May 2020 over: May 2019; or Average of January and February 2020.   The law provides that additional qualifying (and reference) periods could be added via regulation until September 30, 2020. Accounting method The eligible entity’s normal accounting method should be used to determine qualifying revenue. Entities can calculate their revenue according to either the accrual method or cash method but not a combination of both. Entities must choose an accounting method when filing their first CEWS application and will have to use the same method for the whole duration of the program. The legislation defines qualifying revenue, for the purposes of the comparison between the prior reference period and the current reference period, as “the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity — generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity — in Canada in the particular period”9. Revenue must be gained from business conducted in Canada and arise from arm’s length sources. Extraordinary items and sums obtained or derived from a non-arm’s length person or partnership are excluded from the computation of revenue. Non-resident entities are not eligible for the CEWS unless they are taxable in Canada. Revenue from sales or transfers between non-arm’s length persons are excluded. An exception to this principle may apply to certain holding corporations. The amount of the Canada Emergency Wage Subsidy received for a qualifying period is not included in the calculation of eligible revenue for the subsequent qualifying period, of course. However, amounts received pursuant to the CEWS will reduce other incentives under tax legislation, like the SR&ED tax incentive program. Registered charities and non-profit organizations For registered charities, non-profit organizations, labour organizations, non-profit organizations for scientific research and experimental development, agricultural organizations, board of trades and chambers of commerce, the computation of revenue must include amounts received during its normal activities, which includes gifts and membership fees. These entities will be authorized to choose whether or not to include funds received from government. Once chosen, an accounting method must be applied for the whole duration of the program. Computation of qualifying revenue The calculation of qualifying revenue should normally be done entity by entity. Consolidated financial statements However, for an entity that is a part of a group of eligible entities that normally prepare consolidated financial statements, each member of this group may determine its qualifying revenue separately if it normally does so. Also, each entity of an affiliated group can make an election to establish its qualifying revenue on an individual basis. For such an election to be valid, every entity of the affiliated group must elect to establish its revenue on an individual basis. Joint ventures The ITA allows for a flow-through mechanism for participants of a joint venture qualifying as an eligible entity even if this joint venture is otherwise considered distinct from its members: If all of the interests in an eligible entity are owned by participants in a joint venture and all or substantially all (meaning 90% or more) of the qualifying revenue of the eligible entity for a qualifying period is in respect of the joint venture, then the eligible entity may use the qualifying revenues of the joint venture. Holding companies A joint election may also be filed in cases where all or substantially all (meaning 90% or more) of an eligible entity’s revenue arises from one or several non-arm’s length persons or partnerships. This mechanism is mainly aimed at holding companies providing services to other entities in a related group and whose revenue should otherwise be excluded pursuant to the “non-arm’s length source” criterion. A formula is provided for in the ITA, containing several presumptions in order to consider transactions with Canadian and foreign entities. Deeming provision for subsequent reference period Qualifying entities must file a new application for each qualifying period. The Canada Emergency Wage Subsidy will be paid monthly by cheque or direct deposit. A deeming rule is provided for in the ITA. When an eligible entity meets the qualifying revenue criteria for a qualifying period, a provision found in subsection 127(9) of the ITA deems the eligible entity to have met the qualifying revenue criteria for the immediately following qualifying periods. In other words, if for the qualifying period of March 15 to April 11, 2020, the entity has demonstrated and attested to a reduction of 30% of its revenue, the entity will be deemed to satisfy this condition for the next qualifying period of April 12 to May 9, 2020. Eligible employees Pursuant to subsection 127(1) of the ITA, an eligible employee is an individual who has been employed in Canada by an eligible entity during a qualifying period and who has not been without remuneration for a period of fourteen (14) or more consecutive days during this qualifying period. Eligible remuneration Eligible remuneration for the purposes of the CEWS includes wages, salaries and other remuneration10. In addition, professional fees, commissions and other amounts for services provided are eligible11. The following forms of remuneration are excluded: Retirement allowances; Amounts deemed to have been received by the eligible employee as a benefit under or because of a stock-option plan12; Any amount received that can reasonably be expected to be paid or returned, directly or indirectly, in any manner whatever, to the eligible entity, a person or partnership not dealing at arm’s length with the eligible entity, or another person or partnership at the direction of the eligible entity; and Any amount paid in respect of a week in the qualifying period, if, as part of an arrangement involving the eligible employee and the eligible entity, the amount is in excess of the eligible employee’s baseline remuneration, after the qualifying period, the eligible employee is reasonably expected to be paid a lower weekly amount than their baseline remuneration, and one of the main purposes for the arrangement is to increase the amount of the CEWS. As such, any arrangement to improperly benefit from the CEWS will be excluded from eligible remuneration. For the purposes of the Canada Emergency Wage Subsidy, eligible remuneration is computed using the average weekly remuneration paid to an eligible employee between January 1 and March 15, 2020, inclusively (the “baseline remuneration”). An exclusion is provided for any period of seven (7) days during which the eligible employee has not received any remuneration. There is no limit to the total amount of CEWS that an entity might claim. The CEWS applies to the first $58,700 of annual salary paid to each eligible employee, computed employee by employee. Under subsection 125.7(2) of the ITA, the CEWS is equal to the greater of the following amounts: 100% of remuneration paid, up to the lesser of the following amounts: 75% of the average weekly remuneration that the employee received before March 15, 2020; and 75% of weekly remuneration paid, up to $847 per week. Employees not dealing at arm’s length with the eligible entity If an eligible employee is not dealing at arm’s length with the eligible entity and he or she has not received eligible remuneration before March 15, 2020, he or she will not be eligible for the CEWS. Only 75% of the remuneration paid before March 15, 2020 will be eligible. This is aimed at preventing persons not dealing at arm’s length from increasing their salaries after March 15, 2020 to increase the amount of the CEWS they would be eligible to received. Example of a CEWS application Baseline weekly remuneration between January 1 and March 15, 2020 = $60,000 Average remuneration after March 15, 2020 = $60,000 % of remuneration paid % before March 15 Greater of: (A) 100% (B) 75% (C) 75% (A) up to the lesser of (C) and $847 (B) up to $847 Week applied for : 03/13-03/21 $1,153.85 $865.38 $865.38 $847 Week applied for : 03/22-03/28 $1,153.85 $865.38 $865.38 $847 Week applied for : 03/29-04/04 $1,153.85 $865.38 $865.38 $847 Week applied for : 04/05-04/11 $1,153.85 $865.38 $865.38 $847 Total CEWS for the eligible employee $3,388   The CEWS is equal to 73.40 % of remuneration paid. The net cost for the eligible entity is 26.60% (+ payroll contributions except if the employee is on leave without pay). Reduction in wages after March 15 If the baseline remuneration of the eligible employee was $60,000 prior to March 15, 2020 but, by agreement, the salary after March 15, 2020 is reduced to $40,000, the CEWS would then be $769, 23. In this example, the CEWS is equal to 100% of the remuneration paid after March 15, 2020 with a net cost to the eligible entity of $0. % of remuneration paid % before March 15 Greater of: (A) 100% (B) 75% (C) 75% (A) up to the lesser of (C) and $847 (B) up to $847 Week applied for: 03/13-03/21 $769.23 $576.92 $865.38 $769.23 Week applied for: 03/22-03/28 $769.23 $576.92 $865.38 $769.23 Week applied for: 03/29-04/04 $769.23 $576.92 $854.38 $769.23 Week applied for: 04/05-04/11 $769.23 $576.92 $854.38 $769.23 Total CEWS for the eligible employee $3,076,92   New Employee Should the eligible entity hire a new employee for a salary of $40,000 per year, the CEWS received in respect of this employee would be equal to $576.92 (75% of remuneration paid). Payroll contributions reimbursed under certain circumstances Certain employer-paid contributions can be reimbursed. This reimbursement would apply to the entirety of employer-paid contributions in respect of eligible employees, for each week during which these employees are on leave with pay and for which the entity qualifies for the CEWS regarding these employees. These contributions include: Employment Insurance; The Canada Pension Plan; The Québec Pension Plan; and The Québec Parental Insurance Plan. Eligible entities should continue to withhold and remit both employee and employer contributions as usual. They will then be able to claim a reimbursement at the same time as the CEWS. The Government of Canada has announced that entities benefiting from the CEWS will have to demonstrate having “done their best” to pay the remaining 25% of wages not covered by the CEWS to their employees. This criterion will be evaluated with flexibility in order to take into account the financial struggles of businesses. As of now, nothing with respect to this 25% is mentioned in the ITA. The CEWS will be deemed as taxable income for the entities benefiting from the program. Employees benefiting from the CEWS will be taxed at the source. How to apply An online portal will be launched between two (2) to five (5) weeks from now, for eligible entities to file a claim for the CEWS. Qualifying entities will be able to apply for the CEWS through the Canada Revenue Agency's My Business Account portal. The Minister of Finance will be able to communicate the name of any person or partnership that applies for the CEWS. More information should be released shortly. Anti-avoidance and penalties Specific anti-avoidance rules are provided for by the legislation. Also, in case of ineligibility, an employer must reimburse the amounts received. In case of abuse of the program, a penalty of up to 25% of amounts received could be imposed (up to 225% when computing all penalties that could be applied under the ITA), with the possibility of a prison sentence of up to 5 years. Eligible employees and interaction of the CEWS with the Canada Emergency Response Benefit The Government of Canada is considering putting in place a process allowing employees rehired by their employers during the same qualifying period to cancel their application for the Canada Emergency Response Benefit and to reimburse any amounts received pursuant to this program. Lavery’s team is available to answer any question you may have regarding the announced emergency measures as well as any related aspects. The information and commentaries contained in the present document do not constitute a legal opinion. Their sole purpose is to allow readers, who bear all responsibility, to use them for their own ends. The information and commentaries contained in this document are limited to the measures announced or made public by the Government of Québec and the Government of Canada on or before April 13, 2020.   R.S.C. (1985), c. 1 (5th Suppl.) As defined in paragraph 149(1)(e) of the ITA As defined in paragraph 149(1)(j) of the ITA As defined in paragraph 149(1)(k) of the ITA As defined in paragraph 149(1)(l) of the ITA As defined by paragraphs 149(1)(a) to 149(1)(d.6) of the ITA Under section 153 of the ITA Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html [to date as of April 13, 2020] Definition of “Qualifying revenue” in section 125.7 of the ITA Under paragraph 153(1)a) of the ITA Under paragraph 153(1)g) of the ITA Under paragraphs 7(1)(a) to (d.1) of the ITA

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  • Thinking Post-Crisis Recovery: Two New Programs for Worker Training and Retention

    Two weeks ago, we published an article on the challenge of retaining your workforce amidst the pandemic. Since that time, two new programs on the subject have been announced by the provincial government. The first is meant to respond to the effects of the Canada Emergency Response Benefit (CERB) on employee retention, while the second promotes worker training. Incentive Program to Retain Essential Workers (IPREW) Although the CERB has been generally well received, it has led to difficulties for certain businesses that provide essential services. This is because the salaries of many workers (particularly those working part-time and those working as cashiers, delivery persons, security guards and maintenance workers) is lower than the CERB. In some cases, employees who were laid off and later recalled to work on a part-time basis felt penalized (unlike the regular Employment Insurance program, the CERB does not allow beneficiaries to keep part of the wages they receive by working). This disadvantage has led to surging rates of absenteeism. To incentivize essential services workers to remain in their posts, the IPREW provides a taxable bonus of $100 per week up to a maximum of $1,600 over the course of the program. This bonus is retroactive to March 15, 2020. The government estimates that 600,000 workers will be able to benefit from the program. Workers must submit their applications online beginning on May 19, 2020. The first payment is scheduled for May 27, 2020. To be eligible for the IPREW, workers must: Be working part-time or full-time in an essential service; Be over 15 years of age and living in Quebec; Earn $550 or less per week for an annual income of no less than $5,000 and no more than $28,600 for the year 2020; and Not be receiving CERB or PATT benefits. Workers whose employers receive financial aid from the federal government are still eligible. Non-essential businesses may want to consider implementing incentives inspired by the IPREW in order to retain their workforce when they are recalled to work following the gradual return to normal activities scheduled to begin on May 4, 2020. Non-essential businesses will most likely face problems similar to those that led to the creation of the IPREW, most notably because the CERB will be available until October 3, 2020. Concerted Action Program to Maintain Employment (PACME) It is reasonable to assume that companies resuming their operations after the province-wide shutdown will need to adopt many new measures, particularly in terms of workers’ health and safety and, as we wrote about last week, telework. Training workers will become even more relevant and essential. The PACME offers an opportunity to be proactive in that regard. PACME offers funding to employers seeking to promote training and best practices, with a special focus on human resource management during the crisis and in preparation for the reopening of the economy. It also aligns well with the federal wage subsidy program. The PACME is available to businesses whose operations have been reduced, suspended, increased or diversified by the crisis, as well as self-employed workers and organizational partners. To learn more about the PACME, please see the article published by our colleagues on the subject. Our Labour and Employment team is available to advise and accompany you throughout the crisis and the reopening process.

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  • The borrower-lender relationship: Why and how to nurture it during the crisis?

    Most companies have seen their business operations seriously affected by the COVID-19 pandemic and the various government measures taken to mitigate its impact on the population. Companies have to contend with various issues in the short, medium and long term, such as the closure of many companies’, clients’ and suppliers’ places of business, restricted opening hours, and working from home. Businesses need to maintain the relationship of trust they have built with their lender a business partner with whom it pays to be proactive, show transparency and uphold best practices during these difficult times. Although each situation requires an individual analysis, it is in the borrower’s best interest to draw up an accurate picture of the company’s situation for the lender. The information that should be shared with the lender includes: A description of the plan implemented for clients, suppliers and employees to mitigate the effects of COVID-19 and ensure that operations continue as efficiently as possible; A description of the plan implemented for employees to ensure their health and safety while working; Whether the company’s services and activities are considered essential; The availability and use of government programs developed for businesses and their employees; The possibility of allocating work to other places of business and other efforts to mitigate the impact; Short, medium and long term financial projections, it being understood that even though these projections may be difficult to establish in the circumstances, they will equip the borrower for discussions with its lender and will enable it to anticipate its credit facility drawdown requirements, including any need to increase them; Representations, warranties and covenants in credit agreements that could be compromised. This communication must be ongoing. Considering the fast evolution of the COVID-19 crisis and the proliferation of governmental and other measures, it is important to keep the lender informed as the company’s situation changes. The lender will obviously appreciate getting the most accurate picture of the company under the circumstances, which will allow it to assess the situation and develop customized solutions with the company. The relationship of trust between borrower and lender is, more than ever, an asset in these difficult times. It is proving to be a positive vector of stability for our companies, which will have to overcome the effects of COVID-19. The professionals of our Debt Financing and Banking team can assist borrowers in analyzing the credit agreements they have entered into with their lenders and in developing a communication strategy that is appropriate and effective in the circumstances.

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  • COVID-19: Summary of Quebec and Federal Tax Measures and Financial Assistance

    Download your reference page of the financial aids put in place in Quebec and Canada The ongoing COVID-19 pandemic is forcing different levels of government to institute measures to reduce the burden on taxpayers and protect the economy. The following is a summary of the principal measures announced to date:  Measures with respect to tax deadlines in Québec and Canada; Measures relating to businesses; Measures with respect to employees and self-employed individuals; Measures pertaining to judicial and administrative time limits. Measures to ease tax deadlines in Quebec and Canada On March 18 and March 27, 2020, the Minister of Finance of Canada announced the extension of filing deadlines for certain income tax returns and of payment deadlines for certain amounts owing for individuals, trusts and corporations for federal income tax purposes. The Minister of Finance of Québec matched the federal deadline extensions for provincial income tax purposes on the same day. Individuals New deadlines (Quebec and Canada) Income tax return filing June 1, 2020 For individuals conducting unincorporated businesses (and their spouse or partner) the deadline is June 15, 2020. Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 QPIP/QPP/HSF/RAMQ contributions For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 (Quebec only) Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020   Trusts (other than specified investment flow-through trusts) New deadlines (Quebec and Canada) Income tax return filing May 1, 2020 Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 QPIP/QPP/HSF/RAMQ contributions For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 (Quebec only) Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020   Corporations New deadlines (Quebec and Canada) Income tax return filing New deadline for tax returns normally due before May 31 is June 1, 2020 Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Payment of QST/GST For payments of QST/GST normally due on March 31, April 30 and May 31, the new deadline is June 30, 2020. Source deductions No measure has been announced to date   Partnerships New deadlines (Quebec and Canada) Filing of Partnership Information Return T5013/TP-600-v May 1, 2020   Not-for-profit organizations and registered charities New deadlines (Canada only) Filing of Information Return T3010 December 31, 2020   Person making a payment to a non-resident New deadlines (Canada only) Filing of Statement of Amounts Paid or Credited to Non-Residents of Canada (NR4) May 1, 2020   Deadlines for payments of import and export fees have been extended to June 30, 2020. Deadlines regarding filings and payments of tax on lodging otherwise due before April 30, 2020 are postponed to July 31, 2020. Deferral of tax payments in many Québec municipalities Many Québec municipalities have decided to defer municipal tax payment deadlines in order to reduce the burden on taxpayers. Here are the new deadlines set by some of them: Municipalities New deadline for the next tax payment Montréal July 2, 2020 Lévis Interest on balances owing will be suspended until May 30, 2020 City of Québec Payments due on May 4, July 3 and September 3, 2020 are postponed until August 4, September 3 and November 3, 2020, respectively. Trois-Rivières September 8, 2020 Longueuil Payments due on April 6, June 6 and September 8, 2020 are postponed until May 6, July 6 and September 8, 2020, respectively. Gatineau Payments that were due on March 31 and June 30 are postponed until August 31, 2020 Sherbrooke Payments due on May 4, July 3 and September 3, 2020 are postponed until August 4, October 3 and December 3, 2020, respectively. Laval September 1, 2020 for the 1st and 2nd payments.   Measures concerning businesses In Québec Concerted temporary action program for businesses (PACTE) On March 20, 2020, the Government of Québec announced a temporary program administered by Investissement Québec aiming to facilitate access to credit for businesses in the form of a loan guarantee. Businesses that are already clients of Investissement Québec can communicate directly with their project director or account manager by email or by phone using the online directory. Businesses that are not clients of Investissement Québec and that wish to benefit from such a loan guarantee must first contact their financial institution, which will itself contact an Investissement Québec account manager. Any questions on a specific situation regarding this program should be directed to Investissement Québec’s client centre, reachable at 1 844-474-6367. Caisse de dépôt et placement du Québec’s 4 billions dollars fund The Caisse de dépôt et placement du Québec (CDPQ) announced, on March 30, 2020, the creation of a 4-billion-dollar fund to assist Québec businesses temporarily affected by COVID-19. This financing will take diverse forms, which are not yet specified. In order to qualify for this financing, businesses must: Have been profitable before the beginning of the COVID-19 crisis; Have promising growth perspectives in their sector; Seek a minimum financing of 5 million dollars or more. Businesses that want to apply for this financing may do so by filing an online form. Accelerated treatment and payment of certain tax credits The Government of Québec and Revenu Québec have put in place several administrative measures aiming to supplement businesses’ cash flow. These measures are further described below. Concerted Action to Maintain Employment Program (CAMEP) (New) On April 6, 2020, the Government of Québec announced a new subsidy program of 100 million dollars aimed at helping businesses impacted by COVID-19 pandemic by supporting workforce skills development. The CAMEP is a two-pronged measure: Business Component, which targets businesses by supporting the business’s own activities aiming to improve human resources management and workforce skills. This support will take the form of financing of online or in-person training activities (subject to regulation on physical distancing set by Public Health Authorities), through reimbursement of eligible expenditures. Collective Promoters Component which targets organizations that offer a collective approach to meet the training needs of businesses and the workforce. A Collective Promoter is a group of employers or workers able to create employment-related projects and who can supervise or ensure their implementation, such as sectoral labour committees, training mutual and recognized employers’ associations, legally constituted workers’ associations, etc. Eligibility criteria The following entities will be eligible to CAMEP: Employers; Self-employed workers (whether or not they are incorporated) employing other workers; Workers’ and employers’ associations; Professional groupings; Group of employers; Group of workers; Collective Promoters recognized by the Commission des partenaires du marché du travail for the Collective Promoters Component of CAMEP; Cooperatives; Economic social enterprises; and Not-for-profit organization and community organization. Eligible training activities The following types of training activities offered by an entity listed above will be eligible to CAMEP: Basic employee training; Francization; Digital-skill training; Continuing education on business activities, no matter if they are related or not to the actual position of the trainee; Training encouraged by a professional order; Training essential to the resumption of business activities; Training related to a strategic shift in business activities in the context of economic uncertainties caused by COVID-19 and aiming to maintain or diversify business’ activities; and Re-qualification training for workers. Eligible expenditures The following expenditures, engaged by an entity listed above in the course of an eligible training activity will be eligible to CAMEP: Salaries and wages of workers (excluding social benefits) for a maximum of $25 per hour; Professional fees of consultants or trainer for a maximum of $125 per hour; Indirect fees for trainers (meals, transportation, accommodations, etc.) at real cost; Indirect fees for workers in training (transportation, meals, accommodations, etc.) at real cost; Elaborating, adapting or purchasing of training material, at real cost; Adapting of an in-person training course into an online training course; Registration or subscription fees of an online platform, at real cost; If applicable, fees related to management activities (banking fees, training material) paid by the delegated entity up to 10 % of those fees; Diagnostic of the human resources functions and, if applicable, of other management functions (Business Component only); Consultant fees in human resources management (organizational communication, telecommuting, etc.) (Business Component only); and Coaching and management training (Business only). Eligible expenditures, subject to certain exceptions regarding salaries and wages that will be explained further in this section, will give rise to a reimbursement of: 100 % of eligible expenditures on the first $100,000 or less; 50 % of eligible expenditures between $100,000 and $500,000. Reimbursement of salaries and wages: interaction between CAMEP and other wage-based subsidies granted by the Government of Québec or Canada The reimbursement terms of salaries and wages as eligible expenditures vary depending on the other wage-based subsidies granted by the Government of Québec or Canada that a business receives. Terms announced as of April 6, 2020, are the following: 25 % of total salaries and wages of employees in training (up to a maximum of $25 per hour), if the business receives the Canada Emergency Wage Subsidy of 75 % described below; 90 % of total salaries and wages of employees in training, if the business receives the Temporary Wage Subsidy for Employers of 10 % described below; 100 $ of salaries and wages of employees in training if the business receives no wage-based subsidy from the Government of Québec or Canada. Duration of CAMEP Projects detailing eligible training activities must be submitted to Services Québec. Services Québec will accept new projects until September 30, 2020, or until the $100 million dollars envelope runs out. Eligible training activities are not subject to a minimum or maximum duration. Further details concerning this measure are expected to be announced within the next few days. Small and Medium Businesses Emergency Aid (Québec) (New) This program aims to relieve SMBs experiencing financial difficulties due to the present COVID-19 crisis through loans of up to $50,000.   Eligible Businesses Businesses operating in all sectors, including social economy enterprises, cooperatives, and nonprofit organizations conducting commercial activities are eligible under the following conditions: They are in business in Québec since at least one year; They are temporarily closed, on the brink of closing or showing warning signs of imminent closure; They are in a context of maintaining, consolidating or reviving their activities; They are able to demonstrate a direct link between their financial difficulties and the present COVID-19 crisis. Businesses under the protection of the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) or of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) are excluded from this program.   Eligible Financing Financing granted by this program aims to relieve businesses’ cashflow needs and is determined based on reasonable and documented expenses. Cashflow needs must be caused by either: Impossibility or substantial reduction of the capacity to deliver products (goods or services) or merchandise. Financing will take the form of a loan guarantee of up to $50,000   How to Apply Businesses wishing to benefit from this program must contact their Regional County Municipality (RCM), their municipality’s office or the organization in charge of administering their RCM’s Local Investment Funds. Flexibility towards loans granted by Local Investment Funds (Québec) (New) A 6-month moratorium on reimbursement (both capital and interests) of loans granted by Local Investment Funds. Interests accrued during this period will be capitalized. This measure is in addition to the previously announced moratoriums related to the investment policies of most Local Investment Funds. In Canada Canada Emergency Wage Subsidy (CEWS) (New) The Government of Canada announced, on March 30, that it will grant a temporary wage subsidy, the Canada Emergency Wage Subsidy (the “CEWS”), to eligible employers, no matter their size and number of employees. Bill C-14 adopting the CEWS has been sanctioned on April 11, 2020. The Government of Canada will subsidize the first 75% of pre-crisis wages or salaries of existing employees, to a maximum salary of $58,700, amounting to a maximum amount of $847 per week, per salary. This measure is retroactive to March 15, 2020. As of now, this measure covers a twelve-week period, from March 15, 2020, to June 6, 2020, inclusively. The CEWS does not abolish the Temporary Wage Subsidy described below. An eligible employer who received an amount via the Temporary Wage Subsidy will see the amount of his CEWS reduced accordingly. For more details concerning he CEWS as well as examples of calculation of CEWS amount, read our complete CEWS brief here.   Temporary Wage Subsidy for Employers Announced on March 18, 2020, the Temporary Wage Subsidy for Employers allows eligible employers (in respect to this specific measure, notwithstanding the status, or lack thereof, of eligibility to the CEWS described above), to reduce payments of source deductions of an amount equivalent to 10 % of remuneration paid between March 18 and June 20, 2020, for a maximum amount of $1,375 per eligible employee and a maximum total amount of $25,000 per eligible employer. Eligible employers are: Individuals (excluding trusts); Canadian-controlled private corporations (“CCPCs”) which taxable capital in Canada for the previous taxation ear (including associated corporations) is inferior to $15 million dollars; Registered charities; Not-for-profit organization; and Partnerships the members of which are eligible employers. Notably, this measure is a diminution of source deduction payments and does not incur any injection of cash in the eligible employer’s business: no check or electronic transfer will be paid to an employer in application of this measure. This measure does not allow to reduce payments of contributions to the Canadian Pensions Plan, Employment-Insurance premiums or payments due to Revenu Québec. Eligible employers are allowed to reduce payments of source deduction for the first payment period concerning remuneration paid from March 18 to June 20, 2020. Should the amounts of the subsidy for an eligible employer for the period exceed the amounts of source deduction due for the period, the eligible employer will be allowed to reduce payment of source deductions beyond the end of the period, after June 19, 2020. This measure does not alleviate employers’ obligations to remit income tax deduction (beyond the subsidy amount computed using the method described above), to contribute to the Canadian Pensions Plan and to pay Employment-Insurance premiums. The amount of this subsidy that will be deducted from an eligible employer’s source deduction will be included in the employer’s taxable income for the year. No registration or filing is needed to benefit from this measure. However, employers will have to keep supporting records, which include: the total remuneration paid between March 18, 2020, and June 20, 2020; the amount of federal, provincial and territorial income tax that was deduced from that remuneration; and the number of employees paid in the period. The Government of Canada announced that organizations that are not eligible to the CEWS described above may still be eligible to the Temporary Wage Subsidy for Employers. Amounts deducted from source deductions by virtue of this measure will diminish any amount due to an employer by virtue of the CEWS, thus eliminating duplication of benefits. Canada Emergency Commercial Rent Assistance (CECRA) The Government of Canada has announced its intention to introduce the CECRA in order to provide loans, including forgivable loans, to commercial property owners who in turn will lower or forgo the rent of SMBs for the months of April (retroactive), May and June, 2020. A partnership between the Government of Canada and the provincial governments will be necessary to administer this program, as regulation of owner-tenant relationships is a private law matter. Announcements detailing these measures should followin the coming days. Canada Emergency Business Account – Loan guarantee of $40,000 to SMBs (New) On March 27, 2020, the Government of Canada announced that SMBs and not-for-profit organizations will be able to take out a government-backed loan from private banks up to a maximum of $40,000. These loans will be interest-free for a year. To be eligible, businesses will have to demonstrate that they had a total payroll ranging between $50,000 and $1 million for 2019. The reimbursement of this loan before December 31, 2022, will incur a write-off of 25% of the debt, for a maximum write-off of $10,000. Easing of the cash reserve requirements for financial institutions ($300 billion of additional funds) (Canada) The Office of the Superintendent of Financial Institutions has relaxed the rules concerning the mandatory cash reserves of Canadian financial institutions. This measure will increase the loaning capacity of Canadian large banks up to $300 billion and will facilitate access to credit for borrowers. Co-Lending Program for Small and Medium-sized Enterprises The BDC and certain financial institutions will co-lend to SMBs in order to fund their operational expenses and cash-flow needs. The BDC will loan a maximum amount of $5 million per loan. Eligible financial institutions will be responsible for managing this program and will be the point of contact with clients. New Loan Guarantee for Small and Medium-sized Enterprises EDC will guarantee new operating credit and cash flow term loans that financial institutions extend to SMBs up to $6.25 million. Measures for employees and self-employed individuals In Québec Temporary Aid for Workers Program (PATT) The Government of Québec announced on April 8, 2020 that the PATT program will end as of April 10, 2020, due to the introduction, by the Government of Canada, of the Canada Emergency Response Benefit. Incentive Program to Retain Essential Workers (IPREW) The Government of Québec announced a new financial aid granted to essential workers during the period of the COVID-19 crisis, aimed at compensating differences between worker’s normal salary and the CERB. The IPREW consists of a payment of $100 per week, amounting to $400 per month, for a maximum duration of 16 weeks. The first IPREW payment is scheduled for May 27, 2020. All subsequent payments will take place every two (2) weeks. Workers eligible to IPREW are those who: Are working full or part-time in a sector related to essential services during the period; Earn a gross salary of $550 or less per week; Earn yearly employment revenues of at least $5,000 and at most $28,600 for the year 2020; Are aged of at least 15 years at the moment on which they claim benefits from IPREW; Are residents of Québec on December 31, 2019 and are planning to remain residents of Québec all through the 2020 year; Have not received, for a week on which they claim IPREW, benefits from CERB or PATT. IPREW claims can be filed from May 19, 2020 to November 15, 2020 through the My Account with Revenu Québec. Claimants must be registered to direct deposit with Revenu Québec in order to benefit from IPREW. Accelerated Treatment and Payment of Certain Tax Credits The Government of Québec and Revenu Québec have taken several administrative measures to supplement individuals’ financial situations. These measures are further described below. In Canada Buyback of Government of Canada Bonds The Bank of Canada has announced that it is expanding the scope of its Government of Canada bond buyback program to add liquidity to the market. Mortgage Default Management Tools The Canada Mortgage and Housing Corporation (CMHC) and other mortgage insurers have ways to assist homeowners experiencing financial difficulty. Among these are payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements. Canada Emergency Response Benefit (New) The Canada Emergency Response Benefit (CERB) announced on March 25, 2020, and sanctioned by Bill C-13, replaces the Emergency Care Benefit and the Emergency Support Benefit previously announced. The CERB is a taxable benefit of $2,000 per month for a maximum period of 4 months. The CERB was put in place in order to provide financial aid that is faster than the normal Employment Insurance program would be under the circumstances. It is therefore advised that workers eligible for both the CERB and Employment Insurance first file a CERB claim, even though the CERB is limited to a 4-month duration, because CERB claims will be processed faster than Employment Insurance claims. Bill C-13 provides that workers must meet the following criteria to be eligible for the CERB: Whether employed or self-employed, they have ceased working for reasons related to COVID-19 for at least 14 consecutive days within the four-week period in respect of which they are applying for the payment; and They are not receiving, in respect of the consecutive days on which they have ceased working: subject to the regulations, income from employment or self-employment, benefits, as defined in subsection 2(1) of the Employment Insurance Act, allowances, money or other benefits paid to the worker under a provincial plan because of pregnancy or in respect of the care by the worker of one or more of their newborn children or one or more children placed with them for the purpose of adoption, or any other income that is prescribed by regulation. For CERB purposes, a worker is any person aged 15 or more, who is a resident of Canada and who, for the 2019 calendar year or in the twelve (12) months preceding the date on which the worker files the CERB claim, earned at least $5,000 in income. The income must have come from one or several of the following sources: employment; self-employment; benefits paid under the Employment Insurance Act2; allowances, money or other benefits paid to the person under a provincial plan because of pregnancy or in respect of the care by the person of one or more of their newborn children or one or more children placed with them for the purpose of adoption. On April 15, 2020, the Government of Canada has announced that the CERB eligibility criteria will be broadened in order to: Allow persons to earn up to $1,000 per month during which they receive CERB; Extend CERB to seasonal workers who have exhausted their Employment-Insurance regular benefits and are unable to undertake their regular seasonal work as a result of the COVID-19 outbreak; Extend the CERB to workers who have recently exhausted their Employment-Insurance regular benefits and are unable to find a job or return to work because of COVID-19; Allow artists to receive royalty payments for copyrighted works produced before March 1st, 2020 while collecting CERB. Dividends A taxpayer who receives dividends may be eligible to CERB if the dividends paid are ordinary dividends (in general, ordinary dividends are paid from business revenues on which the Small business deduction applies). How to apply CERB claims are available since April 6, 2020. Payments are planned to start in the ten (10) days following the filing of a claim concerning any period starting and ending between March 15, 2020, and October 2, 2020. To file an application, click here. A single CERB claim must be filed with Service Canada. A reimbursement must be made if you have received CERB twice or if you return to work earlier than scheduled. It is to be noted that certain appeals concerning Employment Insurance and the Canada Pension Plan are suspended. Other measures (Québec and Canada) Many other measures will be put in place, including an increase in the Canada Child Benefit, an increase in the maximum GST credit, the reduction of the minimum withdrawal amount of RRIFs, an extension for reimbursement of student loans (both in Québec and in Canada) as well as several specific credits. Here are some of them: Autorité des Marchés Financiers (AMF): The AMF is granting an additional 45 days for the continuous disclosure filings of reporting issuers that were to be filed before June 1, 2020. For more details, click here. Canada Economic Development for Québec Regions (CEDQR): Starting April 1, CEDQR will defer payments due to CEDQR by its clients for a duration of three (3) months. For more information, click here. Export Development Canada (“EDC”): EDC will facilitate cash flow loans for exporting businesses by offering loan guarantees to their banks on loans of at most $5 million. Also, under certain conditions, EDC will cover losses on expedited goods even if the buyer has not accepted them. The cancellation of the 60-day waiting period for compensation claims was also announced. For more details, click here. Hydro-Québec: Since March 23, Hydro-Québec has suspended the application of management fees on outstanding bills for all clients. For more information, click here. Measures concerning judicial and administrative time limits Amongst the emergency measures announced, the authorities have also put in place measures to ensure the respect of the taxpayers’ rights, both in Québec and in Canada. In Québec Suspension of extinctive prescription in civil matters On March 15, 2020, through Order 2020-4251, the Minister of Justice of Québec and the Chief Justice of Québec suspended extinctive prescription and terms for forfeiture in civil matters until the health emergency declared by the Government of Québec on March 13, 2020, comes to an end. Proceedings in civil matters are also suspended during this period, with the exception of matters deemed urgent, such as injunctions and habeas corpus applications. This measure applies to, but is not limited to, the following: Appeals of assessment before the Court of Québec; Summary appeals before the small claims division of the Court of Québec; Application of review of the Minister’s decision refusing to extend the time limit for filing an objection; Request to extend the deadline to file an appeal or a summary appeal. Extension of various deadlines Several deadlines to exercise a right, provide information, send documents or make an election that would have applied before May 31, have been deferred to June 1, 2020. Failing to meet such a deadline can cause the loss of a right and generate a penalty or interest, depending on the nature of the obligation and the amount of time elapsed since the deadline. The deadline extension will cover, among other things, the following: Filing of an income tax return of a corporation; Election of a choice under legal or regulatory fiscal rules, such as a rollover; Claim of a tax credit; Claim of fuel tax reimbursement; Response to a request of information from Revenu Québec; Mandatory or preemptive disclosure with regard to aggressive tax planning; Claim of Québec Education Savings Incentive. Extension of time to file an objection to a notice of assessment For a notice of assessment subjected to a time limit for filing an objection ending between March 15 and June 29, 2020, the time limit is extended to June 30, 2020. However, notices of objection should still be filed within the required time limit (i.e., 90 days from the issuance of the notice of reassessment) provided for in section 93.1.1. of the Tax Administration Act, when possible. This is a mandatory deadline that cannot be amended. Therefore, unless otherwise indicated, a notice of objection filed after the 90-day period provided for in section 93.1.1. of the Tax Administration Act, should also include an application for an extension of time to file said notice of objection. Accelerated treatment and payment of certain tax credits For businesses: On March 27, 2020, the Government of Québec announced the advance payment of tax credits to businesses in order to inject cash in businesses as quickly as possible. This measure will allow for the advance payment of more than $600 million to businesses. For individuals: Revenu Québec has accelerated processing of income tax returns granting a payment by Revenu Québec. Since February 24, 2020, almost $800 million has been paid in advance to individuals having already filed their income tax return. The 4-month extension of the renewal of the tax credit for Home-Support Services for Seniors as well as the deferral of the renewal of the Shelter Allowance Program to December 1, 2020, are improving upon the socio-fiscal measures already in place in Québec. Suspension of audits and debt collection Revenu Québec has suspended its audit activities, except for situations presenting a risk of fraud. No contact with a taxpayer will be initiated by Revenu Québec unless it is necessary for processing a payment to the taxpayer. Revenu Québec has suspended its debt collection activities and will be flexible in the application of payment agreements regarding a fiscal debt. In Canada Suspension of audits (New) The Canada Revenue Agency has announced that no communications aiming to audit SMBs regarding the GST/HST or income tax will occur.   Also, no request for information concerning an ongoing audit will be sent to taxpayers. Ongoing audits will stop and no new assessments will be made. If you have received a communication from the Canada Revenue Agency containing response dates or deadlines to transmit a document, no action is required from you or your representative for the time being. Objections and appeals (New) Objections regarding the right to a benefit or a tax credit, such as the Investment Tax Credit (SR&ED), have been deemed to be essential services. No delay should affect processing of such objections. Objections concerning any other tax matter regarding individuals or businesses are suspended. On March 28, 2020, the Canada Revenue Agency announced that the deadline for any objection to a notice of assessment for which the deadline to file a notice of objection is after March 28, 2020, is deferred to June 30, 2020. However, notices of objection should still be filed within the required time limit (i.e., 90 days from the issuance of the notice of reassessment) provided for in section 165 of the Income Tax Act, when possible. This is a mandatory time limit that cannot be amended. Therefore, unless otherwise indicated, a notice of objection filed after the 90-day period provided for in section 165 of the Income Tax Act, should also include an application for an extension of the time to file said notice of objection. Suspension of debt collection (New) All debt collection activities on new amounts owing to the Canada Revenue Agency are now suspended. Existing debts that are already the subject of a collection measure will be re-evaluated on a case-by-case basis. Any taxpayer that cannot, before the payment deadline and for circumstances beyond its control, fulfill its obligations towards the Canada Revenue Agency, can file a Request for Taxpayer Relief in order to cancel interest or penalties that would be otherwise applicable. Administrative tax measures Administrative income tax actions required of a taxpayer by the Canada Revenue Agency that are due after March 18, 2020, can be deferred to June 1, 2020. Such actions include filing of an income tax return, elections and requests for information. Payments of source deductions and any related activities are expressly excluded from such deferrals. Suspension of Tax Court of Canada delays Appeals before the Tax Court of Canada are postponed due to the closing of the Tax Court until further notice. Conference calls scheduled between March 16 and May 29, 2020, are cancelled. The Tax Court’s calendar will be reassessed on May 20, 2020. However, notices of appeal should still be filed within the deadline provided for in section 169 of the Income Tax Act, when possible. The period ranging from March 16 to the 60th day after the eventual reopening of the Court and its offices will be excluded from the computation of time under: Tax Court of Canada Rules (General Procedure); all other Rules made under the Tax Court of Canada Act governing the conduct of matters that, pursuant to section 12 of the Tax Court of Canada Act, are under the  Tax Court of Canada’s jurisdiction; or an Order or Direction of the Tax Court of Canada. The Tax Court of Canada will process any applications of extensions of time to file Notices of Appeal filed during the period that the Court is closed and for 60 days thereafter as including an application for an extension of time to appeal brought on the exceptional grounds that the applicant was prevented by the crisis caused by the COVID-19 and the Court closure from filing within the normal statutory deadlines. Appeals to the Minister regarding the Canada Pension Plan and Employment Insurance Taxpayers who wish to file an appeal of the Minister’s decision regarding the Canada Pension Plan or Employment Insurance may do so by filing a request through My Account. As of now, the Canada Pension Plan and Employment Insurance appeals programs are only following up on cases in which benefits are suspended. All other appeals will pick back up when all services are back to normal. Lavery’s team is available to answer any question you may have regarding the announced emergency measures as well as any related aspects. The information and commentaries contained in the present document do not constitute a legal opinion. Their sole purpose is to allow readers, who bear all responsibility, to use them for their own ends. The information and commentaries contained in this document are limited to the measures announced or made public by the Government of Québec and the Government of Canada on or before April 20, 2020.   Normally, to be eligible for the small business deduction, a corporation must be a Canadian-controlled private corporation and its taxable capital (including that of its group of related corporations) must not exceed $15 million. Subsections 22(1), 23(1), 152.04(1) and 152.05(1) of the Employment Insurance Act.

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  • COVID-19 and Telework: A Common HR Solution but not Without Risk!

    Due to the ongoing pandemic and the resulting suspension of many company activities, certain employers are maintaining their operations by means of telework. Employers have had to swiftly redeploy their human resources to an extent that would have been unimaginable just a few weeks ago. The redeployment of resources now working from home was done in a time of crisis, without the benefit of advanced planning, training, and strategic evaluation that usually accompanies changes of this magnitude. With no prediction yet available on how long the current crisis will last, employers must take steps now to ensure that the measures implemented to promote the continuity of their operations do not result in negative consequences, disputes or claims from their employees, clients or partners. In Quebec, thousands of employees are currently using new technological tools in a new environment (their homes), often without supervision.  The boundary between private life and work has never been more blurred. The magnitude of the current context can artificially obscure the importance of employers adapting their operational methods and associated human resource policies to avoid the risks associated with working remotely. Employers must remember that legal action could be taken after the crisis to address any problematic situations in play now. It is important to act now in order to avoid exposure to significant liability in a post-Covid environment. To that end, we have identified the following four areas of concern. These have been highlighted so that employers can take any required measures to ensure that the telework performed is not only appropriate and safe, but also of sufficient quality to satisfy client and company needs: Concerns Related to Health and Safety while at Work The employer’s obligations in terms of health and safety and its responsibility to take preventive measures continue during this period of telework; The idea that the workplace can include the employee’s home must be taken into account, as well as associated workstation ergonomics Concerns Related to Psychological and Sexual Harassment The need to preserve civility while using new methods of communication; The feeling of familiarity engendered by these new methods of communication can be fertile ground for misconduct or a failure to engage in proper teamwork; The employer’s legal responsibility to prevent and address psychological and sexual harassment situations; Events that occur outside the usual workplace and are related to work; The application and adaptation of administrative policies and codes of conduct; Reviewing complaint and inquiry procedures so that they can take place outside of the usual workplace. Concerns related to the Act Respecting Labour Standards1 Respecting and modifying work schedules; Managing overtime; Costs associated with working from home; Concerns related to Privacy and Confidentiality The contractual performance of work in the employee's home; Transporting and storing work documents; Setting up a workspace to ensure that documents are kept confidential and ethical obligations are respected ; Our Labour and Employment team will be happy to help you implement best practices for telework.   Act respecting labour standards, chapter N-1.1.

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  • The Impact of COVID-19 on Contracts

    With the ongoing COVID-19 pandemic, governments and agencies are implementing an increasing number of measures of all kinds. The state of emergency is giving rise to a multitude of legal concerns, in particular contractual ones. The temporary closure of many businesses, public places and borders and the resulting economic uncertainty is leading businesses to question their contractual obligations, which may have become difficult to meet. In such a context, can debtors fail to meet their obligations without being held liable? The answer to this question can be found either in the text of the contract binding the parties or in the Civil Code of Québec (hereinafter “C.C.Q.”). Many contracts do in fact provide for exemption mechanisms. They set out which of the parties will bear the risks associated with events beyond their control. In the absence of contractual provisions to that effect, the rules set out in the C.C.Q. apply. The Civil Code of Québec and superior force Article 1693 C.C.Q. provides that the debtor of an obligation is released from said obligation when it cannot be performed by reason of superior force. However, the burden of proof of superior force is on the debtor. In Quebec law, superior force is defined as an unforeseeable and irresistible event that is external to the party subject to the obligation. It makes the performance of an obligation impossible1. Thus, in certain circumstances, natural phenomena, such as earthquakes, floods and others, or human acts, such as a state of emergency declared by a government, illness or death, may be considered superior force. Determining whether an event in a particular context constitutes superior force must be done by taking into account all relevant factors. For an event to qualify as superior force, it must meet the following three conditions or criteria. It must be: Unforeseeable Irresistible Exterior An event is unforeseeable when the parties to a contract, acting as reasonably prudent and diligent persons, could not foresee it at the time that the contract was concluded. There is no need for the event to be a new phenomenon. For example, ice storms in Quebec are not unusual. In 1998, however, the ice storm led to an unforeseeable situation. The magnitude of the 1998 ice storm was such that it was sometimes described as superior force.  An event is irresistible when (i) any person placed in the same circumstances cannot reasonably avoid it and (ii) it makes the performance of an obligation impossible. Thus, if the performance of an obligation remains possible, but is simply more difficult, more perilous or more expensive, the event having caused the complication cannot be considered superior force. For an event to be considered exterior, the debtor must have no control over it and must not be responsible for causing it. The debtor must even be able to demonstrate that it has taken all reasonable steps to mitigate its consequences. On the basis of these criteria, the current state of emergency in Quebec may be deemed to be a situation of superior force for some debtors. The analysis must be made on a case-by-case basis and consider the specific obligations of each debtor. For example, the production stoppage ordered by the Government of Quebec, imposing the suspension of workplace activities other than priority activities as of March 25, 2020, makes it absolutely impossible for certain businesses to perform the obligations covered by this decree. For others, the state of emergency may have financial consequences, but these do not make their obligations impossible to perform. While the ongoing crisis can be considered an unforeseeable event for the purposes of a contract concluded years ago, this can hardly be the case for a contract concluded in the last few days, when the disease was already endemic or the pandemic had been announced by the health authorities. In the event of superior force, a debtor is released from the obligation(s) affected by the superior force2. Depending on the importance of these obligations, the release may, in certain cases, lead either to the termination of the contract in its entirety, or to the suspension of the performance of certain obligations. Thus, suspension should only occur when the obligations are to be performed successively and the impossibility of performance is only temporary. A debtor who is released from an obligation by reason of superior force may not demand consideration from the other contracting party3. Superior force cannot be used as a means of exemption for a debtor who is subject, under the terms of the contract, to an obligation qualified as an obligation “of warranty4”. The debtor must then perform the obligation and assume all risks related to the occurrence of an unforeseeable and irresistible event over which it has no control. A debtor faced with the current difficulties arising from the global COVID-19 pandemic must, in all cases, take steps to minimize the damage. For example, it must try to find new suppliers or subcontractors before claiming that it is unable to fulfil its obligations. Contracts may provide for different conditions Parties to a contract may include provisions in the contract governing the consequences of uncontrollable situations, such as superior force, and thus deviate from what is provided for in the C.C.Q. In practice, many contracts contain a broader or more restrictive definition of events that may constitute superior force. For example, strikes and fires will generally not be considered cases of superior force within the meaning of the C.C.Q., but may be under the terms of a contractual provision. Likewise, a party may, at the time that a contract is concluded, undertake to fulfil its obligations even if it is subject to a situation of superior force. In so doing, it waives the right to invoke such grounds for exemption in advance. The parties may also provide for steps to be taken in order to benefit from a contractual provision governing superior force, such as the sending of a notice within a stipulated time limit. The usual provision dealing with superior force requires the party invoking it to send a notice to the other party justifying its use of the provision. Failure to send such notice within the prescribed time limit may result in the affected party being barred from availing itself of the superior force provision. It is therefore particularly important for a party to pay close attention to the formalities and other requirements set out in the contract when invoking such a provision. A contract may additionally contain a provision that determines what effects the occurrence of an event considered as superior force will have. For example, the parties may agree that superior force will result in the termination, suspension or modification of an obligation, such as the proportional adjustment of a minimum volume to be delivered. Finally, the parties to a contract may set out the consequences of unforeseen and external situations that do not, strictly speaking, make the performance of an obligation impossible. For instance, the parties may anticipate the risk of an unexpected increase in the cost of an input by means of a hardship clause. A matter of sound foresight, such a clause may have significant consequences in the current situation, even if it does not specifically address superior force. Conclusion A superior force situation and the exercise of the rights that may result from it must be analyzed with the following in mind: A case-by-case analysis is required for each situation. Other legal concepts may apply depending on the circumstances, such as the duty of good faith of the parties to a contract, the duty to minimize damage, and the duty to demonstrate the absence of an alternative. Business risks or reputation risks may apply to both the party wishing to invoke superior force and the party against whom it is invoked. A review of the terms and conditions of the parties’ insurance policies, which may provide compensation for financial losses, may also be appropriate.   Article 1470 C.C.Q. Article 1693 C.C.Q. Article 1694 C.C.Q. This is opposed to obligations qualified as “of result” or “of means,” for which the debtor may be released by reason of superior force.

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