320 March Road, Suite 201 : 613-592-3939 Ottawa, ON K2K 2E3 Toronto: 416-444-7325 www.momentum.law 155 University Avenue, Suite 300 Toronto, ON M5H 3B7

Megan Cornell 613-592-3939 x100 CEO, Lawyer [email protected]

BY EMAIL March 22, 2020

TO: Karen McCrimmon, MP Kanata-Carleton Hon. , Minister of Finance Hon. , Minister of Small Business and Export Promotion Hon. Dr. Merrilee Fullerton, MPP Kanata-Carleton Hon. Rod Phillips, Minister of Finance Hon. Victor Fedeli, Minister of Economic Development, Job Creation and Trade Jenna Sudds, City of Ottawa Councillor Kanata-North

Re: Canadian Response to COVID-19 and Small Business Response

Dear leaders,

First, let me acknowledge the efforts of all levels of government over the past weeks to protect the health of Canadians and look after the financial well being of Canadians during this uncertain time. We find ourselves in an unprecedented situation which is changing daily. I commend our Federal government, Provincial government and various municipalities on the efforts taken to date, particularly to ensure that individual Canadians feel supported and taken care of.

That being said, the efforts to date to support small businesses have been insufficient and will not stall a wide spread small business shut down, from which we will not recover.

As a business lawyer, I have spent the last week providing free consultations to Ontario businesses on the employment situation – the vast majority of which were consultations considering temporary or full layoffs of some or all of their workforce. These are devastating times for small business owners, whether they have been mandated to shut down, are voluntarily doing so to be good community members or have seen a complete evaporation of their business over the past couple of weeks.

Small businesses have a dedication to their employees which is built on the personal connections which owners have with those team members. However, they also usually operate on extremely thin profit margins and can only continue paying employees for a week or weeks before there is simply no cash available to pay the employees. It is a particularly difficult time for many small businesses which see a Momentum Business Law | Memorandum 2 slow cash-flow period in the winter months and rely upon the spring and summer months for a large bulk of their annual business profit.

The Federal government measures proposed to support small business to date are simply not even a drop in the bucket needed to keep these businesses operating and employees on payroll – meaning that the employees will be transferred over to our EI system and businesses will fold, many to never open again.

A 10% payroll credit with the extremely small limits which are attached is not remotely enough of a credit to enable small business employers to keep employees on payroll. As represented to you by the Canadian Federation of Independent Businesses and other business organizations this week, the amount is not only too small, but pales in comparison to similar programs implemented in Europe and New Zealand.

A direction that further business credit will be made available to businesses through the Business Development Bank of and private financial institutions is similarly ineffective for small businesses making choices about whether they can keep employees on payroll. First, calls to BDC this week have indicated that it will be months before financing is available. Second, most small business financing relies upon the business owner to personally guarantee the credit extended: small business owners have likely already provided personal guarantees and may be unable or unwilling to further guarantee their limited personal assets in this uncertain environment. Finally, further debt asks businesses to take on the obligation of paying for wage continuance in the period of economic downturn, but that debt will have to be repaid without a corresponding investment in expanded capacity which debt is normally incurred for.

The Provincial government and municipal governments have to date not provided any indication that there will be financial supports provided to small business to help with immediate cash flow needs.

Essentially, small businesses are provided with a situation where it is better for employees to be laid off and the business to close, than for there to be a way to continue the employment relationship and ensure that the small business is poised to consider innovative ways to deliver goods or services during this period and to immediately bounce back and continue regular operations when that option is available.

Although there are many people presenting ideas on what all levels of government need to do right now to support small business and keep Canadian employees in their positions, the Momentum Business Law team feels that it is important to lend our support to the following initiatives:

• Implement an immediate 75-90% wage subsidy program for small businesses, or at least equivalent to the amount the employee would receive on EI benefits; • Provide clear guidance to employers that they may use the Supplemental Unemployment Benefit Plan to provide part time work to employees which, combined with EI benefits, will top up employees to up to 95% of their regular wages; • Provide relief from penalties and interest for all tax obligations, including HST obligations, recognizing that many accounts rendered will not be paid immediately and perhaps not at all, requiring businesses to submit HST which was billed but never collected; • Provide temporary relief from employee and employer EI and CPP contributions; • Provincial governments should implement immediate procedures to allow for businesses previously servicing the public to provide services for frontline needs, including food services; Momentum Business Law | Memorandum 3

• Special accommodations and supports should be considered for businesses in the tourism and conferences space and those who support them with services (printing, photographers, event managers, local tourism and events, caterers, restaurants and hotels). They are already feeling and will continue to feel for a prolonged period, the impact of the COVID crisis. Canada relies very heavily on the tourism industry and we cannot afford to lose the businesses associated with this industry; • Direct that additional credit facilities, where used for payroll, rent and other working capital obligations, will not need to be secured against business owner personal assets and will be interest-free with both a grant program and a lengthy repayment factored in; • The Ontario government must also take a leadership role to financially assist small business on an immediate basis, providing payroll supports and other key working capital supports; and • Municipal governments should provide offers of property tax credits to commercial property owners, provided those credits are immediately passed on as rent abatements to commercial tenants.

Momentum Business Law and other businesses which provide services and supports to small business will not be immune from the slowdown and we will see wide spread layoffs in the professional services very quickly, as those businesses move to preserve what little cash flow they have. Our clients will immediately move to preserve their own cash, delaying paying their bills, perhaps permanently, stalling cash flow through the entire system.

It is to the benefit of all Canadians to keep small business employees employed in their positions, even where the work they traditionally perform is not currently available for them. It is time for all levels of government, particularly the Federal government, to recognize this and make clear its commitment to Canadian small businesses and their employees.

The time to save jobs is NOW. This coming week is absolutely crucial in the decision for businesses to keep employees on payroll or initiate layoffs. Unfortunately, the measures announced this previous week to help support small business did nothing to assure owners that any level of government, particularly the Federal government, understood how to support small businesses. I have more calls scheduled all of next week to review layoff procedures and I want those calls to instead be about holding on, knowing that all levels of government will act together to keep the life blood of our Canadian economy, the 99% of Canadian businesses which fall in the “SME” category, alive.

Sincerely,

Megan Cornell MOMENTUM BUSINESS LAW