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Not eligible for federal wage subsidy, TouchBistro lays off 131 staff

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TouchBistro laid off 131 staff Tuesday after determining it didn’t qualify for the federal government’s wage subsidy program, waiting until Parliament passed its latest package of assistance for businesses struggling amid the fallout from the COVID-19 pandemic before going ahead with the cuts.

In an open letter published Tuesday, CEO Alex Barrotti said the Toronto-based restaurant point-of-sale technology (POS) company had been “significantly impacted by COVID-19,” and was reducing its workforce to “address the financial impact that it’s had on our business.”

In an interview with The Logic Tuesday, Barrotti said he “waited as long as [he] could to make the decision.” Most of the layoffs were in sales and marketing. “Our SaaS revenue has barely been impacted,” he said. But “new signups have slowed down because, obviously, with restaurants being forced to close, people are delaying opening new restaurants.” TouchBistro’s revenue from transaction fees and its reservation feature have also been reduced, although Barrotti said he could not provide figures by category.

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Talking Point

TouchBistro laid off 131 employees on Tuesday, after waiting for the passage of legislation enacting Ottawa’s wage subsidy, for which the the Toronto-based point-of-sale technology firm said it does not qualify.

About 90 per cent of the cuts are in Canada, Barrotti said. The Canada Emergency Wage Subsidy (CEWS), a federal program, lets eligible employers claim up to 75 per cent of the first $58,700 of staff salaries. Companies must show a 15 per cent reduction in revenue in Canada for March and 30 per cent in April and May.

Innovation-economy executives and tech-sector groups have expressed concerns that many startups and fast-growing firms—particularly SaaS companies—would not qualify since details were first announced at the end of March. Last week, Finance Minister Bill Morneau said companies would be able to choose whether to compare their revenues to the same month in 2019, or the average of January and February of this year. “This is just making sure we capture those high-growth companies,” Morneau said.

But Barrotti said TouchBistro’s auditors determined it wasn’t eligible, and that factored into the timing of the layoffs. “Unfortunately, we don’t qualify for the wage-subsidy program the way the legislation is currently written,” he told The Logic on Tuesday. “And that’s why we waited until legislation was passed over the weekend, on Saturday night.” The company had 560 employees before the cuts.

Barrotti said 80 per cent of TouchBistro’s sales are from international markets. The company has a large U.S. restaurant base, and also has partnerships with major financial institutions in the U.K. and Mexico. “From what we understand, in order to qualify the revenue has to be generated in Canada,” Barrotti said. “It would help tremendously if this stipulation is changed.”

The Council of Canadian Innovators, a scale-up lobby group of which TouchBistro is not a member, said despite the changes last week, the CEWS provisions “leave so many Canadian technology firms in a lurch.”

TouchBistro has also laid off employees in the U.S. and U.K., and has cut hours and salaries for staff in Mexico. TouchBistro described the layoffs as temporary. “Once things return to normal, our hope is to be able to bring those people back as soon as possible,” Barrotti said. Employees, who were all informed of the cuts on Tuesday, have not been given a specific date for when they will be brought back. “I wish I could tell you when this crisis would be over,” Barrotti said. “Tomorrow, they could announce a vaccine—or it could be like SARS, where it eventually runs its course.” TouchBistro will continue to assess the situation, he said.

Last week, the firm launched a gift card-issuing feature and a new online ordering system to allow restaurants offer takeout or their own delivery service through their websites or TouchBistro’s restaurant reservation platform. At the time, Barrotti told The Logic that the company’s core SaaS business model was “holding strong,” although revenues from transaction fees and its reservation feature were down. He also said TouchBistro had “a lot of money in the bank” following its $158-million Series E round, announced in September 2019.

Earlier this month, TouchBistro’s major investors told The Logic they believed the company was well-placed to survive the COVID-19 downturn, citing a strong cash position and management team. “They have a healthy balance sheet today and for now, costs are manageable,” Damien Steel, managing partner and head of OMERS Ventures, said at the time. On Tuesday, he said his position hasn’t changed. “Today’s changes are another step in our strategy to set up TouchBistro for long term success,” he said in an email.

“All businesses are now continually monitoring their situation in order to adapt to evolving conditions,” said Richard Nathan, managing director at Kensington Capital Partners, but he reiterated his confidence in TouchBistro’s management team. “Everyone has to adapt to the new conditions, including with regard to their total number of active employees.”

Last week, TouchBistro’s Boston-based competitor Toast laid off half its staff; LinkedIn data showed it had more than 2,500 employees before the cuts.

TouchBistro—whose early-stage funders included Relay Ventures, also an investor in The Logic—said Tuesday that furloughed employees will continue to receive health and dental benefits. Their accrued vacation days will be paid out, and they will be able to accumulate further time off as well as service time while they are laid off. Their stock options will also continue to vest.

Those measures and any severance payments won’t affect the company’s balance sheet significantly, Barrotti said, adding that the company has eschewed growth at any cost in favour of prudent spending. “The reason I made this decision … was that I have a fiduciary responsibility to the shareholders of this company—which includes all of the employees, because all of our employees have options in the company—to ensure that TouchBistro will be around once this crisis is over.”