The North American Trade Dispute: How to Manage Workplace Challenges for Canadian Employers | Stikeman Elliott LLP

As our readers will already be aware, since the new U.S. Administration took office on January 20, 2025, it has both proposed and implemented tariffs (the “U.S. Tariffs”) which have posed significant threats to the Canadian economy. Our firm has posted about these tariffs in detail on our blog.

As part of the broad economic impacts that are expected as a result of the U.S. Tariffs, many Canadian employers are considering the impact on their businesses. We have received a number of questions from our employer-clients as to how to manage the impact, both actual and anticipated, of the U.S. Tariffs on their workplaces, particularly in relation to cost-cutting measures and potential workforce reductions.

This post considers, in a general way, the most frequently asked questions we have received, with a view to helping employers prepare for and respond to the impacts of the U.S. Tariffs. In addition, the Canadian government has introduced U.S. Tariff special measures under the Federal Work Sharing Program intended to provide support to both employers and employees impacted by declining business activity (described below).

Can an employer temporarily reduce hours of work and/or compensation?

Yes, an employer has the right to manage its business and operations, however, reducing hours of work and/or compensation is not without risk.

Specifically, a unilateral change made by an employer to a fundamental term or condition of employment creates the risk that an employee will make a constructive dismissal claim. Any substantial decrease in compensation or in hours (where the latter results in a significant decrease in remuneration) will likely be seen as a repudiation of the employment contract. Such a change would allow the employee to choose to resign and pursue the employer for damages resulting from the termination (i.e., pay in lieu of notice as if they had been terminated without cause).

However, a reduction of hours or compensation that falls short of a substantial change to the employee’s existing terms and conditions of employment, viewed from the position of a reasonable person in the same situation as the employee, will not amount to constructive dismissal. Accordingly, there have been instances of salary reductions that have not been found to be a substantial change of employment terms, generally where the changes have resulted in decreases in compensation of 10% or less. It should also be noted that external economic pressures and reduced revenues are factors that the courts have considered when determining whether a reduction can be justified.

Any reduction of hours of work and/or compensation should be carefully considered or strategized as the relevant considerations and risks will vary from case-to-case. As such, we strongly recommend than an employer seek legal advice if considering a reduction in hours of work and/or compensation.

Can an employer temporarily implement workforce reductions?

Employers have raised concerns with us about their ability to reduce their workforces while the U.S. Tariffs are in place, without triggering terminations of employment, if possible.

A temporary layoff can be put in place without triggering termination of employment, provided the employer complies with the relevant provincial statutory temporary layoff provisions. However, it is important to note that such legislation does not give employers a general right to layoff employees. More specifically, an employer may only temporarily layoff employees if the right to do so exists within the employment relationship (as an express or implied term of an employment agreement) or with the consent of the employee. Absent a contractual term allowing for a temporary layoff or the consent of the employee, a temporary layoff could give rise to constructive dismissal claims at common law.

Practically speaking, employees may be inclined to accept a temporary layoff and maintain their connection to their employer, rather than triggering a termination, particularly where an employer’s business, or industry more broadly, has been significantly impacted by the current business climate. In such situations, they may also be able to avail themselves of the governmental support programs available (described further below).

We recommend that employers contemplating a temporary layoff familiarize themselves with the applicable time periods and conditions in the provinces in which they operate. For example, in Ontario, in accordance with the Employment Standards Act, 2000 (the “ESA“) a temporary layoff for a non-unionized employee can last:

• up to 13 weeks of layoff in any period of 20 consecutive weeks; or
• up to 35 weeks of layoff in any period of 52 consecutive weeks, where:
  • the employee continues to receive substantial payments from the employer; or
  • the employer continues to make payments for the benefit of the employee under a legitimate group/employee insurance plan (such as a medical or drug insurance plan) or a legitimate retirement or pension plan; or
  • the employee receives supplementary unemployment benefits; or
  • the employee would be entitled to receive supplementary unemployment benefits but isn’t receiving them because they are employed elsewhere; or
  • the employer recalls the employee to work within the time frame approved by the Director of Employment Standards; or
  • the employer recalls the employee within the time frame set out in an agreement with an employee who is not represented by a trade union.

If an employee is laid off for a period longer than a temporary layoff as set out above, the employer is considered to have terminated the employee’s employment on a without cause basis, and all their entitlements as if terminated without cause will apply.

Given the statutory requirements and risks noted above, we suggest obtaining legal advice with respect to your specific circumstances before implementing temporary layoffs.

Can an employer implement mass layoffs or workforce reductions?

First, the reference to “layoff” or “temporary layoff” in Canadian employment standards legislation represents a temporary interruption of active employment, with the employment relationship continuing and the possibility of being recalled to active duty. In contrast, a “termination” signifies the end of the employment relationship, and a “mass termination” is used in the legislation to describe the situation in which a group of employees is terminated at the same time. As such, the “termination” and “mass termination” provisions in employment standards legislation apply to terminations of employment only, not to temporary layoffs.

The mass termination provisions vary from province to province but generally have in common that the amount of notice (or pay in lieu thereof) that an employee is entitled to is based on the number of employees that have been terminated.

In Ontario, for example, the mass termination provisions under the ESA are triggered when fifty or more employees are terminated at a single “establishment” within a four-week period. If an employer carries on in more than one location, separate locations can constitute one establishment if a) the separate locations are located within the same municipality; or b) one or more employees at a location have seniority and displacement rights that extend to the other location under a written employment contract. An “establishment” can also include an employee’s home, for an employee working remotely, such that remote workers may be captured in the employee “count”. In Ontario, the amount of notice employees are entitled to is as follows:

In Ontario, the period of notice of termination that is required to be given to employees is the same as that required to be given to the Director of Employment Standards. Both the Director and each of the affected employees must be provided with a copy of a “Form 1”, which provides notice of the termination and sets out certain details in respect of same.

Notably, Ontario’s ESA requires that employees who are subject to a mass termination receive statutory “severance pay” in addition to their entitlements to notice of termination (or pay in lieu). To qualify for severance pay, an employee must have worked for their employer for at least five years and their employer must have i) a global payroll of at least $2.5 million or ii) severed the employment of 50 or more employees in a six-month period because all or part of the employer’s business at an establishment is closing.

An employee will receive one week of severance pay (equal to an employee’s regular wages for a regular work week) for each year of employment up to 26 weeks, pro-rated for any partial year worked. Notice cannot be given in lieu of paying statutory severance pay.

It is also important to note that the mass termination requirements will satisfy an employee’s statutory entitlements upon termination of employment only – as such, the employee’s contractual and common law termination entitlements will also need to be satisfied, as applicable.

In light of the complexities set out above, we suggest obtaining legal advice with respect to your specific circumstances before implementing a mass termination.

Are there any government support systems available to help our business or our employees?

A variety of options are available to employers and employees implementing work reductions and requiring income supplementation, available under Canada’s Employment Insurance program, the Federal Work-Sharing Program (which has been specifically adjusted in response to the U.S. Tariffs), and the Supplemental Unemployment Benefit Plan. We have provided a brief overview of these programs below:

We are still evaluating how the U.S. Tariffs will impact our business, and we have concerns. What can we do to prepare ourselves?

For an employer facing challenges as a result of the U.S. Tariffs, or anticipating future challenges, we strongly recommend the following:

• Carefully monitoring the evolving information concerning the U.S. Tariffs, governmental programs and relief measures, and legislative changes. We will be posting relevant updates on this blog.
• Consult with legal counsel to plan in advance for workplace disruptions by reviewing employment agreements and assessing the relevant termination and temporary layoff provisions (if any). Consider and confirm whether employees have common law notice of termination entitlements. Taking these proactive steps will allow for greater efficiency if temporary layoffs or terminations are implemented and ensure employers are aware of any risks in advance.
• If you are considering temporary layoffs or group terminations, familiarize yourself with the Federal Work-Sharing Program and U.S. Special Measures, and consider whether work-sharing may provide an alternate approach.
• Communicate openly and transparently with employees about how the U.S. Tariffs are impacting your business. These steps foster collaboration, trust, and prevent employees from being surprised by unfortunate developments.

Key Takeaways for Employers

We strongly recommend that employers seek advice from experienced counsel as they work through any anticipated workforce-related responses to the U.S. Tariffs so that they are familiar with the various options available, are aware of the risks, and are well-positioned to implement solutions.

The author would like to acknowledge the support and assistance of Caleb Cranna, articling student at law.

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