Key Employment Law Considerations for Canadian Businesses Impacted by Tariffs

As of this writing, the Trump administration has implemented a 25% tariff on most Canadian goods imported into the United States. Canadian governments at all levels are preparing relief programs for local businesses, but these may not mitigate the potentially material adverse effects on the Canadian economy. Canadian employers may be faced with difficult decisions respecting personnel, including changing employment terms and conditions, temporary layoffs, and reductions in force. Here are some important legal concepts for employers to keep in mind when navigating these challenges.

Changing Terms and Conditions of Employment

Employers may look to change the terms and conditions of employment for existing employees, which could include reductions or other adjustments to compensation, reassignments of roles and responsibilities, modified reporting relationships, moving employees to different workplace locations, and so on. However, employers must be careful to avoid triggering a constructive dismissal when making these changes.

A constructive dismissal occurs when the employer makes a significant, unilateral, and adverse change to one or more fundamental terms or conditions of employment without the employee’s consent. An employee who successfully claims constructive dismissal is typically entitled to damages as if their employment had been wrongfully terminated, including common law entitlements.

Employers can substantially mitigate constructive dismissal risk by securing the employee’s consent to the change or by providing sufficient advance notice of the change. Before proceeding, employers should consider whether a change or combination of changes creates constructive dismissal risk and, if so, consider ways to mitigate that risk.

Temporary Layoffs

Employers can also consider reducing expenses by placing employees on a temporary layoff during which the employee receives reduced or no compensation or benefits and does not perform duties, although their employment does not terminate.

Employment standards legislation in each jurisdiction in Canada, including the federal jurisdiction, sets out varying requirements to implement a temporary layoff. For example, Ontario’s Employment Standards Act, 2000 (“ESA”) establishes the timelines and requirements for implementing layoffs in that province, which can be up to 13 weeks without compensation or benefits or up to 20 weeks if the employee continues to receive from the employer regular payments, supplementary unemployment benefits, or other retirement or group insurance benefits. 

Employers should confirm they have reserved the right to implement temporary layoffs in the relevant employment agreements. Without this contractual right, a layoff is likely to amount to a constructive dismissal event, and employee claims could follow.

Reductions in Force

The ESA has enhanced notice requirements when the employment of 50 or more employees is terminated at an employer’s “establishment” within a four-week period. Separate workplaces located in the same municipality count as one establishment, while for unionized employees separate workplaces in different municipalities count as one establishment if one or more employees at a workplace in one municipality have bumping rights to a workplace in a different municipality.

Affected employees must receive at least eight weeks of notice (or pay in lieu) before termination if 50 or more will be terminated, 12 weeks if 200 or more will be terminated, and 16 weeks if 500 or more will be terminated. Benefits must be maintained for the duration of the notice period even if the employer provides pay in lieu of such notice. These periods apply regardless of the length of service for affected employees and employees are entitled to receive the greater of the group notice of termination or their individual notice of termination, in each case, owed under the ESA. Group notice requirements are a minimum standard and are not required to be added to equal or greater contractual or common law notice entitlements.

The employer must also notify Ontario’s Director of Employment Standards and post information in the establishment, including a description of the economic circumstances surrounding the terminations, the number of employees at the establishment and how many are to be terminated, and when the terminations will occur.

There is an exception to these mass termination rules, which do not apply if both of the following are true:

1. the number of employees whose employment is being terminated represents not more than 10 per cent of the employees who have been employed for at least three months at the establishment; and
2. none of the terminations are caused by the permanent discontinuance of all or part of the employer’s business at the establishment.

Other than Prince Edward Island, every province in Canada (as well as the federal jurisdiction) has its own set of mass termination rules with varying volume and time period thresholds. Employers who intend to terminate the employment of 10 or more employees or at least 25% of their total workforce should consult applicable mass termination rules to ensure compliance.

Contact Mintz’s Canadian Employment Practice if you require assistance with changing employment terms and conditions, or conducting temporary layoffs or a reduction in force.      
 

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