Canadian employers are facing a storm of uncertainty as talk of tariffs and a trade war with the United States rise — with U.S. President Donald Trump enacting a 25 per cent levy on aluminum and steel effective today and additional tariffs set to come into force on April 2.
The threats coming from south of the border are causing unease among workers and management alike — and raising questions about how to prepare for layoffs or terminations should companies lose substantial business.
Stuart Rudner, employment lawyer, mediator, and founder of Rudner Law, said legal missteps can be disastrous if companies cut staff without fully respecting employment agreements and provincial regulations. Tariffs and a trade war don’t change any of the regular workplace rules, he said.
“You can’t just unilaterally change the terms of employment,” Rudner said. “All of these cost-cutting measures, if done improperly, expose the company to liability, which might cost them more than the savings that they’re trying to achieve.”
Finding immediate savings could come at a cost
Employers and workers in unionized settings are governed by collective agreements that often spell out how to handle workforce reductions. But for non-unionized workplaces, even in the face of rapidly deteriorating market conditions, Canadian employment law puts firm limits on what can be done without sparking constructive dismissal claims or expensive severance obligations, he said.
Rudner noted that every employment relationship is governed by contract, whether it is written or purely verbal. Whenever an employer makes a substantial change to an employee’s compensation, duties, or hours of work, that can constitute a constructive dismissal unless the employee has already agreed to it — or the employer’s existing contract allows for it.
“Remember that every employment relationship is a legal relationship,” Rudner said. “You can’t just unilaterally change the terms of a contract. Companies start to talk about temporary layoffs, they start to talk about reducing people’s hours … all of those things have legal implications.”
Temporary layoffs and mass terminations
“Layoff” is often used casually and interchangeably with “termination,” but the legal distinction is crucial, said Rudner. A true temporary layoff means the worker remains employed but is off the job without pay for a period. If the employer intends to bring people back, a temporary layoff can buy time — provided the employer’s contract explicitly allows it.
“A lot of companies talk about putting people on temporary layoffs,” Rudner said. “Which sounds great, but there is no automatic legal right to put employees on a temporary layoff, contrary to popular belief.”
He noted a wave of constructive dismissal claims arose at the start of the COVID-19 pandemic, when businesses assumed they could impose layoffs to cut expenses.
“Many employees went to see their lawyers and alleged constructive dismissal,” Rudner said. “A lot of those companies ended up paying … more in severance than they saved.”
The same risk applies to mass terminations. If a large company lays off significant numbers of workers with no plan to recall them, provincial rules can require additional notice, higher payouts, and formal notification of government labour authorities. Failing to meet these standards can invite penalties or even legal action from employees.
“When we talk about mass layoffs … we’re often talking about mass termination,” Rudner said. “Any time you’re talking about termination, whether it’s individual or mass, you need to assess what your obligations are in terms of severance. It’s often a lot morethan people think.”
Financial trouble does not relieve employers of severance obligations, either. Courts do not generally consider a company’s economic plight or a global downturn in awarding termination pay.
“That is not a factor that the courts will consider,” Rudner said. “If there are very few jobs out there, because everyone is in a bad situation, that can actually increase the amount of severance the employee will get because it will take them longer to find a new job.”
Reducing hours or pay
For companies hoping to spread the pain across their workforce by cutting hours or pay rather than letting people go, Rudner warned that any unilateral reduction can also constitute constructive dismissal if not permitted by the contract.
“You can’t change someone’s hours of work or compensation unless you have the right in your agreement or the employees agree to it,” he said. “You wouldn’t go to your landlord and say times are tough so, going forward, we’re going to cut our rent in half … you can’t do that with an employment agreement, either.”
However, employees may voluntarily accept a reduction if it means preserving their jobs. That, Rudner said, is why open, transparent communication is vital. “It comes back to … a unilateral change,” he said. “If it’s been agreed upon, then it’s not unilateral and therefore not constructive dismissal.”
Documenting employee consent
If an employer cannot legally impose a temporary layoff, wage cut, or reduced hours, there is still a possible compromise: secure the worker’s agreement in writing. If that agreement is properly documented, it removes the element of unilateral action.
“In many cases, workers may not push back if they understand the company’s position,” Rudner said. “But some employees may go see a lawyer … and all of a sudden the employers will be facing a constructive dismissal claim.”
Rudner said candid discussions that offer employees the choice between termination and temporary layoff can avert costly severance.
“During COVID, we helped our clients to adopt a communication strategy where employees were effectively told, ‘We either have to terminate you or, if you agree, we’ll put you on a temporary layoff. Hopefully we can bring you back.’ In that scenario, many employees choose the layoff.”
Bankruptcy and insolvency
With Canada’s economy in Trump’s crosshairs, some companies are at risk of losing their biggest customers overnight. In an extreme scenario, that can drive a firm into insolvency or bankruptcy.
“If the company has filed for bankruptcy protection, then the employees just become one more unsecured group of creditors,” Rudner said. “It’s not a good situation at all for the employees. In many cases, they can be out of luck.”
Bankruptcy often means minimal payout for staff, regardless of common-law entitlements.
Communication is key
In the frenzy of a trade war, panic can lead to hasty decisions and cryptic corporate announcements. Rudner believes a more open approach often yields better results, especially if executives show their willingness to share the burden.
“You don’t want, out of the blue, to make anannouncement that a substantial amount of people are going to be let go,” he said. “Communication is key. Employees are going to feel a lot better if they see that the leaders are taking a hit too.”
For more information about Rudner Law’s Alternative Dispute Resolution, visit https://www.rudnerlaw.ca/alternative-dispute-resolution/. Stuart Rudner can be reached at 416-864-8500 (phone or text) or [email protected].
