Canadian employers are navigating treacherous waters as the escalating tariff conflict between Canada and the United States stirs up economic uncertainty, forcing many businesses to consider options for workforce reductions through temporary layoffs or permanent terminations.
On April 16, HR Law Canada — in partnership with Hum Law Firm — held a special live session featuring employment lawyer Lai-King Hum. She said that improperly executed layoffs could prove as financially devastating to businesses as the tariffs themselves, particularly for non-unionized workplaces.
“Unless your employment contracts are written properly and are enforceable, and in the case of temporary layoffs, contains a temporary layoff clause, the cost of layoffs could be as destructive to the business as the tariffs themselves,” said Hum.
Understanding the current landscape
Since March 4, 2025, when U.S. President Donald Trump first imposed tariffs on Canadian goods under the International Emergency Economic Powers Act, businesses have experienced a whiplash of policy changes and market fluctuations. Canada responded with retaliatory 25% tariffs on goods imported from the United States, including spirits, appliances, and pulp and paper products.
Recent developments include a 25% tariff on all imports that don’t comply with the Canada-United States-Mexico Agreement (CUSMA), a 10% tariff on non-CUSMA compliant potash and energy products, and a 25% tariff on aluminum and steel imports from all countries into the United States, said Hum.
“In this landscape, employers across Canada in industries that are vulnerable to tariffs or potential tariffs, really have no guide on what could happen next,” Hum said.
Temporary layoffs versus terminations
For businesses facing revenue declines, two primary options exist: temporary layoffs or permanent terminations. Hum said temporary layoffs are more nuanced and require additional legal precautions.
A common misconception among many employers is that provincial employment standards legislation automatically grants the right to temporarily lay off workers. Hum clarified that, without explicit provisions in employment contracts, temporary layoffs could trigger constructive dismissal claims.
“It’s a common or prevalent misconception amongst employers, including in Ontario, that it is a right to impose temporary layoffs based on the provisions of the Employment Standards Act or other employment standards legislation,” she told the audience.
The cost of unenforceable contracts Hum cited an Ontario Superior Court of Justice ruling — Fogelman v. IFG, 2021 ONSC 4042 — where an employee with 11 years of service was temporarily laid off due to a business downturn. The employee successfully claimed constructive dismissal because the employer lacked a temporary layoff clause in the employment contract, she said.
The employer was ordered to provide 15 months’ notice and additional damages, totalling over $178,000.
“Without enforceable layoff clauses, employees who are laid off will immediately be pursued for constructive dismissal,” said Hum. “The damages, depending on how long the employee has been with you, could be as much as two years’ salary and benefits.”
Provincial differences in temporary layoff provisions
Temporary layoff provisions vary significantly across Canada. In Ontario, temporary layoffs are permitted for up to 13 weeks in any period of 20 consecutive weeks, or more than 13 weeks but less than 35 weeks in any period of 52 consecutive weeks, provided certain criteria are met, such as continuing benefits, she said.
British Columbia, Newfoundland, and Yukon have similar provisions to Ontario. Alberta permits 90 days in a 120-day period, while Saskatchewan, New Brunswick, Nova Scotia, and PEI allow six days, said Hum. Manitoba permits eight weeks in a 16-week period, and the Northwest Territories and Nunavut allow 45 days in a 60-day period. Federally regulated employers can lay off employees for three months, or up to six months under certain circumstances.
Quebec stands apart, governed by civil rather than common law. “Unlike the common law provinces, it is a maximum of six months, and the employer can lay off employees so long as there’s justification for the layoff,” Hum said. No temporary layoff clause is required in employment contracts.
Termination clauses under scrutiny Hum said that termination clauses are under constant judicial scrutiny. The 2020 Waksdale decision established that if any part of a termination clause is unenforceable, it renders all termination provisions unenforceable.
“In the Waksdale case, the employer could not enforce the termination without cause provision, which was actually drafted in a way that did not contravene the employment standards, but it could not enforce that clause because the termination for cause provision was invalid,” Hum said. A 2023 Ontario case, Dufault, created new grounds for employees to challenge termination clauses. The court ruled that clauses allowing employers to terminate employees “at any time” or at the “employer’s sole discretion” were unenforceable as they contravened laws protecting employees through job-protected leaves, she said.
Proactive measures for employers
Hum advised employers to take several proactive steps:
1. Review all employment contracts to ensure they contain clear, enforceable clauses for temporary layoffs and terminations
2. Consider having employees agree to temporary layoffs, even without explicit contract provisions
3. Monitor layoff durations carefully to avoid unintended terminations
4. Use plain language in termination clauses
5. Consult legal counsel before proceeding with layoffs or terminations
6. Create a comprehensive plan for workplace reduction
“Make sure that your employment contracts are up to date with developments in the law,” Hum said. “Create consideration for your employees to sign off on new contracts if necessary.”
While uncertainty about future tariff developments remains, Hum stressed that proper preparation can help businesses weather the storm while minimizing legal and financial risks associated with workforce reductions.
