Introduction
Although the recent announcement by President Trump of a temporary pause on tariffs for certain Canadian goods until April 2, 2025, provides some relief, the on-again, off-again nature of proposed U.S. tariffs on Canadian goods has created a prolonged sense of economic uncertainty and the broader effects of the trade war continue to ripple across industries. This is evidenced by President Trump’s latest announcement that the U.S. will be placing 25% tariffs on Canadian steel and aluminum. Many Canadian businesses remain affected, leading to difficult decisions about workforce planning and operational strategies.
Canada’s retaliatory measures—including equivalent tariffs on U.S. imports—further complicate the economic landscape. In these challenging times, one thing is certain: businesses must have a proactive workforce strategy to remain agile in the face of shifting trade policies and economic pressures to maintain a productive workplace.
HR Considerations: Transparency and Workforce Planning
Uncertainty breeds anxiety, and few things create more workplace stress than employees feeling blindsided by sudden layoffs or operational shifts. In determining an organizational strategy to respond to changing operational costs due to potential tariffs, employers should prioritize transparency when determining how to communicate tariff-related business changes that may impact their workforce.
Open communication about potential restructuring, layoffs, or cost-cutting measures can help to maintain employee trust and morale in the face of uncertainty. Abrupt changes, on the other hand, can erode morale and lead to decreased productivity. If workforce restructuring becomes necessary, employers should be transparent in communicating whether the measure is temporary or prolonged, and the basis for how tariff related challenges are driving these changes. Where possible, employers should also provide clarity on whether layoffs or restructuring will occur in incremental steps or all at once. Communicating clear milestones can help prevent unnecessary uncertainty.
Navigating the Legal Framework for Workforce Management in Ontario
For businesses facing financial strain, workforce restructuring may become necessary. However, any decisions regarding layoffs or terminations must be made in compliance with employment law to avoid legal risks. Employers should carefully assess the following considerations before implementing workforce reductions.
Temporary Layoffs
Contrary to common misconceptions, employers do not have an automatic right to lay off employees; rather employers must have an express contractual term within the employment agreement or show that they have the implied right to do so through past practice. If no such right exists, a layoff could be deemed a constructive dismissal, exposing the employer to liability for wrongful dismissal damages.
In Ontario, the Employment Standards Act, 2000 [ESA] allows temporary layoffs for up to 13 weeks in a 20-week period, with possible extensions up to 35 weeks in a 52-week period if certain conditions are met. Where temporary layoffs exceed the statutorily permitted duration, it will be considered a termination of employment and the employee becomes entitled to termination and, if applicable, severance pay under the ESA. In such cases, the employee’s termination date is considered the date the layoff began, and termination entitlements are calculated accordingly.
Employers should also be aware that a substantial reduction in an employee’s hours or earnings may constitute a temporary layoff under the ESA, even if the employee is still performing work for the employer. If hours or wages are significantly reduced such that an employee is earning less than half of what they would ordinarily earn in a week, that will constitute a layoff under the ESA.
Constructive Dismissal
Employers should also exercise caution when making unilateral changes to employees’ terms of employment, such as significantly reducing hours or pay. Any unilateral change that substantially alters a core term of employment may be deemed a constructive dismissal, allowing employees to treat their employment as terminated and allowing them to seek damages. In addition to notice-related damages, constructive dismissal claims can also attract bad-faith damages, which results from an employer’s unfair or misleading treatment of an employee throughout the employment relationship.
Termination of Employment
Where an organization has no other choice but to permanently terminate employment, employers must ensure they comply with both statutory and common law requirements. Under the ESA, employees with at least three months of service are entitled to notice of termination or pay in lieu, based on their length of service.
Ontario based employers may also be required to pay severance pay, if:
- The company’s global payroll exceeds $2.5 million; and
- The employee has worked for the company for at least five years.
If these conditions are met, employers will need to pay one additional week of notice per completed year of service and 1/12th of a week for each completed month in any incomplete year, up to 26 weeks. However, these statutory requirements only form the starting point of an employee’s entitlements; depending on whether an employee has an enforceable termination clause, employees may be eligible for common law reasonable notice of termination, which often reflects a substantially longer notice period.
For larger-scale layoffs, Ontario’s mass termination provisions apply if 50 or more employees are dismissed within a four-week period. These provisions impose special notice requirements and require employers to notify the Director of Employment Standards of the mass termination.
Alternatives to Layoffs and Terminations
Beyond considering temporary or permanent workforce reductions, employers should consider alternative workforce management strategies, including government-supported programs that provide temporary relief.
Work-Sharing Programs
On March 7, 2025, the federal government expanded its Work-Sharing Program to help mitigate the impact of tariffs. To qualify, employers must have operated in Canada for at least one year and have at least two Employment Insurance (“EI”) eligible employees.
The Work-Sharing Program allows employees to work reduced hours while receiving partial EI benefits, which helps businesses retain skilled workers while lowering payroll costs. The Work-Sharing agreements must have a minimum duration of six weeks and may be extended to a maximum of 76 weeks if required.
Salary Reductions and Flexible Work Arrangements
Employers may also explore temporary pay cuts, reduced workweeks, or flexible work arrangements. However, to avoid the risk of constructive dismissal claims, these changes should be implemented only with employee consent and in compliance with employment standards legislation – otherwise, without a contractual right to impose pay reductions, employees may be successful in claiming constructive dismissal, leading to further damages,
Strategic communication is key when proposing these changes. Employers should clearly explain the rationale behind any salary reductions, such as financial challenges caused by tariffs, and outline any potential recovery plans. For example, employers may wish to commit to reinstating full wages if certain profit goals are met or emphasize the long-term value of the position amidst challenging job markets.
Importantly, employees must not feel coerced to choose between accepting the changes or having their employment terminated. Doing so could amount to duress and render any agreement unenforceable as the employee’s agreement to the terms would not be considered to be voluntary.
Conclusion
The economic pressures from U.S. tariffs—and Canada’s response—continue to create challenges for Ontario employers. While workforce restructuring may be necessary, the trade barriers forcing or limiting US companies from participating in the Canadian marketplace can create opportunities for Canadian businesses to fill that void as Canadians seek to keep their suppliers local.
Additionally, the Canadian government has recently announced supports for businesses including injecting $5 billion throughout the next two years to allow export businesses to find new markets, as well as a $500 million loan program for business impacted by tariffs. Employers should keep an eye out for new opportunities and support programs they can take advantage of.
Proactive planning, clear communication, and adherence to legal obligations will help businesses manage uncertainty while maintaining trust and stability in the workplace. By taking a strategic approach, employers can not only weather economic challenges but also strengthen their organization’s resilience in the long run.
This blog is provided as an information service and summary of workplace legal issues.
This information is not intended as legal advice.