Practical considerations for navigating tariffs and economic unpredictability
While the immediate threat is averted with Trump’s tariffs postponed for one month from February 4, 2025, Canada remains on the precipice between economic stability and uncertainty, where trade tensions threaten to boil over. The once-seamless Canada-US trade relationship now faces escalating tit-for-tat rhetoric, political maneuvering, and market-shaking uncertainties that could ripple across multiple industries and sectors.
For Ontario employers, this isn’t just another challenge—it’s a high-stakes period that could affect your workforce, bottom line, and your organization’s long-term trajectory.
Here are several practical considerations as you navigate this tumultuous period of international tariffs and economic unpredictability.
1. Temporary Layoffs: Myths Versus Reality
When costs begin to climb, employers often look to temporary employee layoffs as a financial stopgap. However, implementing a valid temporary layoff is more complex than many realize.
Employment Agreements Matter
Under the Employment Standards Act, 2000 (ESA), a temporary layoff generally has to be expressly permitted in an employment agreement. If not, what you call a “layoff” may be interpreted as a termination if an employee alleges constructive dismissal (more about this at number 3 below), leaving the employer responsible for statutory notice, severance pay and common law notice. The takeaway: it’s a big gamble without informed legal advice.
Layoffs Are Temporary
The ESA imposes strict time limits on how long a temporary layoff can last before it is deemed a termination of employment. The temporary lay off cannot exceed 13 weeks over a 20-week period and can be extended to 35 weeks if certain benefit continuances apply (ie if a form of the employment relationship continues).
Missing these timelines—intentionally or otherwise—could result in unwelcome legal and financial consequences.
Documentation & Transparency
The employer should provide a formal written notice of layoff, which should specify:
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- The expected duration of the layoff (if an estimated recall date is known);
- Any continuation of benefits; and
- The genuine reason for the temporary measure.
Attempting to use a layoff as a means to “quietly exit” a problematic employee can invite legal scrutiny if it appears to be motivated by convenience rather than economics.
2. Terminations: Balancing Statutory and Common Law Obligations
If temporary measures are insufficient to stabilize your balance sheet, you may need to contemplate without cause terminations. It’s important to remember that your obligations do not disappear because the economy is sputtering, your business is reeling, or you’re out of money. There are two general types of entitlements you need to be aware of when contemplating any termination of employment:
ESA Minimums
When terminating an employee without cause, at minimum, the ESA entitles the employee to:
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- A minimum notice period or pay in lieu (known as Termination Pay) equivalent to one (1) week per year of service, to a maximum of eight (8) weeks; and,
- Statutory Severance Pay (paid as a lump sum) if your payroll exceeds $2.5 million and the employee has at least five (5) years of service. Severance pay equals one (1) week of pay per year of service to a maximum of twenty-six (26) weeks.
Common Law Notice
If there is no written employment agreement with the employee, in addition to the above ESA entitlements, you will likely owe your employee common law reasonable notice pay in lieu if you terminate their employment without cause. Even if there is an agreement that purports to limit entitlements at the termination of employment to ESA minimums or some other calculation, courts often award common law notice if the agreement is poorly drafted, mainly for ambiguity or breach of the ESA.
Employment contracts are commonly struck down by courts, so understanding your potential liability and damages is crucial. When deciding how much reasonable notice is owed, the courts will consider factors such as an employee’s age, length of service, position, income and current job market conditions, and these factors can significantly extend notice obligations beyond the ESA minimum.
(Practical Tip: Contact Zubas Flett Liberatore Law LLP to get a clear picture of your employment agreement exposure before contemplating any employee terminations or layoffs.)
3. Proceed with Caution
Rather than firing employees immediately, some employers may attempt to manage costs by altering roles or reducing hours. While this may help rein in expenses, you should be aware of potential constructive dismissal claims if changes to the terms of employment are drastic.
The Risk of Constructive Dismissal
Significant changes to an employee’s role—especially if unrelated to their original job description—might be viewed as constructive dismissal. For example, reassigning someone to source alternative markets or overhaul business processes could be seen as a fundamental breach of their employment contract. A constructive dismissal is effectively an unintended termination of employment resulting from a unilateral change to employment terms by the employer, requiring payment of statutory and/or common law entitlements just as if the employee was terminated.
Scope of Changes
Minor, temporary adjustments – particularly those with the employee’s consent – are less likely to attract constructive dismissal claims. Substantial cuts to pay or hours, however, may leave employees feeling they have no choice but to claim constructive dismissal and seek damages, perhaps with an aggressive employment lawyer.
Plan for Consent
Where possible, communicate openly with employees about financial pressures and how proposed changes could safeguard their positions and/or employment in the long run. Seek written agreement and clarify whether modifications are temporary or permanent.
(Practical Tip: Communication is key. During turbulent times, clarity and empathy go a long way in reducing misunderstandings and legal risks.)
4. Keeping a Respectful Environment: Watch for Workplace Harassment
Economic stress can unintentionally escalate workplace tensions. Managers under pressure to cut costs may become more demanding or temperamental, which, if not carefully managed, can become unwelcome conduct and feel like harassment or bullying. Likewise, a shifting political climate might spark contentious discussions better left outside the workplace. As an employer, remember that the Occupational Health and Safety Act requires that you maintain a safe and harassment-free environment—regardless of acute external pressures or changing circumstances.
If a harassment complaint is made, be certain to commence a neutral, confidential and swift investigation and seek legal advice.
Practical Strategies for Navigating Tariff Turbulence
Employers need practical and legally sound approaches to protect both their workforce and their bottom line. Below are a few key steps to help you manage employment relationships effectively while minimizing the risk of costly disputes—whether it’s a claim of constructive dismissal, harassment, or other legal pitfalls.
1. Review Employment Agreements Thoroughly
A quick audit can reveal if you have the right language around temporary layoffs, wage and responsibilities adjustments and terminations of employment.
2. Document, Document, Document
Meticulous record-keeping—from layoff notices to communication about role changes—can prevent costly disputes.
3. Get Legal Help Early
Consulting an employment lawyer before you act is far more cost-effective than cleaning up legal pitfalls after the fact. Being hasty can be costly.
4. Maintain Empathy and Clarity
Keep your employees informed, address concerns honestly, and remember that abrupt or unexplained changes can erode trust. Lack of transparency may also open you to liability, including human rights or constructive dismissal claims if employees feel forced out under unclear or unfair circumstances.
Tariffs and economic uncertainty pose significant workplace challenges. Proactive legal planning—coupled with clear, compassionate communication—can help minimize fallout from unpredictable market forces.
Zubas Flett Liberatore Law LLP’s seasoned lawyers are ready to assist employers (and employees) on the tumultuous road ahead, offering practical solutions to help your business or organization weather these challenging times. If you have questions, contact Zubas Flett Liberatore Law at 416-593-5844 or questions@employment-lawyers.ca.