Advice for businesses as they prepare for looming tariffs

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A lot of ink has already been spilled over United States President Donald Trump’s proposed tariffs and Canada’s anticipated response. With a brief reprieve tenuously in place, there is a lot of speculation in the business community and the nation at large as to how badly these tariffs will affect the Canadian economy.

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It is not particularly helpful that we are in the midst of a prorogued Parliament with a leaderless ruling party. In this political vacuum, various hawks and doves are advocating for the whole spectrum of responses, from outright trade war to slavish concessions approaching capitulation. As employment lawyers, we are always monitoring the economic landscape for any sign of volatility, because every dramatic turn in the world of commerce brings an associated disruption of the workforce. Like janitors, we do not create the mess but we are certainly there to help clean it up.

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To that end, our attention has been drawn to a recent survey conducted by accounting giant KPMG. They interviewed a sample of key Canadian companies to gauge their reactions to Trump’s dyspeptic threats of tariffs. What KPMG found is that Canadian businesses have already begun to mitigate and prepare for the anticipated damage. Much like a jilted ex-boyfriend, the Canadian business community seems ready to change its style and lose weight.

According to the survey, nearly half of the participants planned to shift more investments and operations to the U.S., to do an “end run” around the tariffs and maintain access to the American markets. Many businesses have already shipped their inventory south of the border, which has disrupted supply chains and skewed the regular flow of goods. Even more profound than this shift of operations to the U.S. is that more than half (56 per cent) of the businesses surveyed reported that they plan to lay off employees if tariffs are imposed. This is where employment lawyers’ ears perk up.

An employee is laid off when an employer cuts back or stops the employee’s work temporarily without ending their employment. While that might seem an attractive option to an employer facing a potential recession, layoffs come with considerable risk.

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There are some strict rules employers must follow that vary from province to province. For example, in British Columbia, the Employment Standards Act sets out very limited circumstances for a layoff to be legit: (a) the respective industry must regularly use layoffs (such as logging), or (b) the employment contract includes a temporary layoff clause, or (c) the employee consents to the layoff. If none of these elements exist, a B.C. employer cannot use this tool.

Even if the employer meets these requirements, it can only use the layoff for a limited time: in B.C. that time limit is 13 weeks within a 20-week period. In Alberta, the maximum for a temporary layoff is 90 days in a 120-day period. As well, the employer has to notify the employee in writing ahead of the layoff or the layoff is void.

Employers in Ontario enjoy a bit more latitude under their Employment Standards Act, with no written notice requirement and an extension from the “13 in 20” formula to “35 in 52” in certain circumstances.

In all Canadian jurisdictions, businesses who colour outside the lines with their layoffs face considerable liability. If an employee is laid off for a period longer than permitted, the employer is considered to have fired the employee. Generally, the worker will then be entitled to termination pay.

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Similarly, laying off employees without their consent (or without language in their contracts that allows layoffs) may be considered constructive dismissal in the eyes of the law. Constructive dismissal occurs when the employer’s conduct, whether unilaterally changing the employment agreement or even outright breaking it, creates a situation where the employee can no longer do the job on the terms agreed to, thus forcing the employee to accept the changes or resign.

Constructive dismissal has the same consequences as wrongful dismissal in that it obliges the employer to pay termination pay and potentially other damages. The courts can peek behind the curtain and scrutinize the legitimacy of the layoff itself. If an employer uses layoffs to avoid or delay the consequences of outright firing their employees, the court can impose additional moral or punitive damages as a rebuke to the employer’s conduct.

Businesses contemplating a relocation of their workforce to the U.S. are walking through a legal minefield, unless they have very specific contractual language already in place that contemplates that possibility. Without that language, requiring an employee to move to the U.S. with their job will likely change the nature of their employment to the degree that it entitles them to a constructive dismissal claim.

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Despite the anticipated effect of the tariffs on Canada’s economy, there may not be an immediate need to fundamentally alter these employment relationships and place the employer in hot water. Measured and strategic change may be implemented without organizations assuming unanticipated legal liabilities. Legitimate layoffs are possible so long as employers follow their local legislation and terms of their contracts.

Businesses also have the ability to mold their workforces by negotiating new contracts where employees receive something of value in exchange for the changes to their jobs or employment conditions.

Despite the overwhelming sense of trepidation within the business community, it appears that many businesses are willing to endure the short-term pain of retaliatory tariffs so long as Canada can negotiate a fair deal that protects their long-term interests. To help alleviate that pain, there has been an outpouring of patriotism among consumers who have expressed their intention to “shop Canadian” and support our local economy.

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This collective resolve is a proud reminder of what has made our country great. As well, many in Canada believe that the American tariffs have had the positive effect of being a “wake up call” to improve our productivity and revitalize our economy, particularly in the resource sector where Canada enjoys a unique global advantage.

While we weather the fiscal storm, as Canadians, we are hopeful the current adversity reveals our strengths and allows our industries to adapt advantageously. As employment lawyers, we remain vigilant so we can provide guidance and direction so that both businesses and their workforces can navigate these changes confidently.

Howard Levitt is senior partner of Levitt LLP, employment and labour lawyers with offices in Ontario, Alberta and British Columbia. He practices employment law in eight provinces and is the author of six books, including the Law of Dismissal in Canada. Michael Penner is a partner at Levitt LLP.

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