Trump-Trudeau tariff pause 'unique opportunity' for Canadian employers

Even with the 30-day suspension of Donald Trump’s proposed U.S. tariff imposition on Canada, reports of layoffs are rolling in as Canadian employers deal with economic uncertainty.

According to experts, one thing does remain certain: whether or not a deal is struck and tariffs are avoided, the next few years are going to be bumpy for employers.

However, there is a silver lining: according to Andrew Bratt, partner at Gowling WLG in Toronto, the tariff suspension also offers a “unique opportunity” for employers to bolster for the coming storm.

“Now that employers have 30 days to kind of plan for the potential for tariffs, they actually have a unique opportunity that you don't typically get in times of economic disruption, which is time to plan,” says Bratt.

“So what I would recommend is that employers are building a contingency plan for what they are going to do, and what they have to do, if and when the tariffs are, in fact, imposed, and that they use the next 30 days to really figure out, from a legal perspective, ‘How do we do this in a way that also mitigates risk of potential claims?’”

Legal risks of temporary layoffs amid U.S. tariff uncertainty

Comparing the current situation with the conditions of the COVID-19 lockdowns and resultant shifts in employment practices, Bratt explains that rather than needing to act quickly, HR professionals have the chance to strategize potential layoffs.

It’s one he strongly encourages, as there are legal risks involved with temporary layoffs.

“There's a misconception that just because the Employment Standards Act in Ontario, for example, says what a temporary layoff is, that that means employers have the right to put people on temporary layoff, as long as it doesn't exceed the threshold by which it becomes a deemed termination,” Bratt says.

“But the courts have been very, very clear that unless you're in a certain industry, for example where you have a lot of seasonal work … you don't have an automatic right to put an employee on layoff.”

Often employers will lay off a group of employees in response to economic uncertainty, then be faced with a constructive dismissal lawsuit because they are accused of breaching employment contracts. These can include orders for severance pay and even compensation for earnings lost during the layoff period, Bratt says.

“Layoffs themselves are highly risky, because if an employee actually files a constructive dismissal lawsuit or a breach of contract lawsuit, the ramifications can be quite significant.”

If measures can’t be practicably taken at this time, Bratt emphasizes that moments such as these are powerful opportunities to prepare for the next upset, by reviewing legal gaps that can be mitigated now.

At the very least, legal counsel can be consulted now to help strategize.

“You can't just go change everybody's contract today, but it's always a good time to take a step back and reflect and make sure that you have the proper projections built into your contracts and policy,” says Bratt, “so that if ever there is something of this magnitude that comes down in the future, you're well prepared for it.”

Organizational considerations in times of economic uncertainty

There are also changes to be made at the management level, according to Silvia Gonzales-Zamora, partner in the people and change practice of KPMG.

Employee value proposition, talent management, mental health and innovation budgets are all areas employers need to reconsider right now, she says.

When hiring, for example, job offerings should be adjusted to the realities of the economic conditions, with an emphasis on employee resilience to transformation.

“Presenting the role as in flux, getting a little bit more of those soft skills through the interviews … that will help them to deal with ambiguity, for example, and how do they react to stress,” Gonzales-Zamora says.

“Definitely, the recruiting practice is adapting to be able to bring in people that will stay for a bumpy ride, which is what many organizations are expecting.”

With many organizations in the middle of updating legacy systems and bringing on new technology innovations, some are opting to hit the pause button, she adds. This means a potential shift from bringing on new talent to upskilling current employees.

“As some of our organizations are looking at their budgets for the year, they say, ‘Well, maybe I need to do this faster, and then I need to upskill my people if I'm already in the middle of a technology upgrade,’ for example,’ says Gonzales-Zamora.

“So, learning and development is also taking a very broad spectrum, to say the planning is going to be not for this year, but maybe two or three years ahead – ‘What do we need our people to learn faster, so that we're prepared for anything that the market can throw at us right now?’”

Talent mapping and performance management in uncertain times

Planning for layoffs includes identifying who to invest in and promote, Gonzales-Zamora says, meaning it is crucial for HR professionals to prioritize talent-mapping in advance of upcoming economic uncertainty.

Once key talent is identified, it’s just as important to keep those people apprised of the organization’s plans, “so you can help them understand what's going on in the company … what are the main plans or the strategy, how is it changing? So that the top talent feels included in those conversations.”

Communication includes listening to employee “rumbling” now, she adds, to be able to mitigate them before they happen. For example, many employees are now expressing anxiety about potential increases in gas prices, which raises questions about commuting and return-to-office (RTO) policies.

Alternatives to temporary layoffs

There are alternative measures to layoffs that employers can implement that don’t pose the same legal risks, says Bratt, such as offering temporary reduced compensation or benefits.

Short service or hourly employees could be given working notice, effectively warning those employees of possible coming labour cuts yet still being able to utilize their services in the meantime.

“At the end of that 30-day period, if the tariffs are in fact imposed, the termination goes forward, and you've satisfied most, if not all, of your legal obligations to those folks,” he says.

“And if the tariffs don't go forward, you can always call them back. You can always rehire them. So there are lots of things that employers can do within these 30 days to try to get ready for what is likely to come, which is a benefit they didn't have during COVID.”

The risk of employing a tactic like this, though, is potentially losing valuable employees even if the tariffs don’t go forward, or if they are delayed. As Bratt notes, “They're now gone, and you're now short staff, and have to hire new people just to backfill their roles, with the possibility of the tariffs being imposed 30 days later, or 20 days later, or whatever it is they announce. So, it's not a perfect solution, but it could work in some very unique circumstances.”

Address ‘trickle-down’ mental health effects from stability measures

Employer responses to tariff threats can create a “panic” among some employees, Gonzales-Zamora shares, as big decisions being made at the top levels of organizations trickle down and effect mental health and workplace wellbeing.

Transparency and open dialogue are important right now, in understanding where employees are at and also where they are getting information from.

“There's a lot of media out there. How are [employees] taking … news to their workplace? How are they communicating with others?” Gonzales-Zamora says.

“Trying to cross the divide, trying to open dialogue, try to help them to manage these relationships internally, so that they feel together as a team they can face the business decisions that are coming.”

Provide spaces for psychological safety, Gonzales-Zamora recommends, through opportunities like anonymous feedback for employees who are experiencing job anxiety, and chances for middle managers, often the most stressed of all, to express their concerns without reprisal.

As Bratt concludes, the best advice he offers employers is to err on the side of honesty. Although there may be difficult decisions ahead, preparing employees shows respect and can go far in mitigating risks as well as cutting costs.

“It's not an automatic guarantee that you're going to mitigate all risks, but in my experience, the more transparent you are with your employee population, the more likely you are to get them to agree to certain changes,” Bratt says.

“Especially to make them feel like, ‘Look, we're all in this together. We're trying to weather the storm together, but there are some things that are out of our control’ … because if you have their consent, then you're obviously not going to be facing a constructive dismissal claim, which is the concern.”