‘It’s a bit of a Groundhog day'

For many Canadian employers, the current wave of tariff disruption has a familiar feel. Yet again, the U.S. president is threatening major penalties against Canadian employers that could have ongoing repercussions for workforce planning.

"It’s a bit of Groundhog Day because what we're experiencing in the past week feels a bit like what we experienced when the Trump administration took office in January of 2025. And… the COVID-19 pandemic as well,” says Stephen Shore, office managing partner at Littler in Toronto.

“It's that combination of general uncertainty mixed in with the projection of a negative impact.”

In such an uneven economy, the legal and strategic stakes are formidable — and there are lessons to be learned from the past couple of years.

"In early 2025, when the trade war first started and tariffs hit and economic uncertainty was a thing, employers reacted very, very impulsively, and we saw layoffs immediately, reduced hours," says Andrew Bratt, a partner at Gowling in Toronto.

"What experience has taught us… is that it's really important to use this time to assess your business, to understand where you might possibly be exposed — directly or indirectly — and to contingency plan."

Temporary layoffs: know the basics

Shore notes that the first response for many employers — across industries — tends to be the same: slow down hiring or stop it entirely.

"They're either slower in hiring or potentially hold off, go into hiring freeze modes just to give themselves some time to see what the impacts are going to be," he says.

Also an option? Temporary layoffs. Both lawyers caution that the statutory framework is only part of the picture.

For years, there was a misconception that temporary layoffs were legally permissible but that’s true only in some circumstances, says Bratt.

“Just because the Employment Standards Act, for example in Ontario, addresses temporary layoffs doesn't mean you have the right to do that. You have to still have a contractual right to do so."

While temporary layoff can be effective in the appropriate circumstances, employers should avoid a knee-jerk reaction, he says.

“If you don't have the contractual right or if you're not in an industry where there is a well-established practice and you've got the implied right, it could result in a constructive dismissal, which then triggers severance obligations.”

For non-union employers, certainly in Ontario, there have been challenges to purported temporary layoffs, says Shore.

"In the absence of contractual rights to temporarily lay off, employees can treat those as dismissals. And we've seen employees have success in the courts in doing so."

However, six years after the pandemic began, the courts may have more of an appetite to see things from employers' perspectives, he says.

The picture is different in unionized workplaces, says Bratt.

"In any unionized context, you're going to have the contractual right by virtue of the layoff procedure in the collective agreement," says Bratt. "You're going to expose the organization to far less financial consequences if you're unionized."

Reducing pay or hours: considerations

Unilateral reductions to pay or hours also carry legal risk but, in practice, the exposure depends heavily on how they are handled, say the two lawyers.

"If you're unilaterally reducing pay or unilaterally reducing work opportunities, earning opportunities, hours — those could become constructive dismissal claims," says Shore.

But communication and transparency can help, says Bratt.

“If an employer goes to a group of employees and says, ‘Look, we believe this is going to be temporary, help us be part of the solution — we'd like to preserve the relationship longer term, but we need temporary relief, here’s what we have in mind’ — very often, if the messaging is done appropriately, you can actually secure buy-in and reach an agreement.”

However, when it comes to reducing wages in a unionized context, “good luck," he says. "I don't think any union is ever going to agree to that. That's going to be a violation of the collective agreement."

Work-sharing programs evolve

Both lawyers point to the federal work-sharing program as an underappreciated tool, so employers don’t lose highly skilled workers.

"It allows employers that have a temporary shortage of work but still have work to allocate that work proportionally amongst a group of employees so that they have something rather than nothing, and then EI picks up the difference,” says Bratt.

The federal government's Workforce Retention and Retraining Program is also worth exploring, says Shore.

"That one combines the existing EI work-sharing program and the worker retention grant into a single streamlined program… designed to be more accessible and more generous,” he says. “The intention is probably to get money out the door faster, to get approvals out the door faster."

He also addresses the constructive dismissal concern around hours reductions in this context.

"With some consent and with some consultation, spreading available hours across the workforce in a way that does result in individuals having reduced hours, I think there's going to be more sympathy for those types of programs or hours reductions.

Voluntary separation and EI incentives

For employers looking to reduce headcount without mandating departures, voluntary separation programs offer another path — one that has become more attractive in light of a new federal support package.

As part of a $3.5-billion Rapid Response Supports for Workers and Employers announcement, Ottawa has introduced and extended several temporary EI measures aimed at cushioning workers affected by tariff-related disruption. These include:

• extending by one year the waiver of the one-week EI waiting period
• extending by one year the measure that allows workers to receive EI benefits without first exhausting separation payments such as severance or vacation pay
• extending by eight months the measure that provides an extra 20 weeks of EI regular benefits for long-tenured workers
• introducing a new one-year measure so that workers who voluntarily left jobs in recent months are no longer penalized when accessing EI, as long as their most recent job loss was through no fault of their own.

That last measure is the one Bratt says is most relevant to voluntary separation programs — though it seems counterintuitive.

 "Take for example somebody who voluntarily left an otherwise secure job a few months back to pursue what appeared to be a good opportunity at the time. And that good opportunity is no longer a good opportunity because of the economic impact on that business. The government is trying to structure it so that if you now leave a job voluntarily or involuntarily and don't have enough insurable hours, you won't be penalized for having voluntarily left your previous job."

Successful steps for voluntary separation

However, there are challenges to voluntary retirement or separation packages, he says.

"You don't get to pick and choose who elects to take those packages, so you may lose some good people you don't want to lose."

Bratt recommends a two-step process.

"You first communicate to those who are eligible that they have to express an interest, and you tell them what the package will look like. But once they express an interest, it has to be known to them that it's not going to be guaranteed that they'll be selected, because depending on operational requirements — what if everybody who opted in are all gone, and you're going to have a significant gap? So you have to retain some flexibility to say yay or nay."

Employers should also note the human rights risks associated with age when that's used as a factor in these voluntary options, says Shore.

“Typically, if age and tenure are being used as factors, I think most of those programs can be designed in ways that do avoid the human rights risks pretty easily. You wouldn't want people to feel targeted through those programs."

In unionized workplaces, an additional layer of consent is required unless there is something in a collective agreement which provides this right, he says.

"But, typically, unions I’ve found are very cooperative and understand that there can be some utility to these [programs] and certainly don't want to be the ones standing in the way of employees who would very quickly put their hand up for one of these programs."

Notice periods during hard times

One area where employers should not expect insulation from the economic climate is severance obligations. The law is clear that financial hardship is not a mitigating factor, says Bratt.

"There's a number of factors that go into assessing what severance obligations are, but one of them is not economic disruption," he says. "Whether you're the largest employer in the world or a small mom-and-pop shop, the severance obligations are identical."

Shore does not expect this to become a decisive trend in either direction.

"You’re going to have some judges who are going to be more empathetic to employers dealing with massive economic pressures caused by tariffs and geopolitical events, and are just going to see that the private sector isn't in the same place to absorb these sorts of reasonable notice hits,” he says.

“Others will see the impact on the individual losing their employment and having a more difficult time finding re-employment and carry more sympathy and extend notice periods. My guess is, on average, in the aggregate, we're in the same place."

Mass terminations: do not DIY

One scenario where both lawyers strongly caution against going it alone is a mass or group termination.

The stakes are in the details, according to Shore.

"Whether it's notifying the Ministry of Labour, providing employees with notice in the prescribed way, posting the correct forms in the workplace — there are so many different ways in which an employer can make an error with a catastrophic result of not being able to claim credit for the advance notice that they're giving employees,” he says.

“Something as simple as failing to send the Form 1 into the ministry at the appropriate time could have hundreds of thousands, if not millions, of dollars of impact."

In Ontario, mass termination obligations are triggered at 50 or more employees within a four-week period, notes Bratt. The consequence is that the statutory notice entitlements increase for all affected employees — potentially from two weeks to eight weeks or more, depending on the number of terminations.

"It does actually increase the severance exposure in addition to the ministry requirements," he says.

On the mechanics of delivering the news to a large group, Bratt suggests a two-stage approach that is both humane and practical.

"What you could do is have a group meeting where you deliver the news to everybody who's impacted by it at once, and then you say, ‘But we will have individual meetings after to go through your specific severance offers.’"

He is pragmatic about the shift to virtual communication.

"Ten years ago, I would have told employers never fire somebody virtually. Now that happens every day, and that's OK. But you just have to be mindful of understanding that you're about to really impact somebody's life, and you should probably do it in the most humane way possible."

Wait, assess — then act

Overall, the instinct to act quickly when revenue projections turn negative is understandable. But the more sophisticated employers are prepared to take a wait-and-see approach, says Bratt.

"What employers have recognized, especially with the war on talent, is that preservation of the relationship is paramount because if you lose skilled workers, long-tenured people who you've invested in and trained, and then the disruption tends to be temporary or short-lived, it's really hard, if not impossible, to replace those people."

The preferred approach is to map the scenarios before they materialize. "’If X happens, we're going to do A, B and C. If Y happens, we're going to do X, Y and Z’ — and work through what the legal consequences or challenges are with each of those options, but don’t necessarily implement anything yet," says Bratt.

Shore emphasizes that communication is key so top performers or skilled employees don’t start looking for other opportunities because they aren’t hearing a positive outlook from the employer.

"A lot of employees who feel like their employers are sharing information and are being transparent will cooperate, will have some empathy for what the tariffs may mean for the overall business, and may be much less likely, at least in a near term, to start looking into other industries or maybe less impacted areas where they may have opportunities."