As a result of the ongoing tariff war, many employees are left with employment uncertainty. It is important for all employees to understand your rights in economic uncertainty and what protections are in place.  With the ever-shifting tariff rates on steel and aluminium, and on Canadian automobiles, the auto sector and related industries, and the over 500,000 Canadians whose livelihoods depend on it nationwide, is under special threat.

However, there are certain considerations and protections for automotive workers during this time.

Understanding Layoffs vs. Terminations

In response to the challenges, employers may consider two primary approaches to managing costs:

• Temporary Layoffs: Temporary suspensions or reduction of work or hours, with the expectation of recalling employees within a certain timeframe.
• Terminations: Permanent stoppage of the employment relationship.

If you work in the automobile industry, it is crucial for you to understand your rights and entitlements under each scenario.

Unionized Workers: Rights Under Collective Agreements

If you are a unionized worker in Ontario’s automobile manufacturing sector, you are covered by a collective agreement. These agreements generally outline specific provisions regarding layoffs and terminations. Engage with your union representatives to ensure all entitlements laid out in the collective agreement are received.

Non-Unionized Employees: Temporary Layoffs

If you are a non-union employee facing a temporary layoff, it is essential to consider the following:

1. Employer’s Right to Layoff: Employers must have a contractual right to impose temporary layoffs. Without an explicit clause in the employment contract permitting such action, a layoff could be deemed a constructive dismissal, entitling you to termination entitlements.
2. Duration of Layoff: The Employment Standards Act, 2000 (“ESA”) specifies maximum durations for temporary layoffs. Exceeding these durations without proper recall may result in the layoff being considered a termination.
3. Recall Rights: You should be informed about your rights upon returning to work. Significant changes to the terms of employment upon recall could also be considered constructive dismissal.

Non-Unionized Employees: Terminations

If you are terminated, review your employment contract to see if there are enforceable termination clauses. Without a proper termination clause, you are entitled to reasonable notice, which can be much more than the minimum standards set by the ESA. It is also important to consult a lawyer before signing any severance documents.

Mass Terminations: Special Rules Under the ESA

There are special considerations if an employer in the automobile industry terminates 50 or more employees at a single establishment within a four-week period. These special rules generally provide greater entitlements than those in regular termination cases, even if your contract includes enforceable termination clauses.

The notice period in the event of a mass termination does not depend on tenure but rather on the total number of employees being let go:

• 8 weeks if terminating 50 -199 employees;
• 12 weeks if terminating 200 – 499 employees;
• 16 weeks if terminating 500 or more employees.

However, these special rules do not apply in the following situations:

• If the terminations involve 10% or less of the employees who have been working at that establishment for at least three months;
• If the terminations are not caused by the permanent closure of part or all of the business at the establishment.

Final Thoughts

U.S. tariffs present significant challenges for workers in Ontario’s automotive sector. Whether unionized or non-unionized, you need to understand your rights and the legal frameworks surrounding layoffs and terminations. Engaging with union representatives or seeking legal counsel can provide clarity and ensure that you receive your legal entitlements.

In February 2025, the United States government started a trade war, announcing sweeping tariffs across various countries. While the initial tariffs were paused short term, several tariffs remain in place and tensions have escalated globally as countries, including Canada, have issued retaliatory measures. The magnitude of the tariffs and their uncertainty have already severely undermined the market with recession predictions looming, and caused chilling effects on the Canadian job market as businesses desperately try to adjust.

Many businesses are attempting to reduce expenses, including payroll, to stay afloat.

These are good-faith reasons to mitigate business losses when facing unexpected political and economic turmoil. However, if not handled properly, the businesses’ efforts to reduce their payroll may lead to wrongful termination claims and extra unexpected costs such as termination pay and legal expenses.

Many payroll reduction methods are prone to such risks, such as reducing employees’ compensation, temporarily laying them off, and terminating them without cause.

Reducing an employee’s compensation

An employer may try to reduce an employee’s compensation by (i) reducing their hours of work if they are paid an hourly rate, (ii) reducing agreed compensation, such as salary, and (iii) reducing discretionary compensation, such as bonus and incentive pay.

Suppose the employer reduces hours of work because it does not guarantee hours of work, or reduces or eliminates truly discretionary bonus or incentive pay; that may not trigger claims for constructive dismissal or unpaid wages in that case.

However, under many circumstances, it is implied that there is an expectation of minimum hours of work or bonus or incentive pay. For example, if an employer regularly asks an employee to come to work for a certain number of hours per day over a long period of time, the court may think that there is an oral agreement of how many hours the employee should work each day. Similarly, if an employer consistently pays out year-end bonuses or the incentive pay is purely based on objective criteria, the court may find that the bonus or incentive pay is not discretionary at all but an integral part of their employee’s compensation. In these situations, payroll reduction methods may be a breach of the employment contract, leading to claims for unpaid wages or even constructive dismissal, leading to a substantial amount of termination pay.

Temporary Layoff

Under most circumstances, employers do not have the right to layoff employees, unless explicitly stated in the employment contract.

Without a contractual right to layoff, a temporary layoff will lead to claims for constructive dismissal and termination pay. This means that even though the employer intends for a temporary layoff, the employee and the court may treat it as a permanent termination and ask the employer to make termination pay accordingly.

Furthermore, even if an employer has the right to lay off, there is a time limit under the applicable legislation on how long it can last, or it is deemed termination, and the employer will be liable for their employee’s termination entitlements. For example, under the Ontario’s Employment Standards Act, 2000 (“ESA”), in the non-unionized context, a temporary layoff can last no longer than 13 weeks within any 20 consecutive weeks or no longer than 35 weeks within any 52 consecutive weeks, if other conditions are met.

Termination without cause

In Canada, under most circumstances, employers are able to terminate their non-unionized employees without cause or eliminate positions due to economic hardship, but it will likely entitle employees to termination notice or pay in lieu of such notice.

Many employers believe they can rely on the termination terms of their employment contracts or the applicable employment standards legislation to determine how much termination pay they should pay. Unfortunately, that is usually not the case.  Employment standards legislation sets the minimum entitlements for employees.  However, employees often have greater rights under common law, especially regarding entitlements on termination of employment. The court will presume that employees are entitled to common law reasonable notice upon termination. This does not apply if there is a written contract with termination clauses that (i) clearly contract out that presumed entitlement, and (ii) the written clause is in compliance with the employment standards legislation. In many cases, termination clauses are not written properly so they will be unenforceable.

Especially in recent years, courts have been stringent in scrutinizing termination clauses, and have readily set any aside that do not meet the minimum standards.For example, if the termination clause simply says the employer can terminate the employee without cause at any time, which goes against the ESA, an Ontario tribunal may nullify the termination clause in accordance with the decision of Dufault v. The Corporation of the Township of Ignace, 2024 ONSC 1029. Without an enforceable termination clause, the employee will likely be entitled to more generous common law termination entitlements, which will probably lead to a wrongful dismissal claim.

Special risk due to trade wars

Another risk the employer should be aware of is the impact of the trade wars may make it longer for employees to secure reemployment.  The trade wars will likely negatively impact many industries or sectors of the job market, reducing the pool of available employment opportunities. Provided evidence is provided about the negative impact, the court may factor in the lack of available work to increase the otherwise applicable reasonable notice entitlement.   In Kraft v. Firepower Financial Corp., 2021 ONSC 4962, a Covid-era case, the court stated at paragraph 22 that “there is evidence that the pandemic impacted on the Plaintiff’s ability to secure new employment. In light of that evidence, he deserves to receive at least somewhat above the average notice period.”  Similar principles will likely be factored in for terminations occurring during the current economic situation, and lead to increases to the employer’s otherwise applicable liability for termination and severance pay.

As such, although reducing payroll to protect the business is a legitimate path, it is filled with landmines, especially during economic uncertainty. If not properly handled, employers may face unexpected legal disputes and termination pay, increased expenses, and even termination of employees whom the employer may want to recall. As such, employers should proceed cautiously and seek professional advice when necessary.

On March 4, 2025, the United States imposed a 25% tariff on a broad spectrum of Canadian goods, including steel, aluminum, automotive parts, and agricultural products that kicked off an ongoing tradewar. While many of the tariffs have been walked back, there is continued trade tensions between the two nations, prompting Canada to implement reciprocal measures. Ontario, for example, has responded by banning American companies from provincial contracts and terminating a $100 million agreement with Elon Musk’s Starlink.

For many Canadian businesses, Trump’s tariffs are an existential threat. To manage this threat and remain competitive, temporary layoffs may be necessary to offset increased operational costs and fluctuating demand. However, unless employee contracts are written properly and are enforceable, the cost of layoffs could be as destructive to the business as the tariffs themselves. Without enforceable layoff clauses any employee laid off will immediately be able to sue their employer for constructive dismissal. The damages could be as much as two years salary and benefits, similar to many cases during the pandemic. In many cases, businesses have not made the necessary adjustments to employee contracts, leaving them vulnerable to the risks associated with the tariffs and the current trade war. This threat is particularly concerning for business that rely on cross-border trade.

Layoffs vs. Terminations

As demand wanes and revenues decline, Ontario employers may be compelled to evaluate strategies to manage employment costs effectively. There are two primary avenues to reduce the workforce: terminations and layoffs. Obviously, termination is a permanent end to the employment relationship. On the other hand, a layoff is usually a temporary reduction of hours or suspension of employment, with the expectation that the employee may be recalled at a certain point. Compared to terminations, layoffs are more nuanced and require extra legal precaution.

Do you really have a right to temporarily lay off your workers?

A prevalent misconception among Ontario employers is the assumed right to impose temporary layoffs solely based on the lay-off provisions of the Employment Standards Act, 2000 (“ESA”). The ESA outlines the maximum length of temporary layoffs:

• Up to 13 weeks in any period of 20 consecutive weeks; or
• More than 13 weeks but less than 35 weeks in any period of 52 consecutive weeks, provided certain criteria are met, such as continuing benefits to the employee.

However, these statutory provisions do not inherently grant employers the unilateral right to lay off employees. If there is no valid clause in the employment contract permitting temporary layoffs, such actions will lead to constructive dismissal under common law, entitling employees to reasonable notice.

Temporary layoff clarification during the COVID-19 pandemic

During the COVID-19 pandemic, many employers experienced financial difficulties that led them to implement temporary layoffs without valid provisions, resulting in constructive dismissal claims and significant termination damages.

In Fogelman v. IFG, 2021 ONSC 4042, an employee with 11 years of tenure was “temporarily laid off” due to a business downturn. He successfully claimed constructive dismissal, which resulted in the employer being ordered to provide 15 months’ notice and additional damages totalling $178,218.13.

Subsequently, recognizing the unprecedented nature of the pandemic, Ontario enacted the Infectious Disease Emergency Leave, O. Reg. 228/20, on July 22, 2022. This regulation stipulated that temporary reductions or eliminations of an employee’s hours or temporary reductions of wages for COVID-19-related reasons would not constitute constructive dismissal. In other words, employers were protected from the risk of constructive dismissal claims arising from COVID-19-related temporary layoffs.

Will Ontario employers enjoy similar legislative protection when faced with this “War of Tariff”? Likely not.

Proactive measures for employers

To reduce potential legal risks associated with layoffs resulting from tariffs, Ontario employers should take proactive steps:

1. First, employers should review all employment contracts to ensure they contain clear and enforceable clauses that allow for temporary layoffs.
2. If there is any uncertainty, it is advisable for employers to consult with legal counsel before proceeding with layoffs.
3. With the assistance of legal counsel, employers should create a comprehensive plan for workforce reduction.

As Ontario deals with the impact of new tariffs and the economic challenges that follow, employers need to approach employee layoffs carefully. It is important to get a clear understanding of the laws around temporary layoffs to avoid issues like costly constructive dismissal claims. By taking the time to review employment contracts and consult with legal experts, employers can create strategies that protect their business and reduce legal risks. As the economic and political situation keeps changing, these proactive steps will be key to maintaining business stability despite ongoing trade difficulties.

The threat of sweeping tariffs on Canadian goods has resurfaced, with significant implications for Ontario’s economy and workforce. Ontario Premier Doug Ford estimates that the tariffs proposed by the Trump administration could impact up to 500,000 jobs in the province, making this an urgent concern for affected employees. If you have been put on a temporary lay off or foresee a temporary layoff as a result of these tariffs, below is what you should know.

Is Your Company Allowed to Lay You Off?

When an employer puts employees on layoffs due to external factors like tariffs, it does not automatically grant them the right to do so. Under the law, unless a specific employment agreement allows for temporary layoffs, employers generally do not have the authority to implement them. As stated by the Ontario Superior Court in Webb v. SDT North America, 2023 ONSC 7170, “It is well established that an employer has no right to unilaterally lay off an employee unless the contract provides otherwise.”

Putting employees on temporary layoffs without a valid layoff clause in the employment contract are seen as a fundamental change to the employment. This change can be viewed as constructive dismissal, which may qualify you for wrongful dismissal damages.

How Long Is Your Layoff?

Even if your employer has the contractual right to temporarily lay you off, under Ontario’s Employment Standards Act, 2000 (“ESA”), they can only do so on a temporary basis. Generally, in the non-unionized context, a temporary layoff can last no longer than 13 weeks within any 20 consecutive weeks or no longer than 35 weeks within any 52 consecutive weeks, provided certain conditions are met (for example, the employer must continue your benefits during the temporary layoff).

Usually, employers would indicate the length of the temporary layoff and include the date of return in the notice of layoff. If the time limit is exceeded, the layoff will automatically result in termination, triggering the employer’s obligation to provide termination entitlements. In this case, the first day of layoff is considered the termination date.

What If You Are Being Recalled?

Some companies may offer to recall employees after the constructive dismissals arising from overlong layoffs. In such cases, employees might wonder whether they should claim constructive dismissal because the position is so different, or accept the recall offer to fulfill their duty of mitigation.

Under common law, the duty of mitigation means that employees should mitigate the damages resulting from dismissal by making reasonable efforts to seek re-employment and by accepting comparable employment.  Generally speaking, “comparable employment” refers to positions that are similar in status, hours, and pay.

The Supreme Court of Canada, in Evans v. Teamsters Local Union No. 31, 2008 SCC 20, stated that employees are only required to accept recall offers that a reasonable person would not find embarrassing, humiliating, and/or degrading to return to work. Specifically, employees should return only if the pay is the same, the working conditions are similar, and the work is not degrading. The court will also consider other factors, such as the employee’s job history and whether they have initiated legal action.

In Michalski v Cima Canada Inc., 2016 ONSC 1925, the court ruled that the employee should have taken the recall offer, which he did not. As a result, his common law entitlement was capped at the date of the recall notice. However, each situation is unique and should be assessed in its entirety. Before making a decision to return, you should consult an experienced lawyer.

Do You Know the Limitation Period?

Generally, there is a two-year limitation period for pursuing constructive dismissal claims. While exceptions have been made in extraordinary circumstances, waiting too long to act could mean forfeiting your right to legal recourse.

It is also worth noting that the longer you remain on layoff without objection, the stronger your employer’s argument becomes that you accepted the layoff as a condition of your employment.

What to Do When You Are Laid Off?

If you are laid off due to U.S. tariffs, it is important to consult an employment lawyer promptly to explore your options. If your layoff is not supported by an enforceable contract or if it exceeds the timeframes defined by the ESA, your employment may already be considered terminated. Taking action now can help protect your rights, secure the compensation you deserve, and prevent any assumption that you have accepted the layoff. When your company recalls you, carefully assess whether you should accept the recall offer and return to work.