In late 2024, the United States announced its intention to impose a 25% tariff on certain Canadian imports, with an implementation date of February 1, 2025. In response, Canada has also threatened retaliatory tariffs, creating further uncertainty for businesses that rely on cross-border trade. While the executive order was signed, ongoing negotiations between Canada and the U.S. have resulted in a temporary 30-day delay.

For Ontario employers, this pause offers a critical window to plan for potential workforce challenges. Rising material costs, supply chain disruptions, and revenue losses could force organizations to consider workforce adjustments, but hasty decisions can lead to unintended legal risks. Employers must take a strategic approach to workforce planning to ensure compliance with employment laws while managing economic uncertainty.

1. Workforce Restructuring and Mass Layoffs

If tariffs take effect and financial constraints require large-scale job reductions, Ontario employers must carefully follow termination rules. The Employment Standards Act, 2000 (ESA) sets out specific requirements for individual and mass terminations:

  • 1 week per year of service (up to a maximum of 8 weeks)
  • Additional entitlements may exist under common law, particularly for long-term employees
  • For Mass Layoffs (50+ employees in a 4-week period):
    • Employers must provide group termination notice, which increases based on the number of employees affected:
      • 8 weeks for 50-199 employees
      • 12 weeks for 200-499 employees
      • 16 weeks for 500+ employees
  • If severance pay applies (for employees with at least five years of service in a business with a payroll of $2.5 million or more), employees may be entitled to 1 week of severance pay per year of service, up to a maximum of 26 weeks.

Failing to comply with notice and severance obligations can result in wrongful dismissal claims, increased payouts, or administrative penalties.

2. Changing Employee Hours, Wages, or Job Duties: Constructive Dismissal Risks

Rather than reducing headcount, some employers may attempt to lower costs by modifying employee hours, wages, or job responsibilities. However, significant unilateral changes can trigger constructive dismissal claims, where an employee may argue that their employment has been effectively terminated.

  • Changes that may lead to constructive dismissal:
  • Reducing an employee’s pay without their consent
  • Assigning substantially different job duties that alter the fundamental nature of the role
  • Changing work locations if employment contracts do not permit such changes
  • Legal risks:
    • Employees who successfully claim constructive dismissal may be entitled to termination notice, severance pay, and potentially damages
    • If multiple employees are affected, the financial liability can be significant

Employers should review existing employment contracts to determine whether flexibility is built in for modifying terms and consider seeking employee consent before implementing changes.

3. Temporary Layoffs: Legal and Practical Considerations

Some businesses may consider temporary layoffs as a way to manage uncertainty without permanently terminating employees. However, Ontario employers must proceed carefully, as the ESA imposes strict rules on temporary layoffs:

  • A temporary layoff can last:
    • Up to 13 weeks in a 20-week period without benefits or written agreement
    • Up to 35 weeks in a 52-week period if benefits continue and recall is possible
    • If a layoff extends beyond these limits, it may be legally considered a termination, triggering termination pay and severance pay obligations.
    • Employers must have the right to impose layoffs in an employment contract; otherwise, employees may claim constructive dismissal.

Even if layoffs are permitted, employers should document the reasons clearly and communicate expected timelines to employees.

4. Notice, Termination Pay, and Severance Pay Obligations

Employers planning workforce reductions must be aware of their obligations under both statutory and common law: 

  • Statutory Notice of Termination (ESA) – Employers must provide written notice or pay in lieu, based on the employee’s length of service.
  • Severance Pay (ESA) – If the employer has a payroll of at least $2.5 million and the employee has at least five years of service, severance pay applies.
  • Common Law Notice – In addition to ESA requirements, many employees are entitled to significantly longer notice periods under common law, depending on:
    • Length of service
    • Age
    • Availability of comparable jobs
    • Nature of the position

Failing to meet these obligations can lead to wrongful dismissal claims, resulting in court-ordered damages beyond the minimum statutory requirements.

5. Avoiding Knee-Jerk Reactions

While the threat of tariffs is a serious concern, the situation remains fluid. Employers should avoid immediate drastic actions that could create bigger legal and operational challenges in the long run. Instead, focus on:

  • Scenario planning for multiple outcomes, including possible government relief measures
  • Seeking legal guidance before implementing workforce changes to mitigate risk

Employers should also ensure any restructuring decisions are based on clear business justifications and are well-documented in case of future disputes.

Strategic Planning Now Can Prevent Future Legal Issues

Ontario employers have a rare opportunity to prepare for potential economic shifts before immediate action is required. While the temporary delay provides breathing room, uncertainty remains, and businesses must be ready to adapt. A careful, measured approach—rather than quick, reactionary changes—will help employers remain compliant while safeguarding their workforce and operations.

Taking the time to plan now can help mitigate risks, ensure legal compliance, and position organizations for long-term stability, regardless of how negotiations unfold in the coming weeks.

Contact an Employment Lawyer

Proactive planning can help your organization manage workforce changes while minimizing legal risks. Whether you’re considering layoffs, adjusting employee roles, or preparing for potential economic shifts, Achkar Law can provide the guidance you need. Contact us today to discuss your options and ensure your decisions align with Ontario employment laws.

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