Toronto, ON – September 2, 2026 – As your labour and employment counsel, we understand that tariff-related cost pressures can quickly become workforce planning issues. The Canadian federal government has announced targeted counter tariffs effective September 8, 2026, together with a $7.5-billion package of new and enhanced measures for workers and businesses. The counter-tariff list is directed at $27.6 billion of U.S. imports and includes products in sectors such as steel, aluminum, dairy, appliances, agricultural equipment, pulp and paper, plastics, and electronics.
For employers, the key message is straightforward: tariffs may justify operational change, but they do not suspend employment standards, contractual obligations, human rights duties, or common-law risk. Before moving to terminations, employers should assess the available options, the business problem each option is intended to solve, and the legal and employee-relations risks attached to each choice.
| Options | When it may fit | Key employer risks |
| Work-Sharing | Temporary reduction in available work where the employer wants to retain employees and avoid layoffs. | Eligibility and approval requirements; administrative timelines; employee participation requirements; limited usefulness if the downturn is permanent. |
| Reduced hours or scheduling changes | Short-term cost management where changes are modest and operationally justified. | Constructive dismissal risk if changes are significant or imposed without contractual authority or employee agreement. |
| Temporary layoffs | Sudden business decline where there is a realistic recall plan and a legal basis to lay employees off. | ESA compliance does not eliminate common-law constructive dismissal risk; benefits, recall timing, communications, and contract wording all matter. |
| Voluntary exits or leaves | Where the employer can reduce labour costs through employee choice rather than unilateral action. | Potential pressure or inducement concerns; human rights risk if eligibility or selection is not managed consistently. |
| Permanent restructuring or terminations | Long-term or structural reduction in demand, functions, or required roles. | Termination pay, severance pay, benefits continuation, contractual and common-law notice exposure, group termination rules, and discrimination or reprisal allegations if selection criteria are not objective. |
Start with a Workforce Assessment: Define the Problem Before Choosing the Tool
Ontario employers should begin by evaluating labour costs, production requirements, order forecasts, and the projected duration of the disruption. A layoff or termination strategy should not be the starting point. The first question is whether the business issue is temporary, structural, or uncertain.
Not every tariff-related disruption requires layoffs. Some organizations may be dealing with a short-term reduction in orders. Others may be facing higher production costs, supply chain disruptions, or a long-term shift in demand. The duration and nature of the problem matter because they will often dictate the most appropriate workforce response.
If the issue appears temporary, lower-risk options may include hiring freezes, attrition, redeployment, voluntary leaves of absence, reductions in overtime, retraining, limited scheduling changes, or Work-Sharing. If the issue is long-term, employers should move toward a documented restructuring analysis rather than repeatedly extending temporary measures.
Federal support measures, including Employment Insurance changes and Work-Sharing enhancements, may reduce the practical impact of a downturn. They should be treated as tools that may support an otherwise lawful plan, not as substitutes for contractual authority, statutory compliance, or proper notice analysis.
Option 1: Work-Sharing
For employers experiencing a temporary slowdown, the federal Work-Sharing Program may be the least disruptive option. It can help retain trained employees, preserve continuity, and avoid the immediate legal and workplace-relations risks of layoffs or terminations.
The program allows employers, employees and Service Canada to share available work among a group of employees. Instead of terminating employees or placing part of the workforce on layoff, participating employees work reduced hours and may receive Employment Insurance benefits to partially offset lost earnings. The program is designed for temporary reductions in business activity that are outside the employer’s control.
Employer risk: Work-Sharing is not automatic. Employers must meet program requirements, coordinate employee participation, and allow for approval timelines. It is best suited to temporary reductions in business activity; if the downturn is permanent, Work-Sharing may delay but not eliminate the need for restructuring.
Option 2: Temporary Layoffs
Temporary layoffs can appear attractive when orders decline suddenly, but they are often higher risk than employers expect. Before issuing layoff notices, employers should confirm whether they have an express contractual right, a clear past practice, or employee agreement supporting the layoff.
Under the Employment Standards Act (“ESA”) a layoff of up to 13 weeks in a 20-week period is generally temporary. A longer layoff may still be temporary, but only if the applicable statutory conditions are met. These conditions include continued substantial payments, continued employer contributions to a legitimate retirement, pension, group, or employee insurance plan, supplementary unemployment benefits, an approved recall period, or an employee agreement permitting recall within the agreed period.
Employer risk: ESA compliance is only part of the analysis. A layoff that is temporary under the ESA may still be treated as a constructive dismissal at common law if the employer lacks the contractual right to impose it or if the change substantially alters the employment relationship.
In Stolze v. Addario et al., 1997 CanLII 764 (ON CA), the Ontario Court of Appeal held that the employment contract must be examined to determine whether the layoff repudiates a fundamental term. The Court in this case determined that the employee’s long service, salaried role, and absence of a layoff policy or practice supported a claim of constructive dismissal. More recently, Coutinho v. Ocular Health Centre Ltd., 2021 ONSC 3076 (CanLII) confirmed that an ESA regulatory deeming rule did not displace an employee’s civil claim for common-law constructive dismissal.
In practical terms, employers should review employment agreements, policies, benefit continuation obligations, recall timing, and communications before implementing temporary layoffs or significant reductions in hours. What appears to be a short-term cost-saving measure may create notice, severance, constructive dismissal, and employee-relations exposure if not handled carefully.
Option 3: Permanent Restructuring or Terminations
Where the business impact is expected to endure, employers may need a more durable restructuring rather than a series of short-term measures. Restructuring can include consolidation of functions, revised reporting lines, redeployment, workplace or shift redesign, automation, sourcing changes, or the permanent elimination of positions.
Whatever form it takes, a successful restructuring begins with a clearly documented business rationale. Employers should focus on identifying the positions, functions, and skills the organization requires going forward, rather than beginning with specific employees. Decisions that are tied to legitimate operational requirements are generally easier to defend than decisions that appear to target individuals.
Employers should also ensure that any employee-selection process is objective, consistent, and capable of being explained if later challenged. Human rights considerations must remain central throughout the process. Decisions should never be influenced by factors such as disability-related absences, accommodation requests, family status, age, or other protected characteristics.
Employer risk: Permanent restructuring may trigger termination pay, severance pay, benefit continuation, contractual entitlements, and common-law reasonable notice obligations. Larger reductions may also trigger group termination requirements under the ESA. Selection criteria must be objective, consistently applied, and free from human rights, reprisal, or accommodation-related concerns.
Employers should also plan communications carefully during a restructuring. Employees are more likely to understand difficult business decisions when they are communicated honestly, respectfully, and consistently. Poorly planned messaging can create confusion, damage morale, and increase litigation risk, even where the underlying business decision is legitimate.
Option 4: EI Measures as Employee Support, Not Employer Authority
One significant aspect of the federal government’s response is the introduction of temporary Employment Insurance measures for workers affected by major economic disruptions. Under these measures, the usual one-week waiting period has been waived for new EI claims beginning between March 30, 2025 and October 10, 2026. Certain separation earnings, such as severance pay and vacation pay, will not be deducted from benefits during the temporary program period. Eligible long-tenured workers may also receive up to 20 additional weeks of regular benefits, for a maximum of 65 weeks of entitlement.
Employer risk: EI measures may make an interruption of work less financially disruptive for eligible employees, but they do not create an employer right to reduce hours, impose layoffs, or avoid notice, severance, benefit continuation, or contractual obligations. Employers should avoid presenting EI eligibility as the legal justification for a workforce action. The authority for the action must exist independently.
The right option will depend on the expected duration of the disruption, the employer’s contractual rights, the affected employee group, benefit and recall obligations, and the organization’s tolerance for legal and employee-relations risk. Employers managing tariff-related workforce challenges should seek legal advice before implementing layoffs, reductions in hours, voluntary exit programs, or restructuring measures. For guidance on choosing and implementing the appropriate option, contact Protea LLP.
