On March 4, 2025, the U.S. levied 25 percent tariffs on certain Canadian goods. In retaliation, Canada announced their own tariffs on U.S. imported goods that add up to approximately $30 billion annually. Now the U.S. has scheduled 25 percent tariffs on all steel and aluminum imports from Canada; a decision that will heavily disrupt Canadian supply chain. A full-scale trade war between Canada and the US would have a major impact on small and mid-size businesses. Canadian businesses must understand the risks they face and prepare proactively.
Impact on economy and employment. U.S. tariffs will have damaging effects on Canada’s economy and workforce. A CIBC report suggests Canada’s GDP could decline by as much as 3.25 percent, with industries such as automotive, energy, and manufacturing facing the brunt of the impact. In the realm of employment, this means having up to 1.5 million jobs at risk across different sectors, with Ontario’s automotive industry alone potentially losing 500,000 jobs.
Impact on Canadian employers. This economic disruption may force small and mid-size Canadian businesses to start laying off employees. The economic fallout from U.S. tariffs may increase litigation related to terminations and constructive dismissals in Canada’s courts.
Economic uncertainty created by tariffs can cause low employee morale and increased turnover as workers look for more stable opportunities. Canadian employers may have a hard time retaining skilled staff, thus further disrupting operations.
Terminating employees demands workforce planning and compliance with Employment Standards legislation. Not providing proper advance notice or recall an employee back to work could lead to a constructive dismissal claim.
Protect your business from risk of litigation by reviewing documentation and implement written contracts. Ensure your employees are under written contracts of employment. Review their job contracts to ensure they allow you to layoff an employee and that its termination clauses effectively limit an employee’s common law termination entitlements. If their termination clause is unenforceable, employers may incur higher termination costs (up to seven times more).
Well-drafted job contracts reduce such risks. An employment contract with language that authorizes temporarily laying off employees and termination clauses that comply with employment standards legislation will reduce the risks of wrongfully terminating an employee or constructive dismissal claims.
Workforce planning. Canadian employers should have emergency plans for workforce reductions, including criteria for selecting employees for layoffs or reduced hours. To avoid risks, it is best practice to document the reason for decisions to show fairness and avoid claims of discrimination or bad faith.
Good communication is important. Employers should provide advance notice of any alterations to hours, wages, or duties. Where possible, offering support services such as counselling or job placement assistance will help with a smooth transition.
Before terminating an employee or laying off staff, ensure your managers are trained on how to lay off an employee without violating employment standards laws.
Bilateral tariffs escalation present exceptional challenges for Canadian businesses, particularly in managing workforce impacts effectively and lawfully. By following proactive measures such as written work contracts, workforce planning, and clear communication, employers can reduce risks while maintaining compliance with employment laws.
A global leader in HR and health & safety consulting, Peninsula has been supporting small and medium businesses for 40 years. We are trusted by over 140,000 SMBs globally. In Canada, we helped over 6,500 SMBs with tailored HR documentation, 24/7 employer advice, and provide employment management software. We pride ourselves on delivering a service that mitigates risk, adds value, and allows businesses to focus their time on what matters most.
