Canada: Employees Should Know Their Rights Before Layoffs

U.S. President Donald Trump and his tariff threats have dominated this country’s political and economic discussions for months. Canadian consumers and businesses have changed their purchasing habits — some perhaps forever — in a collective response to the tariffs, which were also at the forefront of the country’s federal election on April 28. But how have Trump’s economic policies impacted the Canadian workforce so far? And how should companies and their employees prepare?

The economic uncertainty alone has had a chilling effect on the Canadian economy, as many employers struggle to plan for the future. When tariffs were imposed on Canadian steel and aluminum on March 12, some companies started reducing their workforces in anticipation of the fallout. As early as Feb. 24, Canada Metal Processing Group announced a workforce reduction of 140 employees. Now that the tariffs are in place, we can expect further layoffs in the sector.

Canada’s automotive industry, one of the largest in Ontario and one with a significant presence in Quebec, was hit with 25% tariffs on April 2. In response, Stellantis, the world’s fourth-largest automaker, announced a two-week shutdown of its Windsor, Ontario, plant, along with layoffs affecting approximately 4,500 Canadian workers.

As more and more Canadian businesses are forced to consider layoffs, it is important for workers to understand their employment rights.

In Ontario, an employer cannot unilaterally place an employee on a layoff. They need the employee’s consent. Such consent can be written into the employment contract, where the employer reserves the right to place the employee on a temporary layoff in accordance with the Ontario Employment Standards Act (ESA). An employee can also give their express consent to a layoff, even if such a right is not contained in their contract.

However, if no such contractual right exists, an employee’s silence in response to a proposed layoff does not necessarily mean consent. In the recent case of Pham v. Qualified Metal Fabricators Ltd., the Ontario Court of Appeal decided that an employee who signed a letter from his employer advising that he would be placed on a temporary layoff did not provide his consent. His contract did not contain any terms giving his employer the right to place him on a layoff, and the court found that the employee’s signature on the layoff letter was merely an acknowledgment of the letter.

In Ontario, a “temporary layoff” as defined by the ESA means a layoff that does not exceed a duration of 13 weeks within a consecutive 20-week period. In some circumstances, such as when the employee continues to receive substantial payments from their employer, a temporary layoff can be more than 13 weeks if it is less than 35 weeks in a consecutive 52-week period.

A layoff exceeding 13 weeks in a 20-week period, or 35 weeks in a 52-week period (where applicable), is grounds for constructive dismissal. This means that an employee can consider their employment terminated and can sue their employer for severance, the same as in a wrongful dismissal action. 

Canadian employers considering layoffs due to the U.S.-Canada trade war must be careful to follow the rules of the ESA and the common law. Many employers may choose layoffs over terminations in a good-faith effort to keep their employees so they can be recalled later if the economic situation improves. But, despite their good intentions, employers could still be exposed to significant liability for wrongful dismissal damages if they do not ensure they have the contractual right to put an employee on a layoff or the employee’s consent.

As Trump’s tariff policies continues to evolve, sometimes by the day, employment lawyers will be closely monitoring the impact on Canadian workers and businesses. Employees and employers may be left in a state of prolonged uncertainty about whether they will be affected and when, so it is critical that both proactively review their contracts to understand their rights in advance.

Howard Levitt and Jeffrey Vandespyker are attorneys with Levitt LLP in Toronto. © 2025 Levitt LLP. All rights reserved. Reposted with permission of Lexology.