Navigating US Tariffs on Canada: A Guide for Small and Mid-Size Businesses

25% US tariffs on certain Canadian goods are in effect. In response, Canada has ordered their own tariffs to be applicable to US imported good for a value of $30 billion.  On March 12, the US imposed 25% tariffs on all steel and aluminum entering the country; a decision that will heavily disrupt Canadian supply chain. Bilateral tariffs escalation between Canada and the US will have a dire impact on small and mid-size enterprises (SMEs). Canadian businesses must understand the risks and prepare proactively.  

In this blog post, we’ll break down the potential impacts of US tariffs on employment and the economy while offering actionable advice to help your business weather this storm. 

Understanding the economic and employment impact 

US tariffs will have devastating effects on Canada’s economy and workforce. According to a CIBC report, estimates suggest Canada’s GDP could shrink by as much as 3.25%, with industries like automotive, energy, and manufacturing bearing the brunt of the impact. In the realm of employment, this translates to having up to 1.5 million jobs at risk across various sectors, with Ontario’s automotive industry alone potentially losing 500,000 positions. 

Trump’s tariffs threaten Canada’s automotive, energy, and agricultural sectors, risking job losses and economic instability. The auto industry’s integrated supply chains could collapse, while Alberta’s oil exports face steep declines, costing billions annually. Agriculture and retail sectors would suffer secondary impacts from reduced consumer spending, worsening unemployment. For small and mid-size Canadian businesses, these changes could mean higher costs, disrupted supply chains, and reduced competitiveness in US markets. 

How may this economic disruption affect Canadian employers? 

The risk of economic strain may force small and mid-size Canadian businesses to start laying off employees. The economic fallout from US tariffs is likely to increase litigation related to terminations and constructive dismissals in Canada’s courts.  

Economic uncertainty caused by tariffs can lead to low employee morale and increased turnover as workers seek more stable opportunities. Canadian employers may struggle to retain skilled employees, thus further disrupting operations. 

Lastly, laying off employees demands workforce planning and acute compliance with Employment Standards legislation. Failure to properly provide advance notice or recall an employee back to work could result in a constructive dismissal claim. 

How to protect your business from risk of litigation? 

Review documentation and implement written agreements 

Employers should ensure that their employees are under written contracts of employment. Employers should review their employment contracts to make sure they permit employers to layoff an employee and that its termination clauses effectively limit an employee’s common law termination entitlements. Employers may see increased termination costs (up to 7 times more) if their termination clause is unenforceable.  

Well-drafted employment contracts will mitigate risks of higher costs at termination. An employment agreement 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 develop contingency plans for workforce reductions, including criteria for selecting employees for layoffs or reduced hours. To control risks, it is best practice to document the rationale for decisions to demonstrate fairness and avoid claims of discrimination or bad faith. 

Transparent communication is key. Employers should provide advance notice of any changes to hours, wages, or roles. 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 employees, make sure you have trained managers on how to layoff an employee without violating employment standards legislation. Employers should emphasize the importance of maintaining respectful communication when terminating an employee to reduce risk of aggressive behaviour during such a dramatic event for employees. 

Do you need support implementing the right HR documentation? 

Bilateral tariffs escalation present unprecedented challenges for Canadian businesses, particularly in managing workforce impacts effectively and lawfully. By implementing proactive measures such as written contracts, workforce planning, and transparent communication, businesses can mitigate risks while maintaining compliance with employment laws. 

Peninsula can help you quickly implement the necessary HR documentation you need. We’ll help identify any potential issues with the wording of your policies and contracts and ensure you are compliant and protected from legal risks. To learn more about how our services can support your business, call an expert today at (1) 833 247-3652.