Preparing for the Fallout from Trump Tariffs

Most of our clients stand to be affected directly or indirectly by the proposed 25% across the board “Trump Tariffs” on Canadian imports, many dramatically. In fact, many businesses have already been hit with cancelled orders which may not be reinstated following Trump’s grudging last minute 30 day extension of the tariff deadline. If the Trump Tariffs take effect, those who sell a significant portion of their products into the U.S. will almost certainly see a decline in sales volumes due to the increased cost to their U.S. customers.

Even with the Trump Tariffs on hold, the current uncertainty will lead some manufacturers to open plants in the U.S. to avoid tariffs and reduce or even close their Canadian operations. Given Canada’s trade-based economy and the approximately 70% share of that trade focused on the U.S., the direct impact of the Trump Tariffs or even the threat of them will be significant on Canadian output and thus employment. Other clients who provide services to the export driven sector will also feel the indirect impact of the Trump Tariffs through reduction in demand for their services from their export dependent customers. Still other businesses may suffer a loss of sales and profit due to the impact of retaliatory tariffs and other measures imposed by Canadian governments e.g. a wine agency that specializes in California wines.

With the recovery from the massive disruption from COVID barely in the rearview mirror, employers will need to dust off and review their strategies for dealing with reduced revenue by curtailing payroll costs. While some may choose to implement immediate permanent reductions in their workforces, the 30 day reprieve in implementing the Trump Tariffs offers some reason to hope that the tariff disruption will be temporary. Permanent terminations result in the loss of hard to replace skills and firm-specific experience and can be very costly.

Employers may want to consider the following alternatives:

Imposing an initial temporary lay-off: before selecting this option, employees will need to review their employment agreements. Many signed post-COVID (including those drafted by HEL) allow employers to impose up to the maximum permitted under Employment Standards legislation e.g. 13 weeks in B.C. But remember, in the absence of clear authority to impose a temporary lay-off in an employment agreement or through past practice, even a temporary lay-off can constitute a “constructive dismissal”, entitling the affected employee to quit and claim severance so it is prudent to get employee agreement if there is no existing authority to impose a temporary lay-off;

Applying to WorkShare: This federal programme is suitable for workforces where it makes sense to reduce the workweek for a group of employees in order to avoid lay-offs i.e. “sharing” a reduced volume of available work. Administered by EI, this programme has a number of requirements, including that all participating workers consent and that the employer can show it has a (non-binding) recovery plan to resume full time hours. Employees receive EI benefits to cover their days off work, which can be range from 1 to 4 days a week. Workshare can continue for up to 38 weeks. The EI benefits paid do not reduce the employees’ regular entitlements if the employer ultimately has to terminate.

Working Notice: In most cases, termination entitlements, including under Employment Standards, can be satisfied by giving working notice. While this option does entail giving formal notice of termination in the future, the employer can stipulate that the notice may be cancelled if economic conditions improve. This approach reduces lump sum cash severance costs.

Government Payroll Subsidy: The federal government has promised to introduce payroll subsidies to impacted employers, presumably modeled on those paid during COVID. If the COVID model is followed, they will subsidize a portion of total payroll costs up to a pay ceiling. Stay tuned for announcements on this front in the coming weeks. It may be prudent to wait and see what the payroll subsidies look like before proceeding with the other options above.

If your organization is facing fallout from the Trump Tariffs, please give us a call to discuss your most cost-effective options for managing your workforce.

If you want more information on this topic, you can contact us at:

Geoffrey Howard:       ghoward@howardlaw.ca

604 424-9686

Sebastian Chern:         schern@howardlaw.ca

604 424-9688