Since President Donald Trump took office in January, he has repeatedly spoken about imposing widespread tariffs on Canadian goods. In early February, it appeared that these tariffs were imminent before an agreement was reached with the Canadian government, which temporarily paused the tariffs until March 4th, 2025. On Thursday, February 27th, President Trump stated in a Truth Social post that tariffs on Canada will go into effect on March 4th.
The picture is still blurry regarding what tariffs on Canadian goods look like. President Trump has at times said that tariffs would apply across all sectors, industries, and products, while at other times he has specifically targeted only Canada’s steel and aluminum exports. His February 27th Truth Social post did not specify which tariffs are coming.
While the full scope and impact of any future tariffs are still unknown, it would be prudent for businesses and individuals to prepare for potential disruptions and possible litigation that could arise. While by no means an exhaustive list, this post discusses a few possible topics of litigation that could emerge.
Employment Considerations
Employment law is of the most frequently litigated areas, and tariffs could further complicate it. Consider a scenario where a Canadian automobile manufacturer supplies 30% its goods to United States-based buyers. After the imposition of a 25% tariff, it suddenly loses all of its business to the U.S.
The manufacturer now faces tough decisions. Should it retain some employees while terminating others? Or opt for temporary layoffs? Alternatively, should they keep paying their employees, slow down production, and hope that either the tariffs end soon or new supply chains open up?
In Ontario, employment matters are governed by both to the Employment Standards Act (“ESA”) and also the common law. Employers and employees alike should understand their rights and responsibilities to ensure compliance and to protect their interests.
Under the ESA, a temporary layoff can last up to 13 weeks within a 20-week period, or, in certain circumstances, up to 35 weeks within a 52-week period. If a layoff exceeds these limits, then it is considered a termination. If the employer plans to move forward with temporary layoffs, they must ensure they meet the above length requirements, ESA notice requirements, have a clear plan for recalling the employees, and confirm that their employment contracts would allow for layoffs. Otherwise, they risk possible constructive dismissal claims.
For the employees, the key question is: what rights would they if something like this happened? The ESA and the common law both provide many safeguards to protect employees, but it is still important for employees to understand their rights.
If the employer decides to terminate but does so without cause or failing to provide proper notice or termination pay, or if they do not follow the correct procedures for a temporary layoff, the employee may have grounds for a wrongful dismissal claim. Additionally, issues surrounding constructive dismissal, where an employer significantly reduced hours, pay, or job duties instead of terminating outright, could arise as well.
Possible employment-related litigation as a result of tariffs could be complex and novel, making it important to be well-prepared.
Contract is Affected by Tariffs
Because tariffs will significantly impact supply chains, many contracts involving cross-border sales could be disrupted.
Consider the following hypothetical: Armour Co., a Canadian steel supplier, has long-standing contract with Busy Inc., a U.S. buyer, to deliver steel every three months. The contract was recently renewed for two years on September 1, 2024, before the serious possibility of tariffs arose. It is now April 1, 2025, and there is a 25% tariff on all steel Canadian steel exports. Because Busy Inc. does not want to pay the extra 25%, they refuse to accept or pay for any future Armour Co. and cancel the contract.
This raises some important legal questions. Is it in Amour Co.’s best interest to sue for breach of contract? Or should they proceed with delivering the steel and sue to force Busy Inc. to accept the steel and pay? If Armour Co. sues for breach of contract, what remedies are available to them? Alternatively, can Busy Inc. raise the defence of frustration of purpose or attempt to invoke a contractual force majeure clause?
Breach of Contract or Specific Performance
The most straightforward remedy available to Armour Co. may be to accept Busy Inc.’s breach of the contract and sue them for damages. However, this may not necessarily be the best option. Armour Co. would need to overcome any defences raised by Busy Inc., which are discussed below.
Specific performance is a remedy where a court orders a party to fulfill their obligations under a contract, rather than paying damages for breach of contract. In Canada, specific performance is an extraordinary remedy, and is only granted when a payment of money from the breaching party to the innocent party would be insufficient to compensate the innocent party.
In our hypothetical, Armour Co. would have a better chance of convincing a court to order specific performance (i.e., to force Barry Co. to accept future shipments) if the steel were customized to meet Barry Co.’s specific requirements in such a way that it would impracticable for Armour Co. to find a different buyer. However, if the steel was basic and could be sold on the open market, a court would likely be unwilling to impose this extraordinary remedy. These are the sorts of considerations that businesses must weigh if faced in a similar situation.
Frustration of Purpose
The Supreme Court of Canada, in Naylor 2001 SCC 58, has stated that frustration occurs when a situation has arisen for which the parties made no provision in the contract and performance of the contract becomes “a thing radically different from that which was undertaken by the contract”[1]
Courts can be asked to intervene and to relieve the parties of their duties under a contract when a supervening occurs without the fault of either party. This supervening event must make performance of the contract either impossible or so fundamentally different that it would be unjust to hold the parties to their original agreement.
Importantly, the doctrine of frustration does not apply where parties have made specific provision for supervening circumstances. This means that, in our hypothetical, if there was a paragraph in the contract that contemplated the possibility of tariffs, then the defence of frustration of purpose will not stand. Such clauses, commonly known as force majeure clauses, are discussed below.
As they did during the COVID-19 pandemic[2], courts will have to determine the facts of each case individually and examine specific contract provisions and assess whether the performance of the contract was radically altered by the imposition of tariffs.
Force Majeure
Force majeure clauses are contractual terms designed to relieve a contracting party from its obligations under the contract when an event beyond the control of either party makes performance impossible. Many force majeure clauses faced scrutiny as a result of the COVID-19 pandemic, so the case law is up to date.[3]
Ontario courts agree that force majeure is not a freestanding legal doctrine, it only applies if the contract explicitly includes a force majeure clause. Courts interpret these clauses based on their wording and the specific circumstances of each case. Courts will also only enforce the remedy that the contract specifically sets out.
It would therefore be prudent for businesses to review any existing contracts to determine whether tariffs fall within the language of relevant clauses. Additionally, any future contracts should be drafted with tariffs in mind.
Preparing for the Looming Threat of Tariffs
What can your organization do today to mitigate the potential impact of tariffs? While this is not an exhaustive list, here are some possible steps to consider:
- Communicate with Employees. Have a clear plan in place before discussing the impact of tariffs with your team. Employees will want to know how this affects them and what steps you are taking if they believe their jobs could be impacted.
- Review Your Current Contracts. As mentioned, assess existing contracts to determine what affects tariffs could on your business, and check to see whether your contracts include force majeure clauses, which became more common after the COVID-19 pandemic.
- Consider “Country of Origin” Planning. Evaluate your supply chains to explore alternative sourcing options and minimize tariff exposure.
If your organization requires legal assistance with contract or employment-related matters, whether related to tariffs or other issues, please reach out to one of our experienced litigators.
Tags: Employment Litigation Law
[1] Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58
[2] See: Braebury Development Corporation v. Gap (Canada) Inc., 2021 ONSC 6210
[3] See: Porter Airlines Inc. v. Nieuport Aviation Infrastructure Partners GP, 2022 ONSC 5922 for an example of the Superior Court refusing to enforce a force majeure clause, and Niagara Falls Shopping Centre Inc. v. LAF Canada Company, 2023 ONCA 159 for an example of the Court of Appeal enforcing a force majeure clause.