CHAUDHRI: Tariff threat may lead to job cuts and big employee payouts

Another weekend we wait.

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With a looming 25% U.S. tariff threat set to roll out this Tuesday, Canadian businesses are bracing for higher costs and preparing to make deep cuts – including to workforces.

Consequently, Canadians may expect a flurry of temporary layoffs and terminations this year. Lawsuits will be filed. Not only that, rising costs may impact a terminated employee’s ability to find new work.

Courts will have to consider how this North American trade war could financially impact employees, perhaps leading to higher damage awards if periods of unemployment are meaningfully lengthened.

Courts regularly consider market conditions when assessing damages for employees.

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Take for example the recent case of Nicholas Timmins, a chief development officer terminated from Artisan Development Labs Inc (ADL) in March 2023.

Timmins was initially hired as ADL’s vice-president of Cell Technologies and Entrepreneur in Residence in 2019. He was promoted to executive vice-president in 2021 to build out the organization’s Canadian operations. He was promoted again in 2021 to chief development officer.

Timmins was highly paid, including a salary of US$357,731.19, stock options, annual bonus and RRSP contributions.

When he was terminated in 2023, Timmins’ termination letter underpaid him his statutory entitlements, providing him only one week of pay. It also purported to rely on an employment agreement he executed, which limited his entitlements on termination to three months.

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In court, Justice Callaghan found that while his employment agreement provided that Timmins would receive three months of pay in the event of termination, ADL withheld that amount from Timmins making it conditional upon him signing a release.

Justice Callaghan found that by failing to pay Timmins the three months stipulated in his contract, by failing to pay the appropriate statutory entitlements and by insisting on a broad release, ADL repudiated the employment agreement when it terminated Timmins.

Having ousted the contract, the court found that Timmins was entitled to common law notice.

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Timmins was 44 years old at the time of his termination with three-and-a-half years of service. With bonus and benefits he made more than $450,000 a year. Noting that he was a senior employee in a niche market with a sizable income, the court awarded him nine months of wrongful dismissal damages or $456,908.82. He was also awarded $27,900 in costs.

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This case is a good indication of the trends we may see flowing from trade war terminations.

A few of them are:

Employment Contracts will be Scrutinized – Like in the Timmins case, many employers will seek to rely on termination provisions in executed contracts. Courts will scrutize these contracts closely and oust contracts where appropriate.

Market Conditions make an Impact – Timmins was awarded nine months of pay in part for being in a senior role in a niche market. He most likely presented evidence at trial relating to market volatility and his inability to find comparable work to help boost his chances of a higher award in court.

Employer Conduct Matters – ADL did not pay Timmins the three months his employment contract entitled him to. Because ADL did not carry out its obligations, the court was inclined to disregard Timmins’ contract entirely. The technical steps an employer takes at the time of a termination are critical and will meaningfully impact any damage award.

Highly Paid Employees Need Longer to Employ – Even though Timmins only worked for ADL for three-and-a-half years, the court noted his sizable income and recognized that highly paid employees can take longer to find comparable work.

Have a workplace question? Maybe I can help! Email me at sunira@worklylaw.com and your question may be featured in a future column.

The content of this article is general information only and is not legal advice.

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