Ottawa demands Stelco owner reverse layoffs or face court action

Analysis

The federal government has given the U.S. owner of Stelco five business days to share a plan to maintain jobs at the Hamilton-based steelmaker or face potential legal action.

Industry Minister Mélanie Joly sent a letter to Stelco president Paul Simon on Monday laying out her "extreme disappointment" over the company’s plan to lay off up to 500 workers in response to U.S. tariffs and other market pressures.

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"The Government of Canada takes compliance with undertakings seriously," Joly wrote in the letter, obtained by CBC News.

"Where an investor fails to comply with an undertaking, the Act provides remedies for breaches, including an application to the superior court for orders that may include directing compliance, divestiture, or monetary penalties."

A clash over conditions

Canada gave U.S.-based Cleveland-Cliffs the go-ahead to purchase Stelco in 2024 under the Investment Canada Act, which regulates foreign takeovers.

Joly said Canada’s approval of the deal was contingent on the new owner maintaining the number of union jobs and the majority of non-union positions.

"Those conditions don’t expire just because 'business strategy or market conditions have changed,'" she wrote in the letter.

Cleveland-Cliffs acquired Stelco in a $3.4-billion cash-and-stock deal that, according to a news release at the time, kept "national interests at the forefront" and recognized the "importance of the workforce."

Cleveland-Cliffs CEO Lourenco Goncalves has said the cuts are necessary and justified by the Canada-U.S. trade war, arguing that Stelco's ability to sell steel to the U.S. was an "underlying condition" of the deal.

Joly challenged that rationale in her letter.

"This is particularly relevant here, where Cleveland-Cliffs has cited trade disruptions as affecting its operations at Hamilton Works, notwithstanding its chief executive officer’s public support for Section 232 tariff measures," she said.

Goncalves has publicly supported U.S. steel tariffs, saying they are a "necessary step" to curb dumped steel imports.

He has also said he supports Canadian steel workers, and that "America first is not America only."

Union sees broken trust

Ron Wells, president of United Steelworkers Local 1005, said his members hoped for a different experience under Cleveland-Cliffs' ownership.

"They said, 'Trust us, we're nothing like U.S. Steel. We'll prove it to you,'" he told CBC News. "The bond of trust has been broken."

He said he is pleased the federal government acted "very swiftly" this time.

"They were very slow to react last time," he said, referring to an earlier dispute involving the steel mill under a different owner. "We actually had to lobby to get them to react."

Wells said he doubts Stelco will scrap its layoff plans.

"I think they're going to go ahead and continue the layoff," he said. "We hope the federal government takes them to court, and the outcome is they're forced to divest. I don't think it would be a bad thing to have a national steel company."

He added that Cleveland-Cliffs will likely argue the situation was out of its control.

"They’ll drag this through court and try to provide their rationale for how this was out of their control. But they’re all in favour of the tariffs so it’s contradictory," Wells said.

Legal precedent and process

Foreign takeover commitments under the Investment Canada Act typically extend for five years, covering details like the acquiring company's level of investment, the location of the acquired company's headquarters, and levels of employment, according to Sandy Walker, co-chair of the competition and foreign investment review group at Dentons.

"If you don't live up to those commitments ... the minister can send you a demand letter saying to you, 'please explain why you have not lived up to these commitments,' and then the company has a chance to respond," she told CBC News.

If the government is not satisfied with this response, she said, the next step is for the attorney general to take the company to court.

"The company, Cleveland Cliffs, could say that as a result of circumstances beyond its control, it was not able to meet these undertakings. And those circumstances might include U.S. tariffs," Walker said.

In 2009, Industry Canada sued Stelco's previous owner, U.S. Steel, over job protection after it began laying off hundreds of workers in November 2008 and announced temporary shutdowns affecting another roughly 1,500 jobs the following March.

Then-industry minister Tony Clement did not issue a formal demand under the act until May 5, 2009, roughly nine weeks after the larger shutdown was announced.

The case was ultimately settled in 2011 after the company agreed to a new set of undertakings.

Prime Minister Mark Carney said last week Ottawa will "use all powers that we have" against Cleveland-Cliffs as it pursues the Ohio-based company to the "fullest extent of the law."

Ontario’s government on Tuesday pledged to invest more than $200,000 with Ottawa through the Canada-Ontario Workforce Tariff Response to help protect steel and manufacturing workers in the Hamilton area.

The funding will help 75 workers and jobseekers upgrade their skills and transition to in-demand careers, according to the province's labour minister.

Joly has asked for a response from Cleveland-Cliffs within five business days.

"I trust that such steps will not be necessary," she wrote, referring to potential court action.

With files from The Canadian Press, Global News and CBC News