Ottawa threatens legal action against Stelco owner over planned layoffs

Analysis

The federal government has given the American owner of Stelco five business days to submit a plan to maintain jobs at the Hamilton steel plant or face potential legal action. Industry Minister Mélanie Joly sent a letter to Stelco president Paul Simon on Monday, demanding a plan to comply with binding job commitments made when Cleveland-Cliffs acquired the company in 2024. The Ohio-based company announced plans last week to lay off as many as 500 workers, citing U.S. tariffs and market pressures. Joly said Ottawa is prepared to seek a court order to enforce the agreement under the Investment Canada Act.

In the letter, obtained by CBC News, Joly wrote that the government takes compliance with such undertakings seriously. She outlined that the act provides remedies for breaches, including applications to a superior court for orders that could direct compliance, impose monetary penalties, or even force a divestiture of the business. "I trust that such steps will not be necessary," Joly wrote. The minister's letter states that Cleveland-Cliffs' commitments included undertakings to continue to employ at least the same number of unionized employees and the vast majority of non-unionized employees as were employed when the transaction was announced.

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Cleveland-Cliffs CEO Lourenco Goncalves has defended the layoffs as a necessary response to 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. In her letter, Joly directly challenged that argument. "Those conditions don't expire just because 'business strategy or market conditions have changed,'" she wrote. Joly also pointed out the contradiction in the company's position, noting that Goncalves has publicly supported the U.S. Section 232 tariff measures that are now cited as a reason for the cuts.

A swift government response

The federal government's demand for a plan within five days marks a notably faster response than in a previous dispute over the same steel mill. Ron Wells, president of United Steelworkers Local 1005, said he is pleased Ottawa acted "very swiftly." "They were very slow to react last time," Wells told CBC News, referring to layoffs by the plant's former owner, U.S. Steel, in 2008 and 2009. In that case, then-industry minister Tony Clement issued a formal demand roughly nine weeks after major shutdowns were announced. That dispute ended in a 2011 court settlement after Ottawa rejected the company's explanation.

Wells said the bond of trust with Cleveland-Cliffs has been broken. "They said, 'Trust us, we're nothing like U.S. Steel. We'll prove it to you,'" he said. The union leader said he doubts the company will scrap its layoff plans despite the pressure. "I think they're going to go ahead and continue the layoff," Wells said. He expressed hope that the government would take the company to court and that the outcome could force a divestiture. "I don't think it would be a bad thing to have a national steel company," Wells added.

Business lawyer Nassira El Hadri said the government's letter signals it has moved past seeking an explanation. "They are not asking for an explanation," said El Hadri, founder of Hadri Law in Toronto. "They're saying, 'You have to give us a plan on how you are going to comply.'" She noted that Joly's request goes beyond the jobs commitment, asking for a plan on how Cleveland-Cliffs will comply with all its undertakings from the 2024 acquisition. These include preserving the Stelco name, maintaining and expanding Canadian operations, and supporting unionized steel jobs. "These undertakings are not goodwill gestures," El Hadri said. "They are binding."

Legal precedents and political pressure

The Investment Canada Act typically requires foreign investors to make commitments for a period of five years following an acquisition. Sandy Walker, co-chair of the competition and foreign investment review group at law firm Dentons, explained the process to CBC News. If a company fails to live up to its commitments, the minister can send a demand letter asking for an explanation, and the company has a chance to respond. If the government is unsatisfied, the attorney general can take the company to court. Walker said Cleveland-Cliffs could argue that circumstances beyond its control, such as U.S. tariffs, prevented it from meeting its undertakings.

Prime Minister Mark Carney said last week that Ottawa will "use all powers that we have" against Cleveland-Cliffs and pursue the company to the "fullest extent of the law." He has previously stated that Stelco "betrayed" Ontario workers with the layoffs. Meanwhile, other levels of government are responding. Ontario's government pledged on Tuesday 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 aims to help 75 workers and jobseekers upgrade their skills.

Finance Minister François-Philippe Champagne commented on the broader steel market on Tuesday, saying a mix of imports and domestic supply is needed in a country the size of Canada. Goncalves has not publicly responded to Joly's letter. He previously told Global News the decision was purely market-driven and that financial incentives could not fix the fundamental issues. Joly noted in her letter that Stelco has "explicitly chosen not to seek support" from government programs designed to preserve jobs. The company now has until the end of the week to provide its compliance plan to the federal government.

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