Here is a fun way to answer a government that has threatened to sue you. Last week Industry Minister Mélanie Joly told Stelco, the Hamilton steelmaker owned by Ohio-based Cleveland-Cliffs, to send her a plan to save the up to 500 jobs at risk at its Hamilton plant, or face possible legal action. Stelco sent a letter back. It did contain a plan, as requested. It also said, in a letter obtained by CBC News, that the layoffs are going ahead anyway, and that the minister has her facts wrong.
Your representation that Stelco’s planned layoffs cause it to breach its undertakings is false.
That line is from Paul Simon, Stelco’s president and general counsel. When a company’s general counsel is also its president, you get letters like this one.
What exactly was promised
Here is how it works. When a foreign company wants to buy a big Canadian business, the Investment Canada Act requires it to persuade the government that the deal is a net benefit to Canada. The usual way to persuade is with undertakings, which are binding promises about jobs, investment, headquarters and so on, and which typically last for years. Cleveland-Cliffs bought Stelco in a $3.4-billion cash-and-stock deal that, according to its news release at the time, kept “national interests at the forefront” and recognized the “importance of the workforce.” According to Joly’s letter, its undertakings include promises “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.”
That sounds pretty clear. Stelco reads it differently. Citing the ICA’s guidelines, Simon wrote that “the undertakings do not stipulate a commitment to avoid layoffs, nor do they include a requirement that employment levels be above a certain amount on each day of the five years of the undertakings.”
Translated: we promised a headcount, not a headcount on every single day. If the commitment is measured over the full five-year term, then laying off people in Hamilton this month is not a breach. Maybe it becomes one later, depending on what happens next. Stelco says laid-off workers could get the chance to fill open positions at its Lake Erie plant, which, if enough of them do, would bring the numbers back without anyone in Hamilton getting rehired. As a legal argument it is not crazy. As a political one it is a hard sell when the Prime Minister has already said the company “betrayed” Ontario workers and promised to pursue it to the “fullest extent of the law”.
Joly’s office, in a statement on Saturday, repeated its position: the commitments “were agreed upon as undertakings under the Investment Canada Act and do not cease to apply because of changing business strategy or market conditions.” Then: “As our legal team reviews the Stelco letter, all options are on the table.”
We have done this before
Stelco’s letter says “Stelco’s situation is a result of factors beyond its control,” pointing to U.S. President Donald Trump’s 50 per cent tariffs and the trade war. That wording is chosen with care. The ICA guidelines excuse an investor whose “inability to fulfil a commitment is clearly the result of factors beyond the control of the investor.” Stelco’s last owner, U.S. Steel, made the same defence the last time Ottawa sued over Stelco jobs.
That fight began in 2009, after U.S. Steel shut down most of its Canadian operations. Industry Canada went to Federal Court asking for an order to make the company honour its undertakings, plus $10,000 in penalties for each day of breach, according to a summary by lawyers at Davies Ward Phillips & Vineberg. It was the first time Canada had asked a court to enforce undertakings under the Act. U.S. Steel also argued that the enforcement provisions were unconstitutional, and lost. The case settled in December 2011: U.S. Steel agreed to run the Hamilton and Lake Erie plants until at least 2015, invest at least $50 million more in capital and contribute $3 million to community and educational programs. The Davies summary gives no specific job number in the settlement. So the precedent for a two-year lawsuit over Stelco employment is a settlement that, as far as that summary shows, contained no headcount.
I mention this because it shapes what both sides are really negotiating over. The penalty that seemed scary in 2009 was $10,000 a day, which works out to about $3.65 million a year. For a company that paid $3.4 billion for the business, that is a rounding error. The government’s real leverage is a court order, plus the politics.
Who knew what
The letter also gets personal. Stelco says Joly was “inaccurate and misleading to the Canadian public” when she said Ottawa had only recently learned what the company planned, and that it had been in constant contact with the government about its finances. “By failing to mention or acknowledge these regular communications, your letter created the false impression that we have not been co-operative and transparent.” The government has said Stelco turned down offers of financial support before announcing it would idle the Hamilton plant. Stelco’s response is that those offers “were not responsive to the issues at hand and did not address the root cause” of its decision to indefinitely idle the Hamilton Works finishing lines.
So what is the root cause, and what would fix it? Stelco spelled that out: “The most important step the government could take would be to impose further restrictions on imports of cold-rolled and coated steel products into Canada, limit import substitution, and eliminate remissions for steel products that Canadian producers, including Stelco, can supply.” The company does not want a subsidy. It wants trade protection. Stelco is blaming one government’s tariffs for the job cuts while asking another government for more tariffs to save them. In her Oct. 5 letter, Joly pointed out that Cleveland-Cliffs CEO Lourenco Goncalves has publicly supported the U.S. Section 232 steel tariffs while also citing trade disruptions as a factor at Hamilton Works, Global News reported. That is a coherent position for a company with mills on both sides of the border, if not a very comfortable one.
Meanwhile the layoffs have started and will roll out over three weeks, according to the union. Ron Wells, president of United Steelworkers Local 1005, said he was “not surprised with Stelco’s convoluted response,” but said the deeper issue was that the union “was not privy to the agreement in the first place.” “As the group with the most at risk, we weren’t consulted or [given] a chance to review the undertakings.”
That is the strange part of the whole setup. Everyone is now arguing over exactly what a promise about workers’ jobs means. The government and the company have both read the full text. The workers haven’t.