The automotive industry is one of Canada’s largest manufacturing sectors and one of the world’s largest and most lucrative markets. The industry accounts for 11% per year in North American vehicle production and contributes C$16-billion annually to Canada’s gross domestic product. Blakes Partners David Kruse, Jill Lawrie, Holly Reid and Linc Rogers provide insight into the industry’s current state of affairs in the latest edition of Panoramic – Automotive & Mobility.
Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology Panoramic – Automotive & Mobility 2024. For further information, please visit: https://www.lexology.com/panoramic/workareas/automotive-and-mobility.
Table of Contents
- Overview
- Commercial Operations
- Product Safety and Liability
- Disputes
- Employment Issues
- New Technologies and Mobility
- Update and Trends
Overview
Market
For the automotive and mobility industry, describe the market’s significance and identify major trends.
The automotive industry is one of Canada’s largest manufacturing sectors and accounts for 11 per cent of North American vehicle production (1.9 million vehicles per year). The sector supports nearly 500,000 employees and contributes C$16 billion annually to Canada’s gross domestic product. On the import side, Canada imports roughly C$42 billion in passenger vehicles and another C$21 billion in parts and components per year. According to Statistics Canada reports, the annual total Canadian automotive market size is approaching C$150 billion.
For foreign investors in this sector, Canada offers a strategic location in the heart of one of the world’s largest and most lucrative automotive markets. There are 37 high-volume assembly plants within a 500km radius of the Windsor–Detroit border. These plants have produced up to 7.4 million vehicles in one year.
Canada has one of the lowest cost structures among advanced economies, with the lowest cost structure among G7 countries and an overall cost advantage of 8.2 per cent over the US in the automotive sector. According to a KPMG study, automotive parts operations based in Canada typically enjoy an 11.2 per cent labour cost advantage compared to their US-based counterparts.
Most of the OEM assembly plants and parts manufacturing facilities are located in Southwestern Ontario, where 92 per cent of shipments are made. Ontario is the only jurisdiction in North America to be home to five major automakers, including Ford, Toyota, Honda, General Motors and Stellantis. Ontario is home to many of the world’s leading parts suppliers including large Tier 1 manufacturers, such as Magna, Linamar, Stackpole and Martinrea. Ontario’s automotive supply chain is comprised of over 700 parts companies, over 500 tool, die and mould makers, and over 300 connected and autonomous companies.
The Ontario region also includes a growing technology hub (second only to California) in close proximity to Toronto Universities and the University of Waterloo. The cluster of fast-growing technology companies are within easy driving distance to 37 light vehicle assembly plants producing 6.1 million vehicles on both sides of the Canada–US border. This collocation is important, as communications technology plays an increasingly key role in the development of connected and autonomous vehicles. There are 24 colleges and 11 universities in Ontario offering auto-related research initiatives and training programmes. Further, over 200 companies, including GM, Ford, Google, Uber and BlackBerry QNX, are developing connected and autonomous vehicles technologies in Ontario.
The most significant investment in the industry relates to the rapid shift away from combustion engines to battery electric vehicles (EVs). This investment is centred on the supply of batteries and battery materials, and on retooling plants to build EVs and components. The US OEMs have announced substantial investments, including Ford (C$2.1 billion), Stellantis (C$1.6 billion) and General Motors (C$1.1 billion), to retool their Ontario-based plants for EV production.
Commercial Operations
Regulation
What is the regulatory framework for manufacture and distribution of automobiles and automobile parts, such as the homologation process as well as vehicle registration and insurance requirements?
Federal and provincial levels of government share the responsibility for motor vehicle safety oversight. The federal government is responsible for the safety standards for new and imported vehicles of prescribed classes, tyres and equipment for use in the restraint of children and disabled persons. The provinces are responsible for driver licensing, vehicle registration and operational use. There is a high degree of harmonisation in the North American regulatory environment. According to the US Department of Commerce, over 90 per cent of US and Canadian road safety regulations are identical.
Federal
The Minister of Transport (Transport Canada) is responsible for the administration and enforcement of the Motor Vehicle Safety Act (MVSA). The MVSA applies to companies that manufacture regulated vehicles or vehicle equipment in Canada, companies that distribute vehicles or equipment obtained from those manufacturers to other persons for the purpose of resale, importers of regulated vehicles or equipment into Canada for the purpose of sale, and persons who import regulated vehicles previously sold at the retail level in the United States. The MVSA also regulates the temporary importation of non-compliant vehicles and equipment.
Provincial
Each provincial government oversees various aspects of transportation in its respective province, including the establishment and maintenance of the provincial highway system, the licensing and training of vehicles and drivers and the policing of provincial roads. For example, in Ontario, the Ministry of Transportation has the responsibility for the administration and enforcement of the Highway Traffic Act, which regulates the licensing of vehicles, classification of traffic offences, administration of loads, classification of vehicles and other transport-related issues. The provinces also regulate automobile insurance.
Development, manufacture and supply
How do automotive companies operating in your country generally structure their development, manufacture and supply issues? What are the usual contractual arrangements?
OEMs and supply chain
OEMs operating in Canada use terms and conditions for contracting with parts suppliers. These terms and conditions are generally based on each OEM’s global standards. The OEMs resist any variance from their standard terms and conditions.
The supply chain is segregated into distinct tiers. For example, in a three-tier supply chain, the Tier 1 supplier sells a finished assembly product directly to an OEM. The Tier 2 supplier, however, sells its parts, which would reflect some value-added labour and minor sub assembly, to the Tier 1 supplier for use in the production of its components. The Tier 3 supplier sells engineered raw materials, such as rolls of sheet steel, to the Tier 2 supplier. It is not uncommon for suppliers to straddle more than one tier. For example, a supplier may be a Tier 1 and Tier 2 supplier, selling some parts directly to an OEM and other parts to other Tier 1 suppliers.
In the Canadian automotive industry, just-in-time inventory and purchase orders containing little or no long-term purchase obligations are common.
Distribution and retail
Automotive companies typically contract with distributors and dealers to sell their vehicles, parts and accessories. The substantial majority of these distributors and dealerships are independently owned and the relationship with the distributor or dealer is governed by a written contract.
Automobiles are subject to various consumer protections. There is no ‘cooling-off period’ in Canada for motor vehicle contracts, so the consumer must be sure of his or her decision before signing the contract. In most cases, the contract will be binding. When a consumer buys a vehicle, the dealer must provide the most accurate information available about the vehicle’s history and key features. If the dealer omits certain information, the buyer will have 90 days to cancel the contract. Additional consumer protections apply when the purchase of the vehicle is financed, which is often the case.
The Canadian Motor Vehicle Arbitration Plan is a free arbitration programme from participating manufacturers. Vehicle dealers must let the buyer know if the car being purchased qualifies for this programme. If it does, the programme can assist the consumer in dealing with disputes about manufacturing defects.
Distribution
How are vehicles usually distributed? Are there any special rules for importers, distributors, dealers (including dealer networks) or other distribution partners? How do automotive companies normally resolve restructuring or termination issues with their distribution partners? [NTD: Heading 3?]
Agents and distributors
A foreign automotive company may wish to offer its products or services in Canada by means of an independent agent or distributor. An agent will usually be given limited authority to solicit orders for acceptance at the foreign head office, and will not normally take title to the goods or provide services to the customer. A distributor, on the other hand, usually takes title to the goods and offers them for resale, either directly to the customer or through dealers or retailers.
The relationship with an agent or distributor should be established by contract. Although provincial law does not generally prohibit the termination of an agent or distributor, the courts will require reasonable notice to be given, or damages in place of notice, in the absence of an agreed contractual term for the relationship. The nature of the relationship determines whether the arrangements are subject to franchise legislation.
Distribution and dealers
Distributors and dealerships, which are most often independently owned, are the most common intermediaries between automotive companies and the retail consumer and fleet markets. Dealerships primarily deal parts and accessories to retail consumers while authorised parts distributors primarily distribute parts and accessories to retailers. All provincial governments have some form of legislation regulating motor vehicle dealers. The nature of this legislation varies from province to province, as does its scope and comprehensiveness. The general aim of legislation concerning motor vehicle dealers is to regulate the trade in a valuable and dangerous commodity that is susceptible to theft and raises consumer protection issues, and to provide a compensation system in the event of a motor vehicle dealer’s misconduct.
Importers
With certain exceptions, all types of vehicles that Canadians import that are designed to be driven on public roads, and those designed for off-road use, must comply with the MVSA. Once modified (other than having general repairs or routine maintenance), the vehicle no longer maintains its original factory-issued certification. This certification is required for importation into Canada. Importing an electric or hybrid vehicle is no different from importing any other type of vehicle. The MVSA does not regulate shipments of individual parts, with the exception of tyres, child car seats and booster seats.
Franchising
Franchising is not as heavily regulated in Canada as it is in some other jurisdictions. In Canada, franchising is a purely provincial matter. About half of the provinces currently have franchise legislation in effect. While there are slight differences in the legislation and regulatory requirements of each province, they are all derived ultimately from the US model of mandated disclosure by a franchisor to prospective franchisees, coupled with a duty of good faith and fair dealing owed by each party to the other, and a right of franchisees to associate freely among themselves.
Mergers, acquisitions and joint ventures
Are there any particularities for M&A or JV transactions that companies should consider when preparing, negotiating or entering into a deal in the automotive industry?
M&A
As in any other industry, a threshold question in an automotive acquisition is whether to purchase shares or assets. In addition to the usual considerations, a purchaser and vendor of an OEM or parts manufacturer may want to proceed by way of share purchase to avoid the right of members of the dealer network to consent to the assignment of the dealership agreements.
In the case of an acquisition of a large OEM or parts manufacturer, regulatory considerations are important, particularly potential pre-clearance under the Competition Act and, in certain cases, the Canada Transportation Act. Foreign investments will be subject to filing and potential approval under the Investment Canada Act (ICA) and in some cases may be subject to a national security review under the ICA. In addition to such regulatory approvals, third-party consents from dealers, suppliers, landlords, equipment owners, creditors and shareholders are typical. Under most Canadian corporate statutes, if a sale involves the disposition of all or substantially all of a corporation’s assets, shareholders must approve the transaction by special resolution.
Joint venture structuring
As is sometimes done in the Canadian automotive industry, two or more parties may engage in a JV or syndicate where they collaborate in a business venture. There is no specific statutory definition or regulatory scheme for JVs, at either the provincial or federal level, although they are not uncommon. A well-known Canadian example of a JV is a large OEM assembly plant, Canadian Automotive Manufacturing Inc (CAMI). CAMI is now owned by General Motors but commenced as a JV with Suzuki. Given the high capital cost, the model for EV battery manufacturing plants, such as a new plant announced by Stellantis and LG Energy Solutions, may be done by way of a JV.
Incentives and barriers to entry
Are there any incentives for investment in the automotive market? Are there barriers to entry into the market? What impact may new entrants into the market have on incumbents?
Incentives for investment
Canadian automotive manufacturers are recognised for their strong capacity in launching complex and advanced automotive manufacturing projects due to their world-class plant and labour quality. Canadian assembly plants have won one-third of all J.D. Power plant quality awards in North America. The industry is highly concentrated in Ontario, with manufacturing centres also located in Quebec, Manitoba and British Columbia.
Foreign investors rely on strong supplier and research capabilities in lightweight metals, biomaterials and composites, advanced safety systems, software and connected cars, alternative powertrains (EVs, fuel cells, natural gas and biofuels) and vehicle safety and testing. Manufacturers that do research and development in Canada take advantage of Canada’s Scientific Research and Experimental Development Tax Incentive Program.
The Canadian federal and Ontario governments have expressed a strong desire for companies to locate EV battery manufacturing and assembly plants in Ontario. In 2023, Volkswagen announced the establishment of its first overseas EV battery manufacturing plant in Ontario pursuant to which it may receive up to C$13 billion in incentives from Canadian governments. Similarly, in a high-profile JV, Stellantis and LG Energy Solutions announced a new EV battery plant pursuant to which it may receive up to C$15 billion in incentives from Canadian governments. Other programmes are in place at the retail level in some Canadian jurisdictions to incentivise the adoption of new technology.
Barriers to entry and new entrants
The ICA is a federal statute of broad application regulating investments in Canadian businesses by non-Canadians. Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the ICA. The rules relating to an acquisition of control and whether an investor is ‘Canadian’ are complex and comprehensive.
Subject to certain exceptions, an acquisition of a Canadian business by a non-Canadian investor controlled by persons who are residents of World Trade Organization member countries (WTO investors) is reviewable where the enterprise value is C$1.326 billion or more. There are additional restrictions in place in respect of certain prescribed circumstances, such as investments by non-WTO investors or by state-owned enterprises, and investments that may pose a national security risk.
Product Safety and Liability
Safety and environmental
What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?
Product compliance and safety
The Motor Vehicle Safety Act (MVSA) contains broad powers for Transport Canada to order manufacturers to submit a notice of defect or noncompliance when Transport Canada considers it would be in the interest of safety. According to guidelines on compliance issued by Transport Canada, the Motor Vehicle Regulations Enforcement Branch is empowered to conduct ‘post-market surveillance and oversight of the regulated community through programs of compliance inspection, testing, corporate audits and the investigation of alleged safety-related defects and recall monitoring’.
National Safety Marks (NSMs) are used to indicate the compliance of a vehicle or equipment with the MVSA and the related regulations and safety standards. Transport Canada authorises their use and any company that intends to use an NSM must apply to Transport Canada to obtain this authorisation.
The Canada Motor Vehicle Safety Standards (CMVSS) prescribe the minimum performance levels that vehicles and equipment must meet. Each CMVSS standard includes performance requirements against which regulated vehicles and equipment are measured and compliance is determined. These standards may include Transport Canada approved Motor Vehicle Safety Test Methods, Technical Standards Documents or third-party published test methodologies.
The Defect Investigations and Recalls Division has a mandate under the MVSA to investigate complaints relating to alleged manufacturing safety defects. At times, these investigations may lead to safety recall campaigns or safety advisory publications.
Environmental regulations
Vehicular greenhouse gas emissions (GHG) in respect of light-duty vehicles are regulated under the Canadian Environmental Protection Act. In May 2018, the federal government introduced new regulations under that Act establishing more stringent greenhouse gas emission standards for heavy-duty vehicles and engines.
In 2017, a federal government agency, Environment and Climate Change Canada, released a regulatory framework outlining the proposed design of Canada’s Clean Fuel Standard, which is aimed at assisting in meeting Canada’s goal of lowering GHG to a target of 30 per cent below 2005 levels by 2030 as part of Canada’s participation in the Paris Agreement. The Clean Fuel Standard will include reductions in the carbon footprint of transportation fuels and will require increases in renewable fuel content or the purchase of credits that can be generated through the deployment of energy sources that offset fossil fuels, such as EVs.
Product liability and recall
Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?
Product liability
There are three key categories of claims typically made in the nature of product liability claims:
• claims against manufacturers alleging negligence in the design or manufacture of vehicles;
• claims against manufacturers and dealers alleging the breach of express or implied warranties of fitness and quality; and
• claims against manufacturers and dealers seeking consumer protection remedies based on unfair business practice provisions of consumer protection legislation or breach of the misleading advertising provisions in the federal Competition Act.
In negligence, a plaintiff may recover for bodily injury or property damage (and in some specific circumstances, economic loss) if the plaintiff can establish a duty of care, a breach of the applicable standard of care and damages caused by the alleged breach. These claims typically assert negligence in design, manufacture or failure to warn potential users of the product’s inherent dangers.
A party to a purchase or supply contract is entitled to sue for damages for breach of contract or breach of an express warranty, or both, if the product does not comply with express contractual or warranty terms. In some jurisdictions, legislation imposes implied warranties regarding the fitness and quality of the automotive products sold. This legislation commonly prohibits exclusion of the statutory warranties and conditions from contracts for the sale of products to consumers. In some jurisdictions, legislation implies statutory warranties in favour of consumers by manufacturers and others in the distribution chain in certain circumstances, even in the absence of contractual privity.
The federal Competition Act provides a civil right of action for damages caused by misleading advertising in specific circumstances.
Some provincial jurisdictions provide remedies to consumers against automotive dealers, manufacturers or distributors for ‘unfair practices’, including the making of false, misleading or deceptive representations. Provincial consumer protection legislation may provide consumers with relaxed criteria for recovery.
Class actions
It is not uncommon for a class action alleging negligence and breach of express or implied warranties to follow a product recall. Class actions seeking consumer protection remedies are also common. To date, many class actions have been certified but relatively few class actions have proceeded to trial in Canada (outside Quebec), though this number has increased in recent years. It remains to be seen whether the availability of class actions will result in larger punitive damage awards or other changes in substantive laws.
Disputes
Competition enforcement
What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?
Participants in the automotive industry must ensure compliance with Canada’s Competition Act, the key legislation in Canada that regulates competition. The Competition Act includes provisions that regulate civil practices (such as mergers, refusals to deal, price maintenance, exclusive dealing, tied selling, abuse of dominance, competitor collaborations and deceptive marketing practices) and those that prohibit criminal conduct (including conspiracies, bid rigging and criminal misleading advertising practices).
Over the past few years, one of the key issues for the automotive industry has been the enforcement activity of antitrust regulators in the automotive parts sector. Specifically, numerous investigations have been launched by antitrust regulators around the world concerning alleged conspiracies and bid-rigging arrangements entered into among various suppliers for the sale and supply of automotive parts. These investigations have resulted in convictions and fines, including in Canada. To date, the Canadian Competition Bureau’s investigations have resulted in multiple guilty pleas and over C$80 million in fines imposed by courts.
The investigations in Canada, and around the world, have led to significant follow-on civil litigation. Section 36 of the Competition Act provides that any person who has suffered loss or damage arising out of conduct that contravenes the criminal provisions of the Competition Act has the right to commence a private right of action to recover the damages suffered, plus legal costs. Class actions alleging conspiracies and bid-rigging arrangements relating to approximately 40 different automotive parts have been launched in British Columbia, Saskatchewan, Manitoba, Ontario and Quebec. These actions seek millions of dollars in damages from the defendants (automotive parts suppliers) on behalf of both direct purchasers of the alleged cartelised products, such as OEMs, and indirect purchasers, such as consumers who purchased automobiles during the proposed class period.
Dispute resolution mechanisms
What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?
Disputes in the automotive industry generally arise in three contexts: vehicle owner or lessee claims against manufacturers, distributors and dealers; claims between OEMs and their dealer networks; and claims involving OEMs and their suppliers.
Vehicle owner and lessee claims
In Canada, automotive owner or lessee claims take many forms including class action civil suits by one or more plaintiffs seeking to represent a class of owners or lessees of vehicles. These representative plaintiffs commence a civil action alleging a class-wide product defect in the manufacture or design of a vehicle model or some specific part of a vehicle or alleging breaches of consumer protection legislation provisions implying warranties or prohibiting ‘false’, ‘misleading’ or ‘deceptive’ practices. These claims seek compensation or other relief against manufacturers or distributors, or both, on behalf of the entire class. In Canada, product liability class actions will often be commenced in concert with similar proceedings in the US and, increasingly, recalls of vehicles in the industry will lead to class action proceedings where a plaintiff is seeking additional economic loss damages that extend beyond the repairs called for in the recall notice.
In addition, the courts deal with many individual personal injury or property damage civil suits alleging that a product defect caused damage, usually personal injury or property damage. Another source of litigation is individual warranty claims in which vehicle owners or lessees allege defects in the manufacture of a vehicle that are not adequately repaired by a manufacturer under warranty. For these disputes, owners or lessees may seek binding arbitration under the Canadian Motor Vehicle Arbitration Plan, an arbitral process set up by participating Canadian manufacturers, which is available at no charge to consumers and can be accessed by consumers in all provinces and territories in Canada.
OEM versus dealer claims
In provinces where franchise laws apply, duties of good faith and fair dealing are imposed by statute on the OEM and the dealer. Some disputes between manufacturers and dealers in the automotive industry are determined in the courts, but most are not because roughly 90 per cent of Canada’s automobile dealers have agreed to participate with their manufacturers in a nationwide mediation and arbitration plan called the National Automobile Dealer Arbitration Program.
OEM versus supplier claims
Disputes between OEMs and their suppliers can be determined in court proceedings in Canada, but most supplier agreements will include mandatory mediation and arbitration clauses that require that disputes be determined by way of private alternative dispute mechanisms. The exception is when suppliers are added as third parties to ongoing court proceedings involving product liability and product quality claims made by consumers against OEMs. Increasingly, manufacturers are pursuing suppliers in claims for contribution and indemnity in the context of product liability and product quality class action proceedings as well as other civil product liability proceedings.
Distressed suppliers
What is the process for dealing with distressed suppliers in the automotive industry?
The statute of choice for the restructuring of an insolvent company of any size or complexity is the Companies' Creditors Arrangement Act (CCAA). The CCAA is federal legislation and the functional equivalent to Chapter 11 of the US Bankruptcy Code, although there are some important technical differences. Generally, to qualify as an applicant under the CCAA, a debtor company (or the corporate group of which it is a part) must be insolvent (on a balance sheet or cash flow basis) and have in excess of C$5 million in debt. The CCAA allows for wide judicial discretion and relief can largely be tailored to fit the specific needs of a particular case.
A supplier subject to CCAA protection is granted a stay of proceedings which stays all litigation and creditor collection actions. The distressed supplier can seek to either sell its assets and business (either on a liquidation or going concern basis) through a court-approved process or restructure its business and affairs through a plan of compromise and arrangement. If the court is satisfied that certain commercially reasonable steps have been taken to obtain the highest and best price for a supplier's business and assets, the court can approve a sale free and clear of any liens and encumbrances, without any creditor vote. The views of the court-appointed monitor (an insolvency professional typically at a financial advisory or accounting firm) overseeing the proceedings will be an important consideration for the court. If the sale is approved, the liens and encumbrances will then attach to the proceeds of sale in the same priority to which they attached to the assets, immediately prior to sale. If the distressed supplier wishes to pursue a plan to, for example, rationalise its balance sheet, the plan must be passed by the majority (in number) of creditors voting on that plan, representing two-thirds (in value) of the creditors that vote on the plan, in each affected class.
Generally, a Canadian court cannot order a supplier to a debtor company to advance 'further credit' following the CCAA filing. Suppliers are entitled to payment on delivery. Also, if a party is not under a continuing legal obligation to supply or provide services, it cannot be compelled to supply to the debtor following the filing, even if the debtor is prepared to pay on a cash-on-delivery basis. Thus, in certain circumstances, the court may authorise the payment of 'prefiling debt' to certain vendors to induce them to continue the provision of goods or services to the debtor during the restructuring. One exception to this rule is if a supplier is deemed to be a 'critical supplier'. If certain criteria are met, the court can order the critical supplier to continue to supply on credit, provided the supplier is granted a charge on the assets of the debtor company to secure payment.
In the case of an insolvency of an automotive parts supplier, a large proportion of these critical supplier payments are made to tooling vendors. The Tier 1 and Tier 2 suppliers will often act as a general contractor for building tools and outsource construction to specialised tool builders. As a result, critical supplier payments could be required to induce the contractor to finish or release the tools. This is of greater significance if the tools are needed for an upcoming product launch.
Intellectual property disputes
Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?
Automotive companies generally own their own licences to use numerous patents, copyrights and trademarks on a global basis. Automotive companies often have policies to protect their competitive position by, among other methods, filing international patent applications to protect technology and improvements that the companies consider important to the development of their businesses, including the filing of patents under the Canadian Patent Act.
Non-practising entities, more commonly referred to as ‘patent trolls’, are a large issue in Canada. This is increasingly so in the automotive industry given the proliferation of communications technology in automobiles. Patent trolls typically acquire patent rights that are perceived to be infringed by the industry at large. Since the cost of patent litigation can be millions of dollars, patent trolls often propose a quick settlement that is less than the potential cost of litigation. A sophisticated intellectual property strategy – namely, having strong intellectual property protections in place – can minimise the effect of patent trolls.
Employment Issues
Trade unions and works councils
Are there specific employment issues that automotive companies should be aware of, such as with trade unions and works councils?
With certain notable exceptions, most hourly workers in the Canadian automotive manufacturing sector are unionised. Unionised workers are covered by collective bargaining agreements, which are negotiated by the original equipment manufacturer and parts manufacturers periodically with various unions. Many automotive manufacturing workers are members of large unions such as Unifor (resulting from the 2013 merger of the Canadian Auto Workers union and the Communications, Energy and Paperworkers Union of Canada), currently with over 300,000 members.
Collective bargaining agreements grant guaranteed wage and benefit levels and provide members with a significant level of job security. Unions have often negotiated with automotive companies in Canada for defined benefit pension plans and other benefits and perquisites that have significant employer costs. Unionisation and the terms of collective bargaining agreements may restrict the ability of automotive companies to close plants, divest businesses and outsource functions. Employment of unionised employees generally transfers automatically on the sale of a business, as the purchaser remains bound by the terms of the collective bargaining agreement in place at the time of the sale.
Aside from unionisation of automotive workers, Canadian employment law is unique. Unlike in some other jurisdictions, there is no at-will employment in Canada. Absent valid contractual provisions limiting the employee’s termination entitlements to minimum statutory amounts, non-union employees are entitled to ‘reasonable notice’ of termination or payment in lieu of such notice. Termination entitlements for employees tend to be much higher in Canada than in other jurisdictions. Also, on an asset transaction, the employment of non-unionised employees does not transfer automatically, other than in the province of Quebec. Employees must be offered and accept employment with the purchaser. The defined benefit and contribution pension plans that are maintained by many Canadian employers to supplement the federal Canada Pension Plan may be subject to various federal and provincial legislation. Relevant to the acquisition of a Canadian automotive business, these rules govern such things as recognition of an employee’s past service and transfers of plan assets.
New Technologies and Mobility
Legal developments
What are the most important legal developments relating to automotive technological and mobility advances?
Driving and safety are regulated in Canada by the provincial governments. Automated vehicles (AVs) equipped with Society of Automotive Engineers’ (SAE) international driving automation Level 3 may now be legally driven on roadways in Canada’s two most populous provinces, Ontario and Quebec. In addition, both provinces have pilot projects in place to permit limited use of SAE international automation Level 4 and Level 5 AVs. Other provinces, such as British Columbia, Alberta, Saskatchewan, Manitoba and Nova Scotia have some legislation at the provincial or municipal level allowing for the driving of some AVs.
Ontario also has a separate pilot programme for cooperative truck platooning. A cooperative truck platoon means two or more commercial motor vehicles that use an advanced driver assistance system and vehicle-to-vehicle communication system to travel in a convoy where the vehicles steer, accelerate and brake cooperatively and synchronously.
At the federal level, Transport Canada is engaged in several initiatives relating to the safety and testing of automated and connected vehicles, and published the following two documents in February 2019: Canada’s Safety Framework for Automated and Connected Vehicles; and Safety Assessment for Automated Driving Systems in Canada. These new reports complement work outlined in two other recently published documents: Automated and Connected Vehicles Policy Framework for Canada (released in January 2019 by the Council of Ministers Responsible for Transportation and Highway Safety); and Testing Highly Automated Vehicles in Canada: Guidelines for Trial Organizations (released in June 2018 by Transport Canada).
Update and Trends
Trends and new legislation
Are there other current legal developments, emerging trends or pending legislation relevant to the automotive and mobility industry that should be noted?
Cybersecurity protection has been a major area of concern for the automotive sector. The threat is particularly meaningful to the manufacturers of autonomous vehicles as the sensors in those vehicles collect vast amounts of sensitive data about the vehicles and the people in them. It is recommended that companies have an information technology security policy, data governance framework and cybersecurity incident response policy in place, that employees receive appropriate training and that insurance coverage is obtained.
Another area that has garnered much attention among Canadian automotive sector manufacturers and retailers is the new federal modern slavery legislation, the Fighting Against Forced Labour and Child Labour in Supply Chains Act. Since the legislation came into force on 1 January 2024, reporting entities are required to complete and submit to the federal government a mandatory online questionnaire and report about the measures they have taken to address and prevent forced and child labour in their supply chains during the previous fiscal year.
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