FAQs for US Employers in Canada

While we may share a love of hockey, beer and Justin Bieber, there remains many intangible cultural and legal differences between Canadian and US employment law.  Given the global nature of most of the clients I work with, I frequently advise US employers on the subtle - and sometimes not so subtle - distinctions between our legal landscapes.

Here are a few of the more common questions:

1.  Which laws apply to our Canada-based employees?

It will depend on which province the employee works in, as well as the type of industry.  Section 92(13) of the Constitution Act, 1867 lays out the list that divides the powers up between the provinces and federal government. 

Keep in mind the context of when and where this list was made:  in 1867, Canada (finally) became a country, there were only four provinces (the largest of which was a French, catholic population), and there was a quasi-alcoholic anglo prime minister in Ottawa (which was essentially in the middle of the forest to avoid attack by the Americans) who was trying to hang on to the areas that would consolidate political power, while encouraging economic growth and political support in the regions.  So, railroads, banks, postal service, telegraphs, shiplines and the military, for example, are governed by the federal government. 

"Property and civil rights", however, falls under provincial jurisdiction, and over the years, as been read more and more broadly, contributing to the growing decentralization of powers since the country's 19th century birth.  To make a long constitutional story short, labour and employment falls under this category, so that by default, the provincial laws usually apply (unless your industry was useful to the federal government in 1867, as per preceding paragraph).  Wikipedia has an article on Canadian federalism if you are keen to know more.

2.  There is no "at-will" employment in Canada?  I can't just fire anyone I want??

Actually, employers can usually fire all they want, but it will be very, very expensive.  The biggest difference between US and Canadian employment law is that we do not have "at-will" employment north of the border.  Every employment relationship is deemed to be based on an employment contract.  An employer breaches the employment contract if it terminates an employee without sufficient notice, giving rise to an entitlement to the employee for damages.

3.  Isn't the employment contract just the signed agreement between the parties?

No, the employment contract can be express or implied, written or oral, and ultimately, all  workplace documents, handbooks, policies, offer letters, etc. form part of the terms and conditions of employment.  Employees can therefore initiate legal claims for promises made in any of these workplace documents, such as benefits, compensation, and vacation days. 

4.  Why should an employer bother making an employment agreement?

While employees can rely on the employment agreement to enforce rights, by far the most important advantage to employers is to limit the scope of the package upon termination.  While an employer cannot contract out of the minimum requirements set out in the various employment law statutes, the parties can agree to cap such payments slightly above the statutory minimums.  It also enables the parties to articulate other workplace expectations such as compensation, vacation, hours of work, reporting structures and other factors important to a particular workplace.

5.  There's no employment contract, so why do I have to pay termination pay?

Welcome to Canada!  Land of the termination payment!  All Canadian jurisdictions have employment law statutes that set out the minimim notice an employer must give an employee if it wants to end the employment contract.  An employer can instead pay out that notice, provided the minimums in the statute are met. 

In the absense of an employment contract that contains a termination provision, on top of the statutory minimums, the courts will award a "common law" amount.  This is the amount that adjudicators over the years have awarded to employees above the statutory minimums.  Thus, an employer can pay out the statutory minimum only, but the significant risk is that the employee will take his or her termination letter to a lawyer, who will advise that the employee should sue for the amount above the statutory minimums.

This area is by far the greatest source of employment litigation in Canada.  Typically, a plaintiff lawyer will first take a look at any of the employment contracts to see what can be attacked and rendered void to get access to the "common law" damages, so it is always a good idea to seek legal advice when both drafting the original employment contract documents, as well as when developing a termination package for an employee. 

6.  One of my employees is not working out.  Can I fire her and give working notice instead of a termination payment?

Employers must either provide sufficient notice (i.e. "working notice"), or make a payment in lieu of notice that required notice.  Some employers want to give notice that the position will end in X weeks, and then expect the employee to remain motivated, loyal and cheerful until that end date. 

See my post from July 2010 on working notice - I'm not a big fan for all kinds of practical reasons, most of which turn on the reality that most do not want to keep working when they've just been fired.  More often than not, it will be cheaper, less hassle and less risk to your business information and operations to simply pay out the employee and have a clean break.

7.  "My employee takes SO much vacation - like, 3 or 4 weeks a year!"

This is actually an exact quote from one client.  Again, welcome to Canada!  While we are no France, it is quite standard to take at least 3 or 4 weeks a year.  And yes, women tend to take more than 3 hours off for maternity leave.  And heck, occasionally men do too. 

8.  Can a salaried employee claim overtime pay?

Entitlement to overtime pay is based on the tasks performed in the job itself, not whether the employee is categorized by an employer as salaried or hourly.  Typically, all employees are entitled to overtime, unless an exemption (such as managerial employees) applies.  The exemptions are generally applied more narrowly than the US overtime laws.

9.  Where are all of your class action suits?

While class actions for employment claims are nowhere near the popular vehicle that they are in the US, there have been a number of claims in Canada, particularly dealing with overtime and with pension/benefit issues.  Individuals have a number of employee-friendly avenues of recourse in Canada, so it's unlikely we'll see the heavy use of class actions as a legal vehicle up here anytime soon.

10.  Does everyone speak French in Canada?

Non, pas tout le monde parle le français au Canada.  Okay, I admit that no client has ever asked me this, but I do get questions about managing a workplace in Quebec.  Let's just start by saying that Quebec, Canada's French speaking province, is different than any other place on earth.  Quebec has some of the oldest, deeply held culture on the continent, which, as an aside, is partly why there continues to be such a robust, home-grown music and arts scene in Montreal.  Who doesn't love Arcade Fire, after all?

Quebec continues to comprise of approximately a quarter of the Canadian population, and yes, pretty much everyone in Quebec speaks at least conversational French.  Immigration, sign and education laws all foster the use of French throughout the province.

In addition to a language difference, Quebec's legal system is based on the civil code, rather than the common law.  While overall the approach to employment law is similar, there are always unique nuances that requires the expertise of a bilingual lawyer called to the bar in that province.  (And yes, there is such an expert a few doors down from me in my office, if you should require such expertise.)

11.  What's up with the Queen?

Yes, statistically, many Canadians (mostly outside of Quebec) still love the Queen, who technically remains the head of Canada.  We went wild when Will and Kate visited us this past summer.  I recently heard that the magazine Hello Canada (which is clearly a front for the Monarchy) is the second highest selling magazine in Canada.  We're a generally non-rebellious, rule-following culture up here.  The Queen and her matching hats and handbags make us feel good and proper about the universe.

12.  Did you guys really burn down our White House?

Yup, on August 14, 1814 - the only time a foreign power occupied the US capital.  To be fair, the US started it, burning and looting York (now Toronto) in 1813.  

 

To my US readers, this FAQ list is just a starting point for discussion.  Please feel free to send me your questions about expanding into Canada and/or about handling HR issues in Canada.  I'll continue to add to this list as they come in.

 

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Working Notice: Rarely the Perfect Solution

Working notice is like eating at a cheap buffet restaurant - it's inexpensive, and it seems like a good idea at the time, but the meal doesn't taste so great within a short period of time.  This usually applies to both employers and employees.

I often have employer clients looking for a way to lower the cost of dismissing more expensive employees by providing some or all of the notice in working notice, rather than paying out the full amount owed in cash. 

No "At Will" Employment In Canada

For American clients in particular, the cost of terminations in Canada can often seem quite high.  We do not have an "at will" employment concept in Canada, so if an employer wishes to dismiss an employee without cause (for business restructuring, redundancy, etc), the employer is essentially breaking the employment contract, which the courts otherwise deem to be a permanent long-term relationship.  In order to break that contract, the employer must either give working notice to the employee or make a payment in lieu of that notice

How Much Notice is Required?

Most employment law is governed by provincial statutes, so the amount of notice varies slightly from province to province.  In Ontario, there are four sources of notice that could dictate the amount of notice an employer must provide to an employee:

1.      Employment Contract – if the parties entered into an employment contract that contains a termination provision, the terms of that contract will apply and will trump any common law (i.e. court) amount or amount required by the Ontario Employment Standards Act (ESA) (assuming the employment contract provides more than that set out in the ESA).  This generally applies in the unionized context where the collective agreement will dictate the terms of termination.

2.      Termination Pay – the ESA requires that an employer provide 1-8 weeks of notice (or pay in lieu), depending on the years of service of the employee.  Termination Pay can either be pay in lieu of notice, or can be provided as a notice period during which the employee is required to continue working.  The Ontario Ministry of Labour website provides details on dismissals and the ESA.

3.      Severance Pay – in Ontario, an employer must pay Severance Pay in the amount of a week of pay for each year of service (up to a maximum of 26 weeks) if the following apply:  the employee was employed by the employer for 5 or more years and (i) the employee is one of 50 or more employees terminated because of a permanent discontinuance of all or part of the business, or (ii) the employer has a payroll of $2.5 million or more.  Severance Pay must be provided as a lump sum payment and cannot be provided as working notice.

4.      Common Law – The ESA provides the minimum amount employers must provide to employees.  Courts will generally award more, taking into consideration an employee’s age, length of service, type of employment and availability of similar employment.  Often the common law amount will be in the range of 3-5 weeks of notice for each year of service, depending on the circumstances.  This is inclusive of any ESA amounts, not in addition to ESA amounts.

As an example, an employee without an employment contract with 30 years of service at a company with a payroll of at least $2.5 million will be entitled to 8 weeks of Termination Pay and 26 weeks of Severance Pay as a minimum.  That’s without considering what a court would offer on top of the ESA amounts.

Payment or Working Notice?

Unless the employment contract says otherwise, and other than Severance Pay which must be paid out as a lump-sum payment, an employer can offer all of the notice as working notice rather than pay.  The question is, do you really want to?

Generally, employees prefer the pay in lieu of notice.  No one wants to working under the cloud of dismissal, and the clean break gives the employee the time to move on and find a new job.

Generally, employers want to save the money by giving working notice, but here are some of the reasons why many employers in fact opt for the pay in lieu of notice:

  • no bang for your buck  - rarely does an employee retain his or her enthusiasm for the job and productivity inevitably goes down;
  • workplace sabotage - in highly sensitive positions, it is often best to make the clean break so that the employee is not tempted to take business secrets, confidential data or company property with him or her prior to the end of the working notice period;
  • the business must go on - if the reason for the dismissal is to bring in fresh talent, why wait out the many months for the employee to finish up the working notice period when you could bring in the fresh talent asap; and
  • workplace morale – an unhappy employee on their way out may drag down your other employees and create an atmosphere of low morale.

One option is to combine working notice with a pay in lieu of notice.  If, for example, you have decided to give your 30 year employee 18 months notice, you could do 12 months of that notice by way of working notice and pay out the remaining 6 months at the end of the working notice period.  In this example, an employer would have to pay at least 6 months as a lump sum payment for Severance Pay in any event, so the combination may be a natural break down of the notice provided.

 

Cost Effective Decisions

 

At the end of the day, employers with employees in Canada should balance the cost of a dismissal without cause with the potential cost of litigation.  If a company offers a long-term employee little more than the ESA amounts, there is a high likelihood the employee will sue for wrongful dismissal.  Even if the court awards the employee only a small amount above the ESA requirements, the hassle, the costs of litigation and the invitation to other employees to do the same will not be worth the several weeks of extra pay a company could have included in the original dismissal offer to the employee.

 

Additionally, any taint of bad faith or poor treatment during the termination process will invite a court to increase its award.  By offering a decent dismissal offer in the first place, a company can hopefully avoid the scrutiny of the court and help contain costs.

 

Finally, it should be noted that none of the above applies if an employee has been dismissed with cause.  An employee who steals, who has a long record of discipline issues, or has engaged in a serious act of violence, for example, all may be grounds for dismissal with cause.  In that case, no payment or notice is required. 

 

The threshold of “with cause” is high in Canada, however, and an employer would be wise to think hard about whether it has sufficient evidence to prove dismissal with cause.  In the case of any doubt, offer a decent package and be done with it.

 

 

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