Canadian Employment Law for U.S. Employers

Phil White is an employment lawyer practicing in Toronto. He can be reached at pwhite@grosman.com or 416.364.9599

Phil White is a Toronto employment lawyer. He can be reached by email at pwhite@prwlaw.ca or by phone at 416.613.1381 or 1.888.350.9204 (toll-free)

The following questions are often raised by foreign employers contemplating hiring employees in Canada:

Is Law of the Workplace the Same Across Canada?

Each Canadian province has jurisdiction over the employment laws governing the vast majority of employees and employers. The exception would be employees working for certain federally regulated industries such as airlines, inter-provincial transportation, and banking where the federal government has jurisdiction.

The Canadian provinces other than Quebec are common law jurisdictions. The courts in each of the common law provinces will often cite court decisions from other provinces when passing judgment resulting in a fairly consistent application of the law across the common law provinces in Canada. 

In each of the provinces certain aspects of the common law have been altered by statute. For example, each province has a statute that sets out minimum employment standards as well as human rights and health and safety legislation. Although these provincial statutes are broadly similar they do differ in specific details from province to province.

Is a Written Employment Contract Required In Canada?

Although not mandatory employers operating in Canada are strongly advised to have their employees sign a well-drafted employment contract prior to the individual joining the company. If the employment contract does not address key employment terms the courts in Canada will, based on the common law, imply these key terms into the employment contract. These implied terms are generally very much in favor of the employee.

Can We Use Our U.S. Employment Contracts In Canada?

It is a mistake to have employees in Canada sign employment contracts drafted in the U.S.  The result is likely to be that the employment contracts are not compliant with Canadian law and will not be enforced by a Canadian court. Instead, the court will apply common law principles to reach judgment.

Clause in contracts drafted in the U.S. that are most likely not to be enforced by a Canadian court are termination clauses and restrictive covenants (non-competition and non-solicitation clauses). 

How Important are Termination Clauses in Employment Contracts?

If an employment contract does not contain a termination clause a Canadian court will read into an employment contract an implied term that the employee is entitled to reasonable notice of dismissal or pay in lieu of reasonable notice. Severance packages in Canada are significantly richer than that typically offered in the U.S. The maximum notice period awarded to employees is generally 24 months and is usually reserved for senior, long service employees. Short service employees may be entitled to significantly more than one month’s notice for every year of service.

To determine an employee’s entitlement to reasonable notice, a court will consider the employee’s age, length of service, skill set and responsibilities, and the availability of similar employment. The courts are supposed to weigh each factor equally although, in practice, courts often award employees something close to one month’s notice for every year of service.   

The dismissed employee has a legal obligation to seek new employment and any employment income earned by the dismissed employee from another source during the notice period will be deducted from the award.

Employers who wish to avoid providing their dismissed employees with reasonable notice may do so by inserting a termination clause into their employment contracts that set out another method for calculating the employee’s notice period upon dismissal. However, the termination clause must be in compliance with the various provincial employment standards acts, all of which set out an employee’s minimum entitlement to notice and severance of termination. If the termination clause does not meet the minimum notice period set out in the applicable statute, a court will strike the termination clause from the employment contract and award the employee reasonable notice of dismissal. For that reason, it is critical that any employment contract be reviewed by an employment lawyer to ensure that it will be in compliance with the legislation.   

It is also important that the termination clause be inserted into the employment contract prior to the individual accepting employment with the company. If the company attempts to insert a termination clause into the employment contract after the employee has already joined the company, a court may refuse to enforce it because the altered terms are not supported by the necessary fresh consideration to form a binding contract (normally, continued employment is not considered the fresh consideration).

What Types of Employment Legislation Exists In Canada?

In addition to traditional common law protections enjoyed by non-unionized employees in Canada, the Canadian provinces have enacted various legislation designed to protect employees, including Health and Safety and Human Rights legislation and, in some provinces, Pay Equity legislation. In addition, the provinces have also enacted statutes that set out minimum employment standards, most commonly referred to as the Employment Standards Act, although some provinces refer to their equivalent statute using another name, (“ESA”). The ESAs in each of the provinces are similar but may differ in certain details. In this regard, all of the ESAs deal with a wide variety of employment related issues including, but not limited, to:

  • termination of employment;
  • maximum hours of work;
  • minimum wage;
  • public holidays;
  • paid vacations;
  • leaves of absence;
  • sick leave, family medical leave, parental leave etc.;
  • overtime pay; and
  • payment of wages.

It is important to understand that the ESA is minimum standards legislation that sets out the minimum rights and entitlements that an employer must provide to its employees. In this regard, it is illegal for an employer to provide an employee with less than that set out in the ESA, even if the employee voluntarily agrees to accept less. Significantly, however, the ESA does not set out an employee’s maximum rights or entitlements.  An employee may enjoy greater rights and benefits either pursuant to the employee’s employment contract or at common law. For example, the Ontario ESA only requires that an employee receive 2 weeks of paid vacation per year.  However, an employee might be entitled to more than 2 weeks of paid vacation pursuant to the terms of the employee’s contract of employment.

Not all employees are covered by the ESA, depending on the specific provision in the ESA and the province in which the employee works.  For example, in Ontario, employees are entitled to overtime pay if they work more than 44 hours per week.  However, managers, professionals, information technology employees and many commissioned sales people are not entitled to overtime pay.

Although employees may enjoy significantly greater entitlements either at common law or pursuant to their employment contracts, employees will often seek to enforce their more modest rights under the ESA because the complaint process is free of charge.  For example, in Ontario, if an individual initiates a complaint under the ESA an officer will be sent to investigate the complaint and, if necessary, order compliance with the legislation.  In contrast, an employee who wishes to enforce a contractual or common law right must do so by way of a potentially costly and time-consuming civil action.

As an example, the Ontario ESA sets out the following minimum standards:

  • termination of employment (a formula is applied based on years of service); maximum hours of work (48 hours per week);
  • minimum wage ($11.00 per hour);
  • public holidays (9 days);
  • paid vacations (2 weeks per year);
  • leaves of absence sick leave, family medical leave, parental leave etc.; and
    overtime pay (time and a half for every hour over 44 hours per week).

What Are the Most Significant Employment Related Considerations When Purchasing Business Assets in Canada?

If business assets have been purchased in order to allow the purchaser to operate the business assets as a going concern and the purchaser hires the employees of the vendor, the courts will presume that the purchaser recognized the employees’ previous service with the vendor for the purposes of determining the employees’ notice period, whether pursuant to the terms of an employment contract or at common law.  This presumption may only be rebutted by clear language in the employment contract that the vendor will not recognize the employee’s prior service.

However, most provincial employment standards legislation also mandate an employee’s prior service with the vendor be recognized for the purpose of determining the employee’s minimum statutory notice entitlements upon termination (an employee’s entitlement to notice of dismissal pursuant to the applicable provincial employment standards legislation will likely be significantly less than the employee’s entitlement to reason notice at common law.