The Top Five Differences Between Canadian and U.S. Employment Law

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1 Canadian Employment Law 101 By Kristin Taylor The Top Five Differences Between Canadian and U.S. Employment Law Significant variations between Canadian and U.S. employment law, identified and explained to dispel some of the mystery that has perplexed American practitioners in the past. Canadians and Americans share the longest international border and the largest international trading relationship in the world. For some, there is virtually no border because we are so similar in so many respects. This is certainly the case with our legal systems both having evolved from English common law. The province of Quebec, similar to the state of Louisiana, is the exception as a civil law jurisdiction. Despite our many similarities, there are a number of very fundamental differences when it comes to employment law. Over the years, I have discovered that these differences frequently confound and astonish my American colleagues, and in some cases, they prompt a desire to move to Canada to work or a question about whether Canada is actually in North America as opposed to northern Europe. This article is intended to identify and to explain those significant differences between Canadian and U.S. employment law in an effort to dispel some of the mystery that has perplexed American practitioners in the past. Basic Principles As a Canadian, my subjective view is that Canadian employment law is simpler from the standpoint that there is generally one source for employment statutes and one set of courts that is appropriate for a wrongful dismissal. (I confess that despite years of legal drama watching and discussions with American colleagues, I am incapable of understanding state versus federal courts and which circuit matters.) Under Canada s Constitution Act, 1867, 30 & 31 Vict. c. 3, s. 92(13), authority over property and civil rights, which long ago was interpreted to include authority of employment and labour relations in Toronto Electric Commissioners v. Snider, [1925] A.C. 396, falls within the exclusive jurisdiction of the provinces. Only federally regulated employers, businesses, and undertakings meaning the federal government and certain specifically identified industries such as banking, telecommunications and interprovincial and international transportation companies are subject to federal laws insofar as their employees are concerned. Otherwise, there are no overarching federal laws of broad application. Instead, Kristin Taylor is a partner in the Employment & Labour Group of Cassels Brock in Toronto. She provides practical and strategic advice to employers on a wide range of employment matters including employee hiring, discipline and termination; severance packages; corporate restructuring; employment agreements and personnel policies; certification applications; privacy and Accessibility for Ontarians with Disabilities Act compliance; and employment standards and human rights issues. Ms. Taylor is a member of the DRI Employment and Labor Law and Women in the Law Committees and of DRI International. 68 For The Defense January DRI. All rights reserved.

2 most employers are subject to the laws of the province or the territory in which their employees work. Municipalities have no authority to make any laws or regulations that apply to employees. Each province and territory has its own set of employment laws. Each jurisdiction has established laws governing five key aspects of the employment relationship: 1. Employment standards that set minimum working conditions regarding minimum wage, hours of work, overtime, holidays, vacations and vacation pay, leaves of absence, notice of termination and severance pay similar to those found in the Fair Labor Standards Act and the Family Medical Leave Act of the United States; 2. Labour relations that govern employees rights to unionize and employers obligations insofar as unionized employees are concerned similar to the National Labor Relations Act; 3. Certain human rights that prohibit discrimination and harassment based on race, citizenship, sex, sexual orientation, age, disability, marital status, family status, and certain other grounds essentially akin to combining Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act into one statute; 4. Occupational health and safety akin to the Occupational Safety and Health Act; and 5. Workers compensation rights as each Canadian jurisdiction has in place a publicly funded agency that administers a no-fault insurance system for workplace injuries for which employers pay premiums as a percent of payroll. Some provinces also have enacted laws governing pay equity and employee privacy. Only federally regulated companies and companies that have contracts with the federal government valued at $1 million or more and regularly employ 100 or more employees are subject to laws regarding employment equity, which is Canadian for affirmative action. As you may have deduced, things become complicated for Canadian employers when they have operations in multiple provinces or territories. Although the employment laws of each jurisdiction are similar, they are not identical, and local advice is often needed. This is particularly so when it comes to the province of Quebec, which is both a civil law system and Francophone province. With that very cursory introduction to the foundations of Canadian constitutional law and statutory authority, let s turn to the top five differences between Canadian and U.S. employment laws. The Employment Contract First, Canadian and U.S. employment laws treat employment contracts differently. Based on how often I have removed statements to the effect that an employee handbook does not create a contract of employment and only a CEO can create a binding employment contract, I have deduced that there must be considerable advantages to avoiding an employment contract in the United States. In Canada, it simply cannot be done. As soon as an employer offers employment to a prospective employee and that prospective employee accepts the employment, a contract is created under Canadian law. Many of the rules of interpretation apply to an employment contract in the same way that they apply to a commercial contract. The principle of contra proferentum, for example, that holds ambiguity in language against the contract drafter virtually always the employer is frequently applied. The Supreme Court of Canada also has been very clear that unlike a typical commercial contract, there is an inherent imbalance of power in the negotiation of an employment contract that must be recognized. Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R This approach infuses how employment contracts are interpreted, often in favor of employees because of their vulnerability and lack of power. The contract of employment is made up of both express and implied terms and conditions. The express terms include the offer of employment, any formal written employment agreement, incentive plans, equity plans, option grants, benefits plans and policies, personnel policies and procedures, employee handbooks, codes of conduct, and confidentiality and non- solicitation agreements. Among the implied terms are the rights created by the statutes identified above, as well as certain rights and obligations that are implied by common law. On the employee-side, Canadian courts have determined that employees have an implied common law duty to protect the confidentiality of the employer s sensitive and proprietary information, even if it is not expressed in writing. Employees also As soon as an employer offers employment to a prospective employee and that prospective employee accepts the employment, a contract is created under Canadian law. have a duty of loyalty and good faith and a duty to avoid conflicts of interest. Senior, critical, fiduciary employees have additional duties imposed by common law during and after the termination of their employment not to compete unfairly. The fiduciary duty not to compete unfairly includes a heightened duty of confidentiality, a duty not to solicit employees or customers for a reasonable period of time after termination of employment, and a duty not to usurp corporate opportunities of which an employee became aware by virtue of the prior employment. It is important to note that non- solicitation obligations will not be implied for non- fiduciary employees. For a Canadian employer to protect its customer and employee relationships, it must have the employee sign a non- solicitation covenant for which consideration is required. On the employer-side, employers have an implied duty of good faith and fair dealing with their employees associated with the vulnerability created by the decision to terminate an employee s employment. Consistent with this is the implied obligation to provide an employee with reasonable notice of termination of employment, if cause does not exist for dismissal. It is For The Defense January

3 this entitlement that Canadian employees have to reasonable notice that triggers substantial severance payments and envy on the part of American colleagues. It is also the reason why having formal written employment agreements is actually a prudent and recommended practice for Canadian employers. Since an implied employment contract already exists, it Employees also have a duty of loyalty and good faith and a duty to avoid conflicts of interest. makes sense for an employer to control its terms to the extent possible. Formal written employment agreements are the only way for employers to avoid the imposition of generous implied obligations and entitlements. They also provide clarity and generally minimize the risk of litigation after termination of employment as it is permissible under the law, within the parameters set out below, to agree to less generous payments on termination and to have that agreement enforced. No At-will Employment and Employee Entitlements on Termination The concept of the employment contract in Canada is one of two reasons why atwill employment does not exist in Canada. This, and certain employee entitlements on termination, is my second major difference between Canadian and U.S. employment laws. To be clear, no Canadian employer has the ability to terminate a Canadian employee s employment at any time with or without cause and with or without notice, except within the first three months of an employee s employment. Even then, to be able to exercise that right, an employer must reserve it, in writing, when it offers employment. This is perhaps the most fundamental difference between Canadian and American employment laws. While employers are permitted to terminate employees employment without 70 For The Defense January 2015 notice for cause, cause has a very high threshold under Canadian laws. Under employment standards legislation in every Canadian jurisdiction, written notice of termination or pay in lieu of notice is required for the termination without cause of any employee with three months service or more. The statutory requirements vary across the country, but generally they equal roughly one week of notice or pay in lieu of notice for each year of service to a maximum of eight weeks. In Ontario, there are two additional obligations to note: (1) employers must extend benefits coverage, in addition to pay, when working notice is not provided, Employment Standards Act, 2000, S.O. 2000, c.41 (Can.) (ESA), s. 61; and (2) employers with an annual Ontario payroll of $2.5 million or more owe statutory severance pay to employees with five years of service or more calculated at the rate of a week s pay or part of it calculated per year of service and completed months to a maximum of 26 weeks pay. ESA, s. 64. In Paquette c. Quadraspec Inc., 2014 ONSC 2431 (CanLII), the Superior Court of Justice recently found that an employer s entire payroll, not just Ontario payroll, was relevant for the calculation of the $2.5 million threshold. Employment standards legislation generally cannot be waived by contract by employees; attempts to do so are deemed void. See, e.g., ESA, s. 5. This means that even if an employee agrees to at-will employment, it will be deemed void as contrary to the minimum employment standards established by law. The Supreme Court of Canada has set aside an employment agreement when the employee agreed that no notice of termination was required, and instead of applying the province s minimum employment standards requirements, it adopted the common law obligation to provide reasonable notice. Machtinger v. HOJ Industries Inc., [1992] 1 S.C.R What does this common law obligation to provide reasonable notice translate into in real terms? It is far more than what would be implied into a commercial contract that lacked a termination clause. The Canadian courts consider four specific factors when calculating this entitlement: an employee s age; the length of service; the character of the employment, meaning the position performed and the compensation earned; and the prospects for securing alternate, comparable employment. Bardal v. The Globe & Mail Ltd. (1960), 24 D.L.R. 2d 140 (Ont. H.C.J.). In addition, Canadian courts may consider the concept of enticement if a short-service employee alleges to have been dismissed shortly after having been induced to leave longer term employment. Awards of one month for each year of service, and more, are commonplace in Canada to a ceiling of 24 months. Reasonable notice includes not just pay, but also benefits, commissions, most incentives or bonuses, deferred payments, car allowances, continued stock option vesting, and any other similar perk of employment. An employer is required to keep an employee whole for the period of reasonable notice, and if the employer pays the employee in lieu of that notice, is required to maintain all of the compensation and the benefits associated with the employment relationship. If an employee disputes the amount of reasonable notice provided by his or her employer on the termination of employment, the employee may claim wrongful dismissal. The only thing wrongful about a wrongful dismissal, though, is that the employer did not pay the right amount to the employee as determined by a court based on the individual analysis explained earlier. As long as the reason for termination is not discriminatory or retaliatory in breach of protected statutory rights, Canadian employers otherwise have the right to terminate an employee s employment without cause at any time. It is just a matter of agreeing about what are the appropriate amount and the component elements of reasonable notice. The critical take away from this is that including a termination provision in a written employment agreement that meets or exceeds the minimum statutory requirements can effectively by contract bypass the common law obligation to provide reasonable notice. Unless a Canadian court finds that a termination provision lacked consideration or amounted to less than the statutory entitlement, the court will enforce it. Leaves of Absence My third difference are the leaves of absence that are created and protected by statute in

4 Canada, which are many, varied, and generally substantially longer that any leave in the United States for the same or similar reasons. These statutory leaves of absence involve job protection, meaning that employers must reinstate an employee in the position performed by the employee before the leave, if it still exists, or to a comparable position, if it does not. In most cases, benefits coverage must continue during these leaves, but the leave is otherwise unpaid. Under the Employment Insurance Act and Regulation, however, employees are eligible to collect Employment Insurance benefits (EI) during many of these leaves. The EI is calculated at the rate of 55 percent of an employee s net average earnings to a set maximum, which currently is $513 per week. A two-week waiting period is imposed on all claims before EI is paid. Because some of these leaves and their associated terms and conditions vary by jurisdiction, a summary of the leaves of absence that apply in the province of Ontario are detailed below. Pregnancy or Parental Leave Minimum employment standards legislation provides birth mothers who have three months service or more with an unpaid pregnancy leave of up to 17 weeks immediately followed by an unpaid parental leave of up to 35 weeks for a total leave of 52 weeks. ESA, ss. 46 and 48. Birth fathers and adoptive parents who have three months service or more are entitled to take a parental leave of up to 37 weeks that begins within 52 weeks after the child comes into an employee s custody, care, or control. ESA, s. 48. Employees are entitled to collect EI during these leaves. Parents, however, must share the parental leave benefits between them; each parent is not entitled to collect EI for the full amount of his or her leave. Many employers further add to EI for all or part of their employees pregnancy or parental leaves. Family Medical or Compassionate Care Employees are entitled to a leave of absence of up to eight weeks to provide care or support to certain family members if a qualified health practitioner certifies that the family member has a serious medical condition with a significant risk of death occurring within a 26-week period. ESA, s Compassionate care EI benefits are available to an employee, less the two-week waiting period. Personal Emergency Leave In Ontario, employees of employers that regularly employ 50 or more employees are entitled to 10 days of personal emergency leave annually because of a personal illness, injury or medical emergency, or the death, illness, injury, medical emergency, or urgent matter concerning certain family members. ESA, s. 50. Urgent matter has been interpreted to mean something unplanned. For example, a child s soccer game would not be an urgent matter, but a babysitter not showing up could be, at least a couple of times, after which an employer might ask an employee to make more reliable childcare arrangements. Declared Emergency Leave When the government declares an emergency under the Emergency Management and Civil Protection Act, an employee may be entitled to a leave of absence if he or she will not be performing the duties of his or her position because of the emergency. ESA, s Reservist Leave Employees who are reservists and who are deployed to a Canadian armed forces operation inside or outside of Canada are entitled to a leave for the duration of the deployment. Employees are not entitled to benefits continuation during reservist leave. ESA, s Organ Donor Leave Employees who have three months service or more are entitled to a leave of up to 13 weeks or a longer period as recommended by a medical practitioner to undergo surgery for the purpose of organ donation. ESA, s New Leaves As of October 29, 2014, Ontario employees are entitled to three additional leaves of absence. For each of these leaves of absence, employees also are eligible to collect EI. Family Caregiver Leave Ontario employees are entitled to eight weeks of family caregiver leave, which differs from family medical or compassionate leave, mentioned above, to provide care or support to certain family members if a qualified medical practitioner certifies that the family member has a serious medical condition. ESA, s Serious medical condition is not defined, except to specifically include a condition that is chronic or episodic. The condition need not be so However, human rights legislation in every Canadian jurisdiction requires employers to accommodate employees with disabilities to the point of undue hardship. serious as to include a risk of dying as is required for family medical or compassionate care leave. Critically Ill Childcare Leave Ontario employees who have at least six months service are entitled to a leave of absence of up to 37 weeks to provide care or support to a critically ill child if a qualified health practitioner certifies that the child requires the care or support of one or more parents and the period of time for which that care or support is required. ESA, s If the employee has more than one critically ill child, the leave may be extended up to 52 weeks. Critically ill child is defined to mean a child whose baseline state of health has significantly changed and whose life is at risk as a result of illness or injury. Crime-related Child Death or Disappearance Leave Ontario employees who have at least six months service are entitled to a leave of absence of up to 104 weeks if their child dies as a result of a crime or a leave of absence of up to 52 weeks if their child disappears as a result of a crime. ESA, s For The Defense January

5 Sick Leave As you may have noted, what is omitted from these protected leaves is any protection for sick leave other than its inclusion as a reason to warrant up to 10 days of annual personal emergency leave. There is no protected sick leave in Ontario and many other provinces and territories. However, human rights legislation in every Canadian jurisdiction requires employers to accommodate employees with disabilities to the point of undue hardship. R.S.O. 1990, c. H.19, s. 17. Disability is broadly defined and has been interpreted to include things other than temporary illness such as colds and the flu. Undue hardship is not defined, but it does include accommodating short-term absences due to disability. As a result, it is difficult for Canadian employers to terminate an employee s employment due to disability until the length of the absence and inability to return to work in the foreseeable future renders the employment relationship unworkable. These decisions generally cannot be made earlier than two years after the employee began a sick leave. In the meantime, however, the employer may replace the employee. If the employee recovers and is able to return to work, then the employer s obligation will be to assess whether there is a position to which the employee can be returned, with or without any required accommodation. The employee does not have the same right to reinstatement in his or her former position that accompanies the protected leaves of absence. Vacation Entitlements Canadian and U.S. employment law treat vacation entitlements differently, which is my fourth major difference. American employers often seek to implement a paid time off (PTO) policy in Canada. While it is ideal to keep terms and conditions of employment as consistent as possible, irrespective of borders, PTO policies are dangerous for employers in Canada. Employment standards legislation in each Canadian jurisdiction has two requirements insofar as vacation is concerned. The first entitlement requires employers to provide their employees with at least two weeks vacation time after each 12 months of employment. In some jurisdictions, the minimum amount of vacation time increases to three weeks annual vacation 72 For The Defense January 2015 time based on length of service. The second entitlement requires employers to provide employees with vacation pay, generally when they take vacation. Vacation pay is calculated as four percent of the employee s gross yearly wages, with the percentage increasing to six percent in some jurisdictions based on length of service. Wages includes all compensation paid by employers to employees, not just base salary, but commission and most bonuses as well. The danger to applying a PTO policy in Canada is threefold: (1) the employer will not fulfill the employment standards requirements to track vacation time taken and pay provided; (2) the employer will not have the records necessary to prove that it has satisfied these vacation entitlements; and (3) PTO is generally calculated and paid based on base salary only and not on the incentive components. Drug and Alcohol Testing Fifth and finally, Canadian adjudicators have been skeptical of employers that seek to impose drug and alcohol testing as a term and condition of employment, which differs significantly from permissible practices in the United States. The grounds cited by Canadian adjudicators include the following: The testing could constitute discrimination based on disability or perceived disability because drug and alcohol addictions constitute disabilities that require accommodation to the point of undue hardship. The testing inappropriately interferes with an employee s privacy rights. Employers have failed to demonstrate that there is a drug and alcohol abuse problem on their particular worksite, as opposed to another location or the industry more generally, that requires imposing testing. Employers have failed to prove that testing has a deterrent effect. Drug testing inappropriately intrudes into an employee s personal time, over which an employer has no domain, because current testing methods do not prove impairment because drugs remain in an individual s system for extended periods. A unified approach does not exist across Canada insofar as drug and alcohol testing is concerned. What has become clear recently is that even in Alberta, which is considered to be Canada s most employer friendly province, random drug and alcohol testing is not lawful, even for safetysensitive positions. See Communications, Energy and Paperworkers Union of Canada, Local 30 v. Irving Pulp & Paper, Ltd., [2013] SCR 458; Unifor, Local 707A v. Suncor Energy Inc., 2014 CanLII (AB GAA). Pre- employment and site access testing has been permitted in Alberta but prohibited in other provinces. See Mechanical Contractors Association Sarnia v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of the United States and Canada, Local 663, 2013 CanLII (ON LA) (refusing to permit site access testing). After an incident, reasonable cause and unscheduled post- rehabilitation testing for safetysensitive positions is generally allowed. Differences Do these differences define us? I like to think that we are far more similar than different and that American and Canadian employment laws each have their own quirks. This certainly is my impression based on my Canadianizing of U.S. employment agreements and employee handbooks, policies, and procedures. Much remains the same, but tweaks are required to ensure compliance. I would also note that although the Canadian system is generous to employees as a group, employers face less risk associated with a catastrophic employment situation. Punitive damages awards to Canadian employees have been creeping up, but even the most egregious cases have not generated final punitive damages awards in excess of $500,000 in wrongful dismissal cases and general damages of $75,000 for mental anguish, pain, and suffering in certain human rights cases. The Canadian system emphasizes compensatory damages, for all employees, over punitive awards that reward for individual employees. This doesn t make the Canadian system better or worse, just different. As many of my clients have noted over the years, Canada is a great place to have a child or for someone who has been fired. What I haven t mentioned, of course, are our taxes!

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