EM PLOY M ENT AN D L A B OR L AW
Canadian Employment
Law 101
By Kristin Taylor
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.
The Top Five
Differences Between
Canadian and U.S.
Employment Law
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 inter-­
provincial 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.
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© 2015 DRI. All rights reserved.
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. 701. 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
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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 havea
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
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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. 986.
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 compensa-
tion 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
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. 49.1. 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. 50.1
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. 50.2.
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. 49.2.
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 dif-
fers 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. 49.3. “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
rightslegislation 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. 49.4. 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. 49.5.
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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
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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 test-
ing 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 safety-­
sensitive 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 23034 (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 54951 (ON LA) (refusing to permit site access testing). After an
incident, reasonable cause and unscheduled post-­rehabilitation testing for safety-­
sensitive 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!