Doing business in Canada: Some key differences in employment and labo(u)r law in Canada and U.S.  

publication 

May 2012

Employment and Labour Bulletin

"Strange all this difference should be 
‘Twixt Tweedledum and Tweedledee."

Canada and the United States resemble each other closely: to the global family, the two are close cousins, if not siblings, sharing political and economic ties as well as similar laws in many areas. However, quite apart from our distinct spelling traditions, the course of political, social, and economic history in Canada and the U.S. has resulted in employment and labour relations that are rather different. These important differences are relevant to the significant flow of cross-border business, generally from south to north.

Any American company contemplating or carrying on business in Canada should be aware of the following key differences when it comes to the hiring, managing and termination of employees in Canada.

a.    regulatory regimes

American legislative jurisdiction over employment and labour is for the most part shared among three levels of government: federal, state and local, with considerable overlap. At first blush, the overlapping jurisdictions seem quite complicated.

By contrast, legislative jurisdiction over employment and labour in Canada is simply divided between the provincial and federal governments, with each distinct in its own sphere. A significant majority of employers fall under provincial jurisdiction, with the federal government having jurisdiction over certain limited specific federal undertakings, including inter-provincial transportation, telecommunications and banking. There is no overlap between the two. Approximately 85-90% of Canadian employees work in provincially-regulated employment.

Employment and labour law at either provincial or federal levels is also governed by the common law in Canada, and, in the case of Québec, which is a civil law jurisdiction, the common law as codified in the Civil Code of Québec.

b.    minimum employment standards

Freedom of contract is largely attenuated in employment and labour relations by prescriptive legislation aimed at redressing the imbalance of bargaining power between employers and employees. Both federal and provincial statutes have been enacted that mandate certain minimum standards and entitlements for employees. Enforced by administrative tribunals, every employer must comply with these standards, or face possible penal sanctions for their breach. There is no contracting out of these minimum standards.

Under these statutes, employees are guaranteed certain minimal entitlements, including minimum wages, hours of work, overtime pay, vacations and vacation pay, statutory holidays, pregnancy and parental leave, and significantly, notice of termination of employment, or pay in lieu, and in some cases, additional severance pay. There are also provisions, aimed at protecting jobs, that are triggered in the event of the sale of a business.

Significantly, the American categories of "exempt" and "non exempt" employees are not applicable in Canada. Salaried employees, as opposed to those on wages, are typically exempt from overtime pay in the U.S. There is no such distinction anywhere in Canada. Except for true executive or managerial employees in Canada, all other employees are entitled to overtime pay. Determining whether someone is truly a manager or an executive is based on an analysis of their actual job duties.

c.    labour relations

Of the two countries, Canada is by far the more union-friendly. The average total unionization rate between 2006 and 2010 in the U.S. is 13.1%, compared to 31.5% for Canada, more than double for the same period.1

The highest unionization rate is in the province of Québec. It has 39.7% of the employment workforce unionized, as well as the most restrictive labour relation laws (or the most progressive, depending on your point of view) anywhere in North America.2 It also is unique among the larger jurisdictions in not requiring a secret ballot for certification (a secret ballot decreases the chances of unions being successful on applications for certification).

Labour relations legislation in Canada generally reflects a pro union bias. One important instance of this bias is with respect to successor rights. Under U.S. law, an acquiring employer does not necessarily inherit the predecessor collective agreement or its duty to bargain. In Canada, on a sale or transfer of a business, the default position is to assume the union has the right to carry over the collective agreement and the bargaining rights to the acquiring employer.

Further, unlike the limited interpretation of "freedom of association" found in the U.S. Bill of Rights, courts in Canada have interpreted its Charter of Rights and Freedoms to include protection for the right to join a union to bargain collectively, and a duty of employers to bargain in good faith.

d.    terminating employees

"Employment at will"? Many Canadian employers are envious of the application of the American doctrine of "at will" employment, whereby American employers can terminate employees at will, subject to the terms of any written agreement, certain exceptions recognized in various states and so long as the termination does not violate anti-discrimination laws. American employers, on the other hand, are sometimes shocked to learn that the same cannot be done anywhere in Canada where, regardless of whether any written agreement exists, a contractual employer/employee relationship is implied by law. Minimum notice periods, or pay in lieu of such notice, are prescribed by statute in every Canadian jurisdiction, and reasonable notice is also implied in common law.

To limit liability, Canadian employers may oblige new hires to agree that on termination, only the minimum entitlements to notice or pay in lieu under employment legislation apply. However, unless agreed to at the time of hiring, or as part of a carefully structured agreement, and subject to the inability to contract out of the statutory minimums, the common law further requires that an employer provide "reasonable notice" of termination of employment. Employees must generally bring an action in court to recover common law damages for failure to provide reasonable notice. Depending on various factors, that notice could go as high as 24 months, and even higher if egregious circumstances exist.

The province of Québec goes one step further in employee protection: no employee can agree in advance to his or her entitlement to reasonable notice of termination of employment under the Civil Code of Québec. As such, the notice or compensatory indemnity in lieu of notice must be determined at the time of termination of employment.

To add to the American shock at Canadian protective legislation, non management employees under federal jurisdiction, as well as non management employees in the province of Québec (after two years' service), may seek the remedy of reinstatement if no just cause for the termination of their employment is found.

e.    restrictive covenants

American law recognizes the doctrine of "inevitable disclosure", whereby an employer can use trade secret law to enjoin a former employee from working in a job that would inevitably result in the use of trade secrets. Canadian law does not recognize this doctrine.

In addition, post-employment restrictive covenants binding a former employee not to compete or solicit are restrictively interpreted by Canadian courts. They will only be upheld if the restrictive covenant is reasonable in duration and scope, and the covenants represent the minimum protections which are necessary to protect the employer's legitimate business interests.

The Civil Code of Québec goes further: an employer may not avail himself of a stipulation of non-competition if the employee has been terminated without a serious reason (i.e. for cause) or if he has himself given the employee such a reason for terminating the employment relationship.3

f.    employment litigation

Employment litigation counsel in the United States may be surprised to learn that jury trials are rare in Canada; that lawyers' fees are generally recoverable from the losing party in every action at between about thirty to seventy-five per cent of the prevailing party's actual legal costs; and the threat of a class action is more limited in Canada than it is in the United States for employment matters. Because of the costs recovery aspect of litigation, plaintiff counsel, unlike those in the United States, tend to be a little more cautious in initiating actions. Defence counsel may also be less inclined to engage in "scorched earth" litigation tactics.

Further, any award of punitive damages in Canada pales in comparison to those awarded to American litigants. Employers not engaged in egregious conduct generally need not worry about an award of substantial punitive damages.

Developing strategies to deal with employment litigation requires taking these differences into account.

g.    Québec: a distinct legal system, language and culture

There are unique challenges for Americans who want to do business in Québec. First, there are French language requirements for any company conducting business in that province, all monitored by the Office québécois de la langue française. Employers with more than 100 employees have an obligation to form a francization committee and, where necessary, undergo a "francization program"; there is also a registration obligation for most employers with more than 50 employers and an obligation to transmit an analysis of their linguistic situation to the Office. Second, paramount in the employment and labour context is the right of all workers in Québec to communicate to their employer in French and a prohibition against employers making a language other than French a job requirement, unless the nature of the duties requires that knowledge.

As such, special considerations in Québec require counsel familiar with the unique context in which employment and labour laws operate in the province.

conclusion

Although in many ways similar, there is a considerable difference in focus between the United States and Canada as it pertains to employment and labour relations. In essence, Canadian law presumes the vulnerability of employees, and provides protections and minimum standards with which all employers must comply. Through American eyes, Canada has a strong employee or labour bias that is less evident in the United States. American law stresses instead a higher level of contractual liberty, and fewer prescribed standards.

Americans doing business in Canada require employees. Thus, they need to conduct the hiring, and then managing and sometimes terminating, of these employees. There are also special challenges related to labour relations in Canada. Rather than risk exposure to penal sanctions, workforce disruptions, and/or lawsuits, local employment and labour lawyers should be consulted before embarking on cross-border business with your northern neighbour.

by Lai-King Hum

1 According to the Fraser Institute's "Measuring the Labour Markets in Canada and the United States", 2011 Edition.
 
2 Ibid. See also "Union Certification: Developing a level playing field for labour relations in Quebec". Marcel Boyer, Montreal Economic Institute, September 2009.

3 Article 2095, Civil Code of Quebec.
 
a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2012