Canadian employment law shares many similarities with U.K. employment law by virtue of Canada having inherited its common law system from the U.K. Nevertheless, it is important for U.K. employers seeking to expand operations into Canada to understand how Canadian employment legislation operates within a federalist state.
Structure of Laws
Like the U.K., Canadian employment relationships are governed by both private contract law and public law including employment protection and other legislation. Canada’s 10 provinces and three territories each have their own employment legislative regime. While statutes vary from province to province, employment law is largely similar across the country — with the exception of Quebec, the only Canadian province to use a European-style civil law system. In Quebec, while common law principles are often respected in employment matters, additional care must be taken to recognize the applicable civil legislative employment codes.
Provincial and territorial employment legislation applies to most employment relationships save for two specific industries assigned to exclusive federal jurisdiction under Canada’s constitution, such as those related to banking, interprovincial transport, intellectual property and telecommunications. These operations are governed by federal law and the Canada Labour Code, which have unique employment and adjudicative provisions.
Employers and employees in Canada are not required to sign a written employment agreement to commence an employment relationship. Without a signed employment agreement, employees nevertheless have rights under minimum employment standards legislation and the common law. Minimum employment standards laws, such as Ontario’s Employment Standards Act, 2000, give employees a set of minimum rights which may not be contracted out from. Any attempt by the employer or its agent at removing an employee’s statutorily protected rights by agreement is void and can void the written contract.
Employers are, however, allowed to contract out of common law employment rights. Most Canadian employers do so because common law rights are generally more onerous to the employers than the rights given under employment legislation. For this reason, the standard practice of Canadian employers is to provide a written contract to define the employment relationship in more specific terms. U.K. employers should therefore seek legal advice in drafting employment agreements to ensure the agreement upholds statutory employment rights and while minimizing exposure to additional liability under the common law.
Changes to Employment Agreements
Subsequent changes to employment agreements must always be supported by fresh consideration. Fresh consideration could be in the form of an uncommon wage increase, bonus or other clear benefit to the employee that otherwise would not have been provided, except as related to the proposed contractual change. Continued employment, generally, does not constitute consideration capable of supporting a contractual amendment unless the employer can demonstrate forbearance from termination that would have occurred but for acceptance of the change.
Consistent with the posture of U.K. courts, Canadian courts are unsympathetic towards employment agreements that contravene provincial or territorial minimum employment standards and which breach public policy expectations in respect of competition. Clauses that purport to limit what employees may do after their employment ends, such as non-competition and non-solicitation clauses, are scrutinized carefully by Canadian courts.
Restrictive covenants that do not safeguard a legitimate proprietary interest deserving of protection, that are overbroad or unfair, or that are deemed contrary to the public interest will not be enforced.
As Canadian courts will not “rescue” an employer’s overly broad restrictive covenant, employers should seek legal advice when drafting these clauses to avoid them (and other aspects of the agreement) being struck in their entirety. Canadian courts have clearly stated that they will not “blue pencil” or otherwise read-down an employment contract to make an impugned term enforceable.
Independent Contractor Agreements
True independent contractors are not considered to be “employees” under Canadian employment law regime.
Accordingly, they are not entitled to the same minimum standards protection of an employee. However, agreements with independent contractors must be structured carefully to avoid creating an employment relationship, either by contract or the active relationship between parties. Notwithstanding a party’s own characterization of the relationship, reviewing bodies closely scrutinize independent contractor arrangements and regularly deem individuals to be dependent contractors or employees. Under Canadian employment law, the parties’ practice can be more determinative of the result, regardless of the written terms of the “independent” contract. Non-written factors, such as exclusivity and economic dependence are hallmarks of employment relationships.
Employers drafting independent contractor agreements should seek legal advice on how to structure (and apply) these agreements in Canada to reduce the risk of a disgruntled former contractor alleging that they were actually a dependent contractor or an employee.
When these allegations are successful, the employer does not have the benefit of an employment agreement restricting the individual’s entitlements to statutory minimums and may be liable to provide them with accrued and unpaid public holiday pay, vacation pay, overtime, or extensive notice of termination. Agreements with independent contractors should, among other things, indemnify the company from any judgment, order, claim or assessment resulting from a finding that the individual was an employee.
While there are many similarities between U.K. and Canadian employment law, it is important for U.K. employers looking to expand into Canada to recognize the relevant employment-related legislation that apply to their case. When drafting employment agreements, employers should be careful not to derogate the minimum rights set out in the employment standards statutes to avoid a court finding a provision of the agreement or the entire agreement unenforceable.