U.S. companies entering the Canadian marketplace need to adapt their employment and labor policies, plans and procedures to fit the Canadian marketplace. There are significant differences in how employment and labor matters are handled in the U.S. and Canada.

Employment at Will v. Reasonable Notice  

The biggest distinguishing feature between the U.S. and Canada concerns the concept of "employment at will." In many U.S. jurisdictions, unless there is an employment contract or statutory restriction, an employer may terminate an employee's employment at any time, for any reason, and without notice. In Canada, there is no "employment at will." Instead, Canadian law adopts the British approach and treats the employment relationship as a contractual relationship, whether or not the employee has signed a formal employment contract. The major consequence of this difference relates to the termination of employment.

Common Law "Reasonable Notice"

Canadian common law requires an employer to provide an employee with "reasonable notice" of termination, or pay in lieu of notice, unless there is a written contract dealing with termination or there is "just cause" for dismissal. Reasonable notice is determined on a case-by-case basis taking into account factors such as the position, age and length of service of the employee. While a senior appellate court has said that determining the notice period is an art, not a science, a rule of thumb sometimes used by judges in determining the reasonable notice period is one month per year of service to a maximum of twenty-four months.

Additional Damages

"Just cause" may not be a significant factor in most U.S. workplaces, given the existence of "employment at will." In Canada, however, if an employer acts in bad faith in terminating an employee (i.e., claiming "just cause" for dismissal when none existed), and the employee can prove that the manner of dismissal caused mental distress, the employee may be awarded additional damages to compensate for such distress. The potential range of such an award is not yet clear; however, as the Supreme Court of Canada only very recently indicated (as a part of its decision in the Honda case) such awards should reflect the actual damages suffered. (Previously, employees were awarded what the Supreme Court termed “an arbitrary extension of the notice period” for bad faith conduct on the part of employers.)

Punitive Damages

When a terminated employee sues a former employer claiming that the severance arrangements offered by the employer were inadequate, the terminated employee may claim punitive damages. However, the Supreme Court recently specified that punitive damages should only be awarded in exceptional cases.

Statutory Termination Obligations

Federal and provincial employment standards legislation in Canada require an employer to provide statutory notice of termination - and, in some jurisdictions, statutory severance pay - or pay in lieu of notice. Unless the employee is terminated "for cause," statutory notice typically is equal to one week per year of service to a maximum of eight weeks. These statutory obligations do not override the reasonable notice common law obligations.


Court Action v. Tribunal Complaint

While U.S. law in most jurisdictions permits an employee to file a civil action for discrimination, in Canada, an employee usually seeks redress by filing a complaint with an administrative tribunal in the province in which the employee works. (Employees in Ontario, however, now have the choice of a tribunal complaint or adding the claim to a wrongful dismissal lawsuit.) In adjudicating the complaint, the tribunal has wide powers to: order reinstatement of a terminated employee; require an employer to prevent discrimination and harassment; as well as award monetary compensation. Monetary awards generally are much lower than those awarded by U.S. juries in a civil action for discrimination, and focus on lost wages.

Age Discrimination

The U.S. Age Discrimination in Employment Act of 1967 prohibits age discrimination in employment for employees aged 40 and over for employers with 20 or more employees. In Canada, the prohibition regarding age discrimination is set out in (and varies amongst) each province's human rights legislation. Age discrimination in Canada is not limited to employees aged 40 and over.

End of Mandatory Retirement in Ontario

Most of the provinces have eliminated mandatory retirement in recent years, and have expanded the definition of "age" to protect those 65 years of age or over from discrimination. However, certain exceptions continue to exist. For example, employers may still differentiate between Ontario employees on the basis of age for pension and group insurance plans that otherwise comply with the Ontario Employment Standards Act, 2000. Employers may still have a discriminatory workplace rule in effect as long as the rule is a "bona fide occupational requirement" under the Ontario Human Rights Code. Several government-provided benefits which assume retirement at age 65 also remain unchanged.

The Challenge

Handling employee terminations and discrimination claims are but two examples of areas of employment and labor law where the two countries employ distinct approaches.