A recent decision by the British Columbia Court of Appeal in the case of Stanley v. Advertising Directory Solutions, ruled that a Canadian working in Canada who signed a US “at will” termination contract would still be entitled to notice of termination under Canadian Law. In this case, the employee was working in the company’s US Head Office and was later transferred to a Canadian subsidiary. She had signed a letter with the US Head Office agreeing that her employment would be “at-will”. In Canada “at-will” employment does not exist, instead, an employee is entitled to notice of termination. In this case, because the contract listed “at will”, it provided for less than what the employee was entitled to under British Columbia employment legislation. As a result, the clause was considered void and the employee was granted notice of termination, a cost the US employer did not expect to incur.
Statutory notice of termination amounts vary per province, but roughly translate to one week of earnings per year of service, up to a maximum of eight weeks. For long term employees, most employers will also consider providing common law notice, which is the length of time the courts believe it will take the employee to find comparable alternative employment. The courts will base common law notice on numerous factors such as; the employee’s age, current market conditions, and uniqueness of their position. It is not unheard of for the courts to award months of termination notice for each year the employee worked. Terminating a worker with a long service history in Canada can lead to a very costly settlement (sometimes up to 2 years of salary). Although there were other factors involved in this case, including who was the actual employer (it turns out that an employee can easily have more than one). The take away here, is to make sure employment contracts are geared to the location in which the employees will be working.
The perception that “US employees do not have rights until they sign a contract” versus the perception that “Canadian employees maintain all rights until they are restricted by contract”, is more true than not. In Canada, employment standards legislation applies to a worker as soon as they enter the labor market in their Province of employment, including notice of termination, overtime, hours of work etc. This is why US companies should ensure that Canadian workers (and US workers coming to Canada for a longer length of time) sign contracts of employment targeted to the province where they will be performing the work.
There are many issues to consider when drafting such a contract. Some of those issues include: Will the years of service in the US be honored for notice of termination purposes? What clauses can be added to the contract to limit common law notice? How will bonus or commissions be paid upon termination? What notice will have to be provided if the employee returns to work at the parent company in the US? Do any employment standard exemptions apply to this worker? Are there any restrictive covenants (i.e. non-competes or intellectual proprietary agreements) that should be taken into consideration? What jurisdiction will disputes be settled in? How will supplemental benefits be handled upon termination? In Canada, it is best to have all such questions answered at the beginning of employment, rather than at the end.
According to some provincial legislation, employers are required to maintain active supplemental benefits for their terminating employees throughout the entire notice of termination period (both Statutory and Common Law). In a recent case, Brito v. Canac Kitchens, 2012 ONCA 61 (CanLII), a long term employee was terminated and was only provided with eight weeks of notice of termination. The courts would later determine that the employee was actually entitled to many months of termination notice. Unfortunately, the employee became ill after the eight week notice provided, but prior to the end of the common law notice period awarded by the courts. Since the company did not continue his Long Term Disability benefits beyond the eight week period, the courts found the company liable. The company was required to pay for the employees’ Long Term Disability coverage until age 65, which the courts determined to be approximately $200,000.00. This again illustrates the importance of a correctly drafted employment contract. If the contract of employment had clearly stated the employee supplemental benefits would not extend beyond any required statutory notice period, this situation would not have turned out so poorly for the employer.
Employment across the border can be confusing. Ensuring you have properly worded contracts is important. Some US employers would rather avoid the legislative issues of employing in another country altogether, and prefer instead to hire employees through a Total Outsourced Employer. An Outsourced Employer will hire employees directly on behalf of the foreign company and handle all contracts, tax remittances, payroll, benefits, workers’ compensation, and liability.
In the end, company’s looking to employ outside their borders should be wary of the false sense of security a signed contract may provide. If the employment contract provides below statutory minimums or omits important limitations, it will be set aside at great financial risk to the employer!