by Donovan Plomp

The British Columbia Court of Appeal just issued an important decision about an employee’s right to make a statute-based overtime claim in a civil action. The decision, Macaraeg v. E Care Contact Centers Ltd., should make BC employers very happy. And it may provide a new defense to overtime pay class actions in other Canadian jurisdictions as well.

Avoiding a dangerous trap
The BC Employment Standards Act applies to most employees in British Columbia with some limited exceptions. It requires employers to pay overtime pay to employees if they are required or “directly or indirectly” allowed to work more than eight hours a day or 40 hours a week.

This is a dangerous trap for employers. What if an employer lets employees leave early some days if they work an extra half hour other days? Or expects employees to stay an extra 15 minutes or half hour during busy times without paying overtime?

This unpaid overtime can add up quickly. Overtime rates are 1.5 times an employee’s regular wage for time worked over eight hours a day or 40 hours a week. And the rate is double the employee’s regular wage for time worked over 12 hours a day.

In Macaraeg, Cori Macaraeg was dismissed and received the minimum severance required under the Employment Standards Act. She sued her employer, E Care, claiming the company regularly required her to work overtime without paying overtime pay pursuant to the Act. She applied to make the decision a class action. If certified as a class action, the claim would be on behalf of all of E Care’s approximately 100 employees in BC.

Unusual trip to court
Claiming overtime pay in court was unusual because the Act contains its own administrative process for claiming unpaid overtime. Employees must file a complaint with the Employment Standards Branch, which investigates the complaint. That process has significant limitations in favor of employers that a civil action does not, including:

• a limit on the amount of wages that the employer may be required to pay;
• a six-month time limit on bringing a complaint after termination of employment; and,
• no ability to bring a “class action” on behalf of other employees.

At trial, the employer claimed that Macaraeg must follow the administrative process under the Act, and therefore couldn’t bring her claim in court. This was the generally accepted view in British Columbia to that date.

The trial judge disagreed with the employer, and held that:

• the overtime requirements of the Act are implied terms of every contract of employment, including Macaraeg’s, so she could bring a civil action for breach of her contract in court; and
• the Act doesn’t prevent a court action for overtime pay, even though it provides its own administrative mechanism for bringing such claims.

The trial decision was bad news for employers. Employees can bring a civil action up to six years after their employment has been terminated, and there is no “cap” on the damages a court can award.

Class actions in court also make it profitable for employees’ lawyers to bring actions for small amounts on behalf of many employees. These actions would be unprofitable if brought only on behalf of individuals. Thus, the trial decision significantly increased potential liability for BC employers and contradicted the law to date.

The Court of Appeal unanimously disagreed with the trial judge’s conclusion that overtime rights under the Employment Standards Act are implied by law into employment contracts.

The Court of Appeal said the law is clear: The general rule is that one cannot bring a civil action in court to enforce a right conferred by a statute, such as a right to overtime pay under the Act. An exception to this general rule arises if the court finds legislators intended the statutory rights to be enforced by civil action.

Court of Appeal rules
The Court of Appeal ruled that the Act provided an effective mechanism outside of a civil action for enforcing the right to overtime. That mechanism is the “comprehensive administrative scheme” provided under the Act for the granting and enforcement of employee rights. In other words, the employee can bring a complaint to the Employment Standards Branch, and that branch will deal with it. A civil action isn’t necessary.

Although BC employers escaped expanded liability this time, employers should always make sure that an effective system for monitoring and controlling overtime is in place.

Perhaps more importantly, this BC decision could have significant ramifications for class actions in relation to overtime pay in other Canadian jurisdictions. As in the United States, we have recently seen a flurry of such multimillion-dollar class actions in Ontario and in relation to federally regulated employers.

Since the statutes covering overtime pay are somewhat different in other jurisdictions, it remains to be seen if the Macaraeg decision will be followed elsewhere in Canada. But it certainly does provide helpful judicial authority for a possible line of defense against such class actions.

by Karen M. Sargeant and Daniel M. Pugen

In most Canadian provinces, occupational health and safety legislation provides for government inspections.

Besides random or regular audits, workplace accidents often will prompt inspections, and especially where an accident has taken place, prosecution of the employer and managers is a potential outcome. Inspectors generally have broad powers to enter a workplace, operate or test machinery, interview employees, and seize records, samples, or equipment.

Regulatory climate
The climate is chilly to say the least. In recent years, Ontario’s Ministry of Labour (MOL) has hired hundreds of new inspectors and has put renewed focus on enforcing compliance with occupational health and safety legislation. An example of this can be seen in the MOL’s efforts to curb workplace violence.

As discussed in our blog entry Workplace Violence: Health and safety legislative and regulatory responses, the MOL has devised a workplace violence prevention initiative and has instructed inspectors to make orders and issue directives to employers in certain industries lacking workplace violence prevention programs.

In addition, health and safety legislation has been amended in recent years to institute severe penalties for legislative noncompliance. As an example, in Ontario, the Occupational Health and Safety Act now imposes a maximum fine of $500,000 for corporations and, for individuals, a maximum fine of $25,000 and/or imprisonment for 12 months. Individuals are now being charged with offenses more often than before, both with and without their employer being charged.

Finally, in response to an explosion at a mine in Nova Scotia that killed 26 miners, the Criminal Code of Canada was amended to impose a legal duty on organizations and individuals who direct how others work and to expand the kind of individuals who can be seen as acting for an organization. As a result, it’s now easier for the courts to impose criminal liability for health and safety accidents. (See articles on Bill C-45 amendments and exposure to criminal liability.)

Given this climate, it’s imperative for organizations to have sound and diligent health and safety practices. You also should have procedures in place to deal with health and safety inspectors when they arrive in your reception area.

Tips for responding to health and safety inspectors
The tips below will assist your organization in ensuring that a health and safety inspection in your Canadian operation is conducted in an orderly and reasonable fashion with minimal disruption. Following the tips will provide procedural safeguards against overzealous inspectors and also will decrease the risk that your organization will be charged under health and safety legislation.

Before an inspector arrives

• Designate a contact person (and backup) at each location.
• Develop procedures for dealing with inspectors and train staff in those procedures.
• Maintain a separate file for privileged material (e.g. communications with your attorney).
• Keep in-house or outside legal counsel informed of any situations that may increase the likelihood of an inspection (e.g. a workplace accident, an employee injury on the job, a “near miss,” defective machinery, etc.)

When an inspector arrives

• Immediately contact the designated contact person.
• Check the inspector’s identification.
• Ask the inspector what the purpose of his or her visit is. Is it a general audit or a more specific investigation in aid of a possible prosecution? The inspector’s powers, and your procedural rights, may differ based on the inspector’s answer.
• Consider immediately contacting legal counsel.
• Have someone (hopefully the designated contact person) accompany the inspector at all times. Never leave the inspector alone.
• Be careful not to obstruct the investigation (which could be considered an offense). However, you may be able to make alternate arrangements for the time and date of the inspection.
• Keep notes of everything the inspector does and says in his or her visit. The notes will be invaluable to your counsel if the inspector’s actions need to be challenged in court.
• Remember that anything you say, even if you think it’s “off the record” may be recorded by the inspector and used against the employer or you later.
• Keep a record of all documents and other items taken by the inspector. Object if the inspector requests privileged documents.
• Cooperate in any interviews, but consider asking the inspector to return later to conduct the interviews. This will give legal counsel an opportunity to meet with any persons to be interviewed to help them be prepared. It also will give you a chance to conduct any further internal investigations.
• Request that legal counsel or another employer representative be present in any interviews. If the interviews may lead to prosecution, the individuals have a right to have counsel present.
• Ensure that everyone answers all interview questions honestly. “I don’t know” is an acceptable answer.
• Inspectors may create a “witness statement” and ask the interviewee to sign the document. There is no obligation to sign the statement. However, if forced, the interviewee should sign the statement but note his or her objection in order to avoid obstruction charges.
• If the inspector has a search warrant, immediately contact legal counsel and ask the inspector to wait until your legal counsel arrives. Although inspectors have no obligation to wait, most will. Ensure that the inspector’s activities don’t extend beyond the parameters of the search warrant.
• If you have any objections to anything the inspector is doing, note your objections on paper but don’t attempt to obstruct the search.
• Don’t underestimate the importance of an inspector’s visit. Information gathered by an inspector could form the basis for a prosecution down the road.
• Everything you say or do during an investigation is therefore very important.

By Barbara A.  McIsaac and Rachel Ravary

By now, we all know that video surveillance of employees is a touchy subject and should be used only as a last resort. But when you’ve examined all of the alternatives and have come to the conclusion that no other solution will do, we can at least give you some guidance on how to do it right.

Recently, the Federal, British Columbia, and Alberta Privacy Commissioners got together to issue new guidelines for the use of video surveillance.

Who is covered under the guidelines? Well, technically, they apply to all federally regulated employers such as banks, railways, air transportation, and inter-provincial trucking companies, as well as employers in British Columbia and Alberta. That being said, the guidelines are general rules that can and should be considered no matter what Canadian jurisdiction you’re operating in.

The guidelines set out a top 10 list of factors to consider when deciding whether to use video surveillance and when putting your video surveillance plan in place. Remember that under most provinces’ privacy laws, as well as the federal law, the rule is that personal information cannot be collected, used, or disclosed unless it’s reasonable in the circumstances, and even then, only with the consent of the individual involved. In Québec, the standard is a little higher and requires that the information be necessary.

Here is our summary of the guidelines.

Top 10 guidelines for video surveillance
1. Consider the alternatives. Before you resort to video surveillance, consider whether you can achieve your goal with a less invasive alternative.

2. Set the ground rules. Develop a policy on the use of video surveillance.

3. State your purpose. Narrow down the specific business reason for using video surveillance – and use it only for that reason.

4. Don’t go overboard. Limit the use and viewing range of cameras as much as possible.

5. Smile! You’re on camera. Inform your employees – and the public if the camera is in a public area – that video surveillance is taking place.

6. Guard the evidence. Store any recorded images in a secure location, with limited access, and destroy them when they are no longer required for business purposes.

7. Be transparent. Be ready to answer questions from employees or the public. They have the right to know who is watching them, why, what is being recorded, and what is being done with recorded images.

8. Hand it over. Give individuals access to information about themselves. This includes video images.

9. Train your people. Educate camera operators about the obligation to protect the privacy of those who are being filmed.

10. Re-evaluate. On a regular basis, reconsider whether you still need video surveillance.

The guidelines also offer some practical tips for setting up your video surveillance system to collect the minimum amount of information necessary to be effective. For instance:

• Have cameras record for only limited periods in the day rather than having them on continuously. Even better, if you’re targeting a specific problem – such as theft by a particular employee or in a particular area – only turn the camera on when the targeted activity is suspected or observed.
• Try to position cameras to avoid capturing images of individuals who aren’t being targeted.
• Don’t put cameras in places where people have a heightened expectation of privacy, for example, washrooms or into windows.
• Make sure that your system doesn’t allow camera operators to manipulate or reposition cameras to capture inappropriate images.
• Sound should not be recorded unless there is a specific need to do so.

If you have questions about these guidelines or related issues, lawyers in McCarthy Tetrault’s Labour and Employment and Privacy groups can help you. We regularly advise clients on issues relating to various forms of employee surveillance and/or monitoring and compliance with federal and provincial privacy legislation.

by Kate McNeill
We all know that once you hire an employee, you have certain legal obligations to that employee. But what about before you even hire someone?

In Canada, job applicants are entitled to certain human rights and common law protections that employers must be aware of in their hiring practices. In this Q&A, we provide answers to some of the more commonly asked questions about hiring practices in the Canadian marketplace.

Q. When we are advertising or posting a job, what potential issues do we need to be aware of?

A. Under human rights legislation in Canada, employers must not use statements in a job advertisement that directly or indirectly discriminate against candidates based on certain protected grounds. Some examples of these are race, religion, ethnic origin, age, marital/family status, sex, sexual orientation, and disability, but they differ slightly from province to province.

For example in British Columbia, you can’t refuse to hire someone because of a criminal conviction that is “unrelated to the employment or to the intended employment of that person.” This can lead to complicated judgment calls, and legal advice is often helpful.

Q. What kind of information about a prospective employee can we seek through a job application?

A. As with job advertisements, employers must not ask questions in a job application that seek information, directly or indirectly, about the grounds protected under human rights legislation.

Questions that are permissible include whether the candidate:

• is legally able to work in Canada;
• is over the provincial age of majority and therefore eligible to work;
• would be available for shift work or would be able to relocate/travel for work;
• or,is able to perform the duties of the job.Finally, it’s important to ensure that the questions are tailored to the job in question and that the information sought is reasonably related to the job itself.

Q. Will the use of a third-party headhunter minimize our exposure to liability in the hiring process?

A. No. Third-party recruiters such as headhunters are considered to be agents of the employer, so the employer can be held liable for their actions. As a result, employers should ensure that headhunters:

• comply with human rights legislation;
• have an accurate and complete job description and don’t offer misleading or false information about the job or the company;
• don’t act in a way that would breach an existing employment agreement with a candidate’s current employer; and
• inform the employer immediately if the candidate is being enticed away from other secure employment.

Q. What kinds of questions can we ask during a job interview and what should we avoid?

A. In a job interview, employers should only ask questions needed to make a hiring selection on the basis of merit and must avoid questions that would directly or indirectly solicit information tied to a prohibited ground under human rights legislation.
For example, if a candidate raises a physical disability or religious belief, the employer may justifiably ask how that may be accommodated in the position. However, questions about race, ancestry, sexual orientation, or political belief would generally not be acceptable.

Q. Is it advisable to conduct a background check of a prospective employee?

A. If your business generally obtains background checks or references, then be sure to notify prospective employees of that practice and, where necessary, obtain their informed, written consent. If the background check results in information about a protected ground under human rights legislation, that information can’t be relied on as the basis for a hiring decision.

Q. What, if any, issues should we keep in mind if we decide to extend an offer of employment to a prospective employee?

A. If you require a successful preemployment background check, the offer of employment should be conditional on that background check. Further, offers of employment should be in writing and clearly and accurately tailored to the position being offered. You should review the offer carefully with the candidate and give him or her adequate time to consider the offer to ensure that the candidate understands and agrees to the terms.

Finally, don’t make any over-reaching or unrealistic promises to a candidate that would induce the candidate to accept the position. Such promises can be costly down the road if the prospective employee relies on them to his or her detriment.

Like the hockey gag line about going to a fight only to have a hockey game break out, last week Northern Exposure was the site of shock and awe, and a good legal debate broke out.

There was a lot of interest in our post last week about a discrimination case against McDonalds by a British Columbia employee who wasn’t able to wash her hands frequently. We were surprised by all the attention it got. Some people might think employment law is dull, but sometimes it can really touch a nerve with people. It certainly inspired a heated debate online.

One person’s reaction was that Canadian human rights tribunals are full of “post modern ideologues”; others were afraid that restaurant food in Canada would never be safe again; still others defended the decision because McDonalds really had not tried to accommodate the employee at work to any real degree.

I contributed to the blog debate with some sympathy for both the critics and the tribunal. The critics may be right about unrealistic, ideological tribunal decisions in many cases; but in this case I think the tribunal got it right based on how poorly McDonald’s handled the accommodation needs of the employee. You can check out the whole debate on our blog. We also hope you’ll comment about our other posts and let us know what you think.

by Daniel M. Pugen and Earl G. Phillips
In Canada, human rights legislation provides that employers have a duty to accommodate disabled workers unless such accommodation would cause “undue hardship” on the employer.

A recent case involving McDonald’s Restaurants before the British Columbia Human Rights Tribunal illustrates the high standard of accommodation expected of employers. It also shows the kinds of proactive measures employers may have to take before accommodation is considered “undue hardship.”

In the case, the tribunal found that McDonald’s improperly terminated the employment of a long-time employee. McDonald’s didn’t do enough to accommodate the employee who developed a skin condition that prevented her from working and meeting the restaurant’s hand-washing policy. (more…)

by Rachel Ravary and Brian P. Smeenk

So you’ve hired a new employee. Should you put it in writing? If so, what should it look like? What do you include? What is better left out? If you decide against an employment contract, what will the terms and conditions of employment be?

Those are some of the many questions that arise when you make an offer of employment. This week’s tips will give you practical advice on these and other questions about employment contracts for your Canadian operations.

Number 1 — Don’t assume that because you don’t have a formal agreement in writing, you don’t have an employment contract.

Every employer in Canada has an employment contract, whether written or unwritten, with each of its nonunion employees. An employment contract exists as soon as an individual agrees to provide services to an employer in exchange for remuneration of any kind. Sometimes, none or only some of the contract terms are in writing, but it’s still an agreement that can be enforced in the courts. Courts can fill any gaps in the express agreement by implying reasonable terms.

For employees represented by a union, the contract terms are contained in the collective agreement.

Number 2 — If you want to play it safe, get it in writing.

It’s up to you how much or how little of your agreement you put in writing. You can have a comprehensive, written employment contract, or you can put nothing in writing. Of course, if you take the more informal approach, you’re open to arguments about what promises were made. You may also be at the mercy of the courts that will imply what they believe the reasonable terms of employment should be. The safer course is to set out at least the key terms and conditions in writing.

Number 3 — Long or short? Simple or comprehensive? The choice is yours.

The form of your written agreement is really up to you. You can use a formal contract, or you can simply use an offer letter containing the key terms, which the employee signs and accepts in writing. Also, employment policies that are given to employees, especially those given at the time of hiring, will usually become implied terms of the employment contract.

Number 4 — An employment contract is not “until death do you part.”

You can still terminate employees even if they have a contract of employment. You must, however, give proper notice or pay in lieu of notice of termination. The courts will determine how much notice is reasonable unless your contract provides for a specific notice period. Contractual notice provisions will generally be enforced by the courts so long as they meet statutory requirements (or the Civil Code in Québec) and aren’t otherwise unconscionable.

Number 5 — Tailor the contract to your needs.

In addition to termination provisions, your contract should include any other matters that are most important to you and that will not likely be covered by the general policies you give to all employees. So you may want to include clauses dealing with:

• probationary period after hiring;
• salary and future salary increases;
• job title and scope of duties;
• possible changes in job or location;
• protection of the employer’s intellectual property; and
• post-employment obligations (confidentiality, nonsolicitation, etc.).

Number 6 — Timing is everything.

The timing of the employee’s signature on the offer of employment or employment contract is important. In order for the terms in the offer letter or employment contract to be enforceable, the employee must sign the document before he or she starts work. Even if you have to delay the employee’s start date, make sure to have him or her sign the document first.

McCarthy Tétrault has a great deal of experience in all matters relating to employment contracts in a wide variety of fields and workplaces. We can help draft an employment contract to address any situation.

By Brian P. Smeenk

This question can be a vexing one. Will disputes be resolved in the employee’s country of origin? In the country in which the employee is now working? In the country in which your head office is located? In the country in which the employment contract was executed? All of the above? And how will you know?

You could be forgiven for being confused about this. The courts have been, too. What’s more, the answer that Canadian courts give will not necessarily be the same as the answer of a U.S. or foreign court. Here I can at least provide a brief outline of how a Canadian court should look at this issue.

First, note that this question is not the same as the issue of what country’s laws apply to the contract of employment. The applicable law is not the same as the selection of the appropriate forum for dispute resolution. A Canadian court may enforce foreign laws, and a foreign court may enforce Canadian laws.

Failing a binding agreement on where and by whom a dispute will be resolved, how will this be decided? Canadian courts will look at two distinct issues in this regard:

• Do they have jurisdiction to consider the dispute?
• Are they a convenient forum for considering the dispute?

Somewhat different, but related, factors apply to each question. Therefore, even though a Canadian court concludes it could entertain a dispute insofar as it is within its jurisdiction to do so, it may still decide it should not do so if it’s not the most convenient forum.

Factors going to a Canadian court’s jurisdiction
In general, these factors may include some or all of the following:

• The presence of one or both parties in the province or territory in which the court is located.
• Whether the parties have consented, implicitly or explicitly, to have disputes resolved by that court.
• Is there a real and substantial connection between the claim and the province or territory in which the court is located? For example:
  • Was the contract carried out in the province?
  • Did the alleged breach of contract occur in the province?
  • Were the damages suffered in the province?
  • Did the employee embark from or will he return to the province?
  • Does either party reside or do business in the province?
• Would any unfairness befall either party if the court assumes jurisdiction? Would the party’s claim or defense be significantly prejudiced? Would the difficulty or expense of fighting the case be materially increased for one of the parties?
• Would the judgment of the Canadian court be recognized abroad, to the extent that this may be important? For example, must the judgment be enforced in another country, and is that feasible?

Factors determining the convenient forum for dispute
The factors for determining whether the dispute should be heard by the Canadian court may include some or all of the following (some of which overlap with the jurisdiction factors outlined above:

• Location where the contract was signed.
• What is the applicable law of the contract? This may be stated explicitly or may be implied in the terms of the deal.
• The location where the majority of witnesses reside.
• The location where the bulk of the evidence is located.
• The place where the dispute actually arose.
• The residence or place of business of the parties.

What this means for you
It’s important to think through these and related issues before you send executives temporarily to Canada or from Canada to other countries. We can advise you on how Canadian law will apply, help you find foreign legal advisors if necessary, and advise you in the drafting of appropriate employment contracts or appointment letters.

These kinds of measures, in a well-drafted appointment letter or employment contract, can save you many headaches and potential liabilities.

by Joanna M. Carvalho

A recent decision by the Supreme Court of Canada may make it easier for employees and employers to appeal decisions of administrative agencies to the courts.

In Canada, and from an HR perspective, such agencies include labor boards, labor arbitrators, human rights tribunals, pay equity tribunals, and employment standards adjudicators.

Imagine an employee files a human rights complaint. The employee claims that he was denied a promotion because of his race. Imagine that your company fights the case before the human rights tribunal . . . and wins!! Imagine that before you can even put down your celebratory cocktail(s), the employee appeals the decision to the courts.

You thought the decision was final and that the matter was put to rest. In a panic, you immediately call your labor and employment lawyer and ask:

• I thought we weren’t in court. How can they appeal to a court now?
• Is the employee likely to win in court?
• How will the court decide whether the tribunal came to the right conclusion?
• Should a court be able to overturn the decision of the human rights tribunal?
• How can a judge, who deals with all kinds of matters, like contract disputes, divorces, or criminal prosecutions, be in a better position to decide whether the employee’s human rights were violated?
• Shouldn’t the human right tribunal members who have years of expertise in human rights law be in the best position to decide?
• And, of course, what is this going to cost me?

These are the questions that have plagued courts and lawyers for some time in “administrative law,” the body of case law that governs the activities of administrative agencies.

Traditional thinking is that courts are in the best position to decide questions of general law, and specialized administrative agencies are in the best position to decide factual questions and specialized legal issues related to their specialty.

For example, an employee alleges that a supervisor sexually harassed him or her. The case goes before the human rights tribunal. All the members of the human rights tribunal hearing the case must have several years of experience in human rights law. In this case, the tribunal is probably in a better position than a court to decide whether the employee was sexually harassed.

In contrast, take the example of an employee who alleges that the employer violated a term of the employment agreement, such as a stock option plan. In this case, a court is arguably in as good or better position to decide whether a breach of contract occurred than a tribunal because the courts are accustomed to interpreting contracts.

The following factors have been applied to determine the extent that a court should intervene in an administrative tribunal’s decision:

• whether the law governing the tribunal expressly provides a right of  appeal to a court;
• the purpose of the administrative agency (for example, is the primary purpose to educate the public or to resolve disputes?);
• the nature of the question at issue; and
• the expertise of the administrative agency.

And then there were two
Until recently, Canadian courts used those four factors to decide which of three “standards of review” should be applied to the decisions of administrative tribunals: (1) “correctness,” (2) “reasonableness,” or (3) “patent unreasonableness.”

The courts would look at the four factors to decide whether they should be more ready to intervene based on the “correctness” standard; more reluctant to intervene based on the “reasonableness” standard, or most reluctant to intervene based on the “patent unreasonableness” standard.

The recent decision by the Supreme Court of Canada changes this. In Dunsmuir v. New Brunswick, the court eliminated the “patently unreasonable” standard of review. From now on, decisions of administrative tribunals will be reviewed to determine simply whether they are “correct” or “reasonable.”

How does this impact you?
While it remains to be seen what the practical outcome of this decision will be, there is speculation that lower courts may see this change as a reason to give less deference to administrative agencies. Indeed, a court no longer has to find that the administrative tribunal’s decision was “patently unreasonable” to intervene and reverse a decision.

The bad news? Employees who were unsuccessful before an administrative tribunal may be more likely to give it “another kick at the can” as the standard to overturn such a decision may now not be as high.

The good news? In the same manner, employers who were unsuccessful before an administrative tribunal may also benefit from having a greater right to take the tribunal’s decision to court to be reviewed.

So put down your glasses and pick up your pens (and your Canadian lawyer will grab his or her robe). It may be time to go to court!

By Rachel Ravary and Brian P. Smeenk

When you send an employee to work in Canada, what company should be named as the employer? Your U.S. company? A Canadian subsidiary or affiliate? Perhaps your parent company?

Why is this important?
It’s important to be clear about which company is the legal employer because this may determine many of the employee’s rights and entitlements, such as:

• what country’s laws apply to the employment relationship while the employee is in Canada;
• what corporate policies apply to the employee;
• what benefit plans apply;
• whether the employee has the right to return to his or her job after the stint in Canada;
• where future disputes would be litigated or otherwise resolved;
• the length of service that will be recognized;  and
• the employee’s entitlements to severance pay and other benefits upon termination.

The company that is the legal employer doesn’t necessarily have to be the company that pays the employee’s salary and overhead. It’s not uncommon for one company (normally the one that benefits directly from the employee’s service) to pay, while another company is the legal employer. Appropriate inter-company billings or adjustments can easily be done.

How should you decide?
The decision of which company should be the employer is partly a human resources issue and partly a legal issue. Ask yourself how management would want to answer the questions listed above. And consider what the employee would be most comfortable with? Is the employee expected to return home in the near to medium term?

Sometimes the answers to these questions will lead you in opposite directions. You may want your Canadian subsidiary’s policies and bonus program to apply to the assignment, but you know the employee would be more comfortable remaining an employee of the U.S. company. You may want to avoid some of the more onerous obligations of being a Canadian employer, but you don’t expect the employee to return to the United States in the foreseeable future. What should you do?

Many of these issues can be resolved contractually. Check the laws of the province or other Canadian jurisdiction where the employee is assigned. Find out the extent to which the local laws will be binding. Then deal with discretionary issues in an employment contract.

After the decision
Once the decision is made, how do you put it into practice?

• Get legal advice to compare the legal consequences of applying the law of a particular Canadian jurisdiction versus U.S. employment laws. Consider at least the key issues like benefits coverage, tax consequences, and rights upon termination of employment.
• Once you decide, clearly identify who the employer will be in the offer of employment or transfer letter. The company that will be the employer should make the offer.
• Stipulate which country’s laws apply.
• Ensure the offer or contract complies with the laws of the jurisdiction you have chosen. Don’t say that the federal law of Canada applies and then write a contract that violates those laws!
• Be clear about where and how disputes will be resolved.
• If possible, the employing company should pay salary and benefits. Otherwise, advise the employee in writing that the company actually paying salary and benefits is acting as the agent of the employing company.
• Make sure that the employing company is identified correctly on any visa application or other immigration paperwork prepared by or for the employee.
• Be clear with the employee about whether the assignment is permanent. If not, set out what will happen when the assignment ends.
• Make sure that the administration of benefits and other programs is consistent with your decision about which company is the employer.

McCarthy Tétrault has a great deal of experience dealing with international employment arrangements and can assist you in sorting through this complex set of issues.