Hiring And Firing Practices North Of The Border

Thursday, November 1, 2007 - 01:00

Editor: Can you tell us about your practice?

Goodman : I am a partner in Toronto in Heenan Blaikie's labor and employment group, which is the largest management-side practice in Canada with approximately 100 full-time employment and labor lawyers. My practice focuses on employment litigation (both individual and class-based), human rights, and occupational health and safety law. As well, I am a part-time mediator. I also assist clients in creating policies and handbooks, both nationally and internationally, as well as drafting and negotiating employment contracts and severance agreements. I also advise clients on how to maintain direct relations with their employees.

Editor: What do Americans need to know when hiring in Canada?

Goodman : From an employment law perspective, I think Canada is one of the most dangerous legal jurisdictions for American companies. This is primarily because, unlike the European Union countries, the dangers are all "below the waterline." Many Americans think of Canada almost as the 51st state. In many areas of the law, including corporate commercial and securities, our two legal systems are very similar. But in the area of employment law, there is a fundamental difference between the U.S. and our common law provinces. Canada is not an "at will" jurisdiction, and Canadian employees are normally entitled to reasonable notice of the termination of their employment. Outside of Quebec, reasonable notice of termination can be as high as 24 months notice or pay in lieu of notice. But employees can contract out of their right to receive reasonable notice, if done clearly and in writing - and if the notice contracted for is greater than the province's statutory notice minimums.

In my experience, many American companies operating in Canada for the first time require their Canadian employees to sign offers of employment containing at-will language. Unfortunately, these agreements breach statutory notice minimums and so are not enforceable. The Supreme Court of Canada has stated that any contract of employment that attempts to contract out of our statutory minimums is void for all purposes, including demonstrating that the parties intended a notice period of minimum length. An employee who signed an offer with at-will language would still be entitled to reasonable notice of termination of up to 24 months. So the first step American companies can take to protect themselves when hiring employees in Canada is to retain counsel to "Canadianize" their employment agreements.

Editor: How else does the Canadian employment environment differ from the U.S?

Goodman : Most Canadian employment litigation is a dispute over whether employees received reasonable notice of employment termination. There is much less focus on human rights and discrimination law claims in Canada. This is partially because employees have the right to receive common law notice on termination of their employment, so they do not feel the need to claim their employment was terminated for discriminatory reasons. It's also partly because human rights disputes must be litigated before statutory human rights tribunals. There are extraordinary delays associated with litigating claims in front of these tribunals and there are hard caps on the types and amount of damages the tribunals can award. Further, there is no mechanism for filing class-based complaints and most claimants are not represented by counsel. As a result, most claims filed under our statutory human rights systems settle early and for nominal amounts.

The cost of terminating employees can be quite shocking to American employers doing business in Canada for the first time. However, it is much easier for an employer to accurately predict its exposure in Canadian employment law litigation than would be the case in the U.S. First, as discussed above, employers can contractually limit their exposure to notice awards. Second, in the absence of a written contract, notice is determined by our courts on the basis of a number of predictable factors, such as the employee's age, years of service and seniority in the company. Third, punitive damages in Canada are rare in employment law cases - and even when awarded, the amounts are comparatively low. The highest punitive damage award in an employment law case is $100,000. Finally, employment law cases (whether individual or class-based) are almost exclusively tried in front of a judge alone.

The predictability of notice awards by courts also has the effect of driving down legal costs in employment law litigation.

Editor: Is Canada moving towards a discrimination-based litigation system?

Goodman : Yes, to some degree. In July 2008, recent amendments to Ontario's Human Rights Code will come into force. The system is moving from an indirect to a direct claims system. Currently, claimants have no guarantee they will receive a hearing before the Ontario Human Rights Tribunal and, for those who are granted a hearing, they can wait for up to eight years for the litigation to conclude. Under the new direct system, claimants will have an automatic right to a hearing that should take place less than a year after they file their complaint - and most will have access to free legal advice and representation. All of the caps on damages that currently exist are being removed. Even more significantly, employees will now have the right to sue in Court for human rights damages.

Editor: Are you expecting more class actions in employment law?

Goodman : Currently, discrimination class actions are not possible, and the only employment class-actions employers have faced have been wage and hour, pension, and mass-termination claims. Once the amendments to the Human Rights Code are in force, we expect to see the plaintiff's bar launch discrimination-based class-action suits.

Editor: Any final thoughts?

Goodman : The other significant difference in our respective countries' employment laws is the fact our courts have imposed an obligation on Canadian employers to treat employees fairly in the manner in which they are terminated from employment. This concept was created in large part because of the rejection of punitive damages claims in employment law cases. Over time this concept has expanded to allow terminated employees to raise bad conduct on the employer's part that occurred years prior to the termination date. This effectively obliges employers to treat their employees fairly throughout the employment relationship. The court can extend the reasonable notice period (by up to 12 months) to compensate the employee for the employer's bad conduct. In the case of a senior executive, an extension of the notice period can expose an employer to thousands and perhaps millions of dollars of additional damages. This common law obligation of fairness in employment colors the Canadian employment experience. So it is essential that employers obtain legal advice before terminating employees or fundamentally altering terms of employment that could lead to claims of constructive dismissal.

Please email the interviewees at jgoodman@heenan.ca or rbonhomme@heenan.ca with questions about these interviews.