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Employment and labour law in Canada is designed to regulate both the conditions of employment and the relations between employers and employees. To understand Canadian labour and employment law, it is necessary to know about the constitutional division of power between the federal government of Canada and the governments of Canada’s 10 provinces and three territories.
While labour and employment matters are principally within provincial and territorial jurisdiction, the federal government has jurisdiction over certain industries that are viewed as having a national, international or inter-provincial character, such as banks, air transport, pipelines, telephone systems, television and inter-provincial trucking. All other employers are provincially regulated for the purpose of labour and employment matters. As a result, the vast majority of employers in Canada are required to comply with the employment standards, labour relations and other employment-related legislation of each of the provinces and/or territories in which it has operations.
Regardless of whether a business is provincially or federally regulated, or where in Canada it carries on business, Canadian employers should be familiar with the following types of employment-related legislation:
Employment standards legislation
Human rights legislation
Federal and provincial privacy legislation
Occupational health and safety legislation
Workers’ compensation legislation
Labour relations legislation
The legislation referred to above is only the start. Regulations made pursuant to this legislation also establish numerous rights and obligations for employers and employees. For example, there are detailed regulations made under both employment standards and occupational health and safety legislation, which give substance to the obligations contained in the statutes. When considering any labour and employment problem, it is important to ensure there are no additional regulatory rights or obligations that may affect its solution. In addition to the statutory obligations discussed above, employers are often also required to satisfy common law obligations owed to their employees in Canada’s common law provinces, and to abide by the Civil Code of Québec in Quebec. The most significant of these obligations is to provide employees with reasonable notice of the termination of the employment relationship without cause (see Section VIII, 2. “Common Law Obligations to Employees”).
1. Statutory Obligations to Employees
In general, an employer’s specific statutory and regulatory obligations will depend on the law of the province or territory in which it has operations. As such, any particular issue or question will have to be answered with reference to the law of that jurisdiction.
1.1 - Employment standards legislation
Canadian employment standards legislation sets out the minimum terms and conditions of employment federally and in each provincial and territorial jurisdiction. Employers and employees may not contract out of these minimum obligations, except to provide for terms more favourable to the employee than those contained in the legislation. Accordingly, any document or practice that establishes a term of employment that is less favourable to an employee than an employment standard has no force or effect.
Generally, employment standards legislation sets out minimum standards relating to matters such as notice of the termination of employment, wages, hours of work, overtime pay, public holidays, vacations with pay, and various job-protected leaves of absence. Employment standards legislation and regulations include many exceptions to the statutory minimum standards for certain types of employees, such as managers and professionals.
1.1.1 - Termination of employment
Critical to most employers and given that the concept of at-will employment does not exist in Canada, employment standards legislation in all Canadian jurisdictions sets out minimum notice (or pay in lieu of notice) obligations upon the termination of employment without cause. Generally, an employee’s entitlement to notice of dismissal increases with their length of service.
For example, in Ontario, employees are generally entitled under statute to one week’s notice (or pay in lieu of notice) for each completed year of employment, to a maximum of eight weeks. Although employees’ entitlement to notice of termination of employment varies slightly among the provinces and territories, Canadian employment standards legislation generally establishes a maximum statutory notice requirement of eight weeks or less for individual terminations.
Many employment standards statutes also include enhanced notice requirements for employers that effect a mass termination of employment, which is defined in many Canadian jurisdictions as the dismissal of 50 or more employees in a span of four weeks or less (although in several Canadian jurisdictions, the threshold is as low as 10 employees). Other obligations, including notice to government agencies, are also imposed.
In Ontario and the federal jurisdiction, employment standards legislation also requires employers to provide employees with severance payments (in addition to notice or pay in lieu of notice) in certain circumstances. In Ontario, employees who have five or more years of service at the time of their dismissal are entitled to severance pay, if their employer has an applicable payroll of C$2.5-million or more, or if the dismissal is part of a permanent discontinuance of a business involving the termination of 50 or more employees in a period of six months or less. Severance pay is equal to one week’s pay for each completed year of employment and a proportionate amount of one week’s pay for a partial year of employment, to a maximum of 26 weeks’ pay. In the federal jurisdiction, an employee is entitled to statutory severance pay if they have completed 12 consecutive months of employment with an employer prior to their dismissal. Severance pay is calculated as the greater of two days’ wages for each year of employment completed by the employee and five days’ wages.
Aside from the notice and severance pay requirements described above, employment standards legislation in some Canadian jurisdictions also include “unjust dismissal” provisions. Generally, absent serious misconduct or certain other conditions beyond the employer’s control, these provisions permit certain employees to seek redress from employment standards tribunals or adjudicators following their dismissal. If the administrative decision-maker determines that an employee has been unjustly dismissed, the employee may be reinstated to employment and/or receive compensation relating to their dismissal. In the federal jurisdiction, non-unionized employees who have worked for an employer for at least 12 months in a non-management position may make unjust dismissal complaints. In Quebec, employees with two years of service can claim that they have been unjustly dismissed and, in Nova Scotia, employees with at least 10 years of service can do so.
In many Canadian jurisdictions, an employee is required under statute to provide notice of resignation to their employer, which generally ranges from one week to six weeks, depending on the employee’s length of service and the province or territory in which the employee is employed. In Quebec, employees are also required to provide reasonable notice of termination; however, no specific length of time is identified by the legislation.
1.1.2 - Minimum wages
The minimum wages that must be paid to employees vary by province and territory, generally ranging from a low of C$12.20 per hour to a high of C$16.77 per hour, although there are different minimum wages for certain jobs and types of employees in some Canadian jurisdictions. Employment standards legislation also includes various provisions regulating how employees are paid and the records that must be provided to employees and retained by employers regarding the employment relationship, including documentation with respect to the payment of wages.
1.1.3 - Hours of work
Generally, the employment standards legislation in each Canadian jurisdiction provides that an employee’s regular hours of work may not exceed certain daily and/or weekly maximums.
In many Canadian jurisdictions, employees can agree to work more than these maximum hours and may be required to do so to deal with emergency situations. Employment standards legislation also provides employees with entitlements to meal breaks, hours free between shifts, and days of rest during each week.
Each employment standards statute includes provisions regarding the payment of overtime pay (or, in some instances, time off in lieu of overtime pay) after an employee works in excess of a certain number of hours per day and/or week. For example, in Ontario, most employees are entitled to at least 1.5 times their regular rate of pay for each hour worked in excess of 44 hours in a week.
Generally, employees are entitled to overtime pay, although certain employees, including managers and some professionals, are often specifically exempted from this requirement. Further, in many provinces, a written agreement between the employer and employee may provide for the averaging of an employee’s hours of work over a period of time for the purpose of calculating their entitlement to overtime pay. There are also specific provisions permitting employers to implement work schedules that include “compressed” or four-day workweeks.
1.1.4 - Vacations and holidays
Employment standards legislation provides that employees are entitled to vacation time off work and vacation pay for each year worked. Except in Saskatchewan, employees are generally entitled to a minimum of two weeks of vacation time annually, with vacation pay of at least four per cent of their annual wages. In most Canadian jurisdictions, the minimum statutory entitlement to vacation time and pay increases with an employee’s length of service to three weeks of vacation with vacation pay of six per cent of annual wages. In Saskatchewan, employees are entitled to three weeks of vacation per year, increasing to four weeks of vacation per year after they have completed 10 years of service. In the Yukon, employees are entitled to two weeks of vacation per year, with no mandatory increase based on service. In the federal jurisdiction, employees are entitled to two weeks of vacation per year, increasing to three weeks of vacation per year after five years of service, and four weeks of vacation per year after 10 years of service.
In addition, employment standards legislation recognizes a number of statutory holidays, including New Year’s Day, Canada Day, Labour Day and Christmas Day. The number of holidays to which an employee is entitled under employment standards legislation will depend on the province or territory in which they work, and generally ranges from 6 to 10 holidays per year. Employment standards legislation generally provides that eligible employees must be paid for these statutory holidays. To be eligible, employees must often meet certain requirements, such as working for a certain number of days in a prescribed period prior to the holiday. If an employee works on a holiday, they will often be entitled to premium pay for hours worked. In many provinces, the employee is entitled to 1.5 times their regular rate for hours worked on the holiday, in addition to the holiday pay for the day.
1.1.5 - Protected leaves
Employment standards legislation also provides employees with a variety of job-protected leaves of absence. An employer may not dismiss or penalize an employee who chooses to exercise their right to take such leaves. Employers are often required to continue to make contributions to certain benefit plans during the employee’s leave, and the employee must generally be reinstated to their former position at the end of the leave. However, employers are not required to pay employees’ wages during the vast majority of the statutory leaves as, in many cases, employees may collect benefits under Canada’s federal employment insurance program while they are away from work.
In Canada, the types of leaves of absences available to employees vary significantly depending on the province or territory where the employee works. The discussion below provides a sample of some of the available types of leaves.
All Canadian employees are eligible for some type of pregnancy and parental leave, although most Canadian jurisdictions require an employee to have worked for their employer for a certain qualifying period before a pregnancy or parental leave may be taken. Depending on the provincial or territorial jurisdiction of employment, pregnancy leave can generally last for 16 to 19 weeks. Parental leave can generally last for 37 to 77 weeks, depending on the provincial or territorial jurisdiction of employment and whether the employee has also taken pregnancy leave. In Quebec, in addition to pregnancy and parental leave, employees are entitled to a leave of up to five days upon the birth or adoption of a child, two days of which must be paid by the employer in certain circumstances.
In most Canadian jurisdictions, employment standards legislation also provides for leaves which allow employees to take time off to meet childcare responsibilities or due to the illness of the employee or certain of their family members. These protected leaves vary from a few days to many weeks. Employees generally have an obligation to provide their employers with medical or other information substantiating their absence.
In addition, almost all jurisdictions in Canada provide employees with bereavement leave on the death of specified family members. These bereavement leaves generally last from two to seven days (depending on the province or territory of employment) and, in some instances, wages must be paid by the employer during a portion of that time. For instance, in Quebec, for certain family members, an employee is entitled to five days off, two of which are paid.
All jurisdictions in Canada provide employees with reservist leave. While reservist leave varies amongst Canadian jurisdictions, generally, it provides a protected leave for employees who are Canadian Forces military reservists and are deployed to an international operation overseas or for certain operations within Canada. To be eligible for reservist leave, many Canadian jurisdictions require that employees have at least three or six months of continuous service with an employer. Employees are generally entitled to leave for the duration of the service required by the Canadian Forces.
Additionally, several jurisdictions in Canada have leave entitlements for survivors of domestic or sexual violence. In certain Canadian jurisdictions, wages must be paid during a portion of the leave. For example, in Ontario, individuals who qualify for this leave receive five paid days of leave per year.
1.1.6 - Enforcement
Canadian employment standards legislation is enforced by way of a complaint made to the appropriate federal, provincial or territorial ministry responsible for the legislation. In most Canadian jurisdictions, employment or labour standards officers investigate complaints and make rulings if the matters cannot be settled. Appeals from those rulings are heard by labour relations boards or other administrative or quasi-judicial bodies established in each Canadian jurisdiction. In some provinces, an employee can file a civil claim in court against their employer regarding alleged violations of employment standards legislation. Limits exist on when complaints may be made and, in some cases, the maximum amount that may be recovered, which varies by province and whether the complaint proceeds through the statutory enforcement process or a civil proceeding.
In the case of unionized workplaces, bargaining unit members and their representatives generally enforce employment standards legislation by way of grievance arbitration.
1.2 - Human rights legislation
Every Canadian jurisdiction has enacted human rights legislation that establishes, among other things, a comprehensive system for the investigation and resolution of complaints relating to discrimination. Although these human rights statutes deal with matters beyond the scope of the employment relationship, they also contain a number of provisions that deal with workplace discrimination.
Specifically, human rights legislation provides for an individual’s right to equal treatment with respect to employment, and prohibits discrimination in the workplace based on certain “prohibited grounds,” which are set out in the legislation. As a general observation, discrimination has been defined to include any distinction, exclusion or preference based on a prohibited ground as defined by the legislation.
Some Canadian jurisdictions have enacted legislation setting out obligations for employers relating to accessibility. For example, Ontario has enacted Regulations under the Accessibility for Ontarians with Disabilities Act, 2005 (AODA) which apply in conjunction with human rights legislation in that province. The Regulations contain several significant employment-related obligations that require Ontario employers to revise their employment-related documentation and accommodations processes. Employers are also required to invest significant resources into training programs regarding accessibility matters in order to ensure compliance with the AODA.
1.2.1 - Prohibited grounds of discrimination
The prohibited grounds of discrimination vary slightly from jurisdiction to jurisdiction in Canada, and include, among others, the following: age; race; colour; national or ethnic origin; place of origin; citizenship or nationality; source of income; language; sex; sexual orientation; gender identity or expression; ancestry; disability, including substance dependencies; marital status; family status; pregnancy; creed or religion; political beliefs; and certain criminal convictions. As such, employers in Canada must be careful to ensure that they do not make employment decisions with reference to any of these characteristics. In this respect, employment decisions include a wide variety of matters relating to the employment relationship and the terms and conditions of employment, including hiring, compensation, promotion and dismissal.
Human rights legislation in many provinces and territories also prohibits the distribution of employment applications that express or imply a preference for an individual with certain characteristics related to prohibited grounds of discrimination. In addition, the human rights statutes of most Canadian provinces and territories contain a prohibition against sexual harassment and harassment based on other prohibited grounds. The legislation also seeks to protect employees who make complaints regarding discrimination or harassment by prohibiting reprisals of any kind against those individuals.
1.2.2 - Exceptions
Generally, Canadian human rights statutes contain a variety of exceptions to their very broad prohibitions against workplace discrimination. The exception most commonly relied upon by employers permits an employer to discriminate on the basis of disability with respect to employment because the person is incapable of performing or fulfilling the essential duties of their position. This exception is narrowly interpreted and is subject to an employer’s obligation to reasonably accommodate the individual in performing those essential duties, to the point of undue hardship. Many human rights statutes in Canada also protect programs designed to relieve hardship or economic disadvantage, or to assist persons or groups to achieve equal opportunity (i.e., affirmative action programs) by providing that their implementation does not constitute a discriminatory practice.
1.2.3 - Enforcement
Enforcement of Canadian human rights legislation is essentially a complaint-driven process. Many Canadian jurisdictions have a human rights commission that will provide advice and assistance to individuals who believe they have been subject to unlawful discrimination. If a complaint is filed, the human rights commission will investigate the complaint. If the complaint cannot be settled, the human rights commission may refer the complaint to a human rights tribunal for adjudication. In some provinces, such as Ontario, individuals have a right to file complaints directly with the human rights tribunal without first filing a complaint with a commission or other investigative body.
Generally, human rights tribunals have broad remedial powers, including the power to award damages for loss of employment or wages, and damages relating to loss of enjoyment or hurt feelings. Human rights tribunals may also reinstate an employee to their employment or require an employer to take steps to ensure that discrimination does not continue. For example, in some Canadian jurisdictions an employer may be required to institute an anti-discrimination policy, report periodically to the human rights commission, and/or make specific changes to its employment systems or practices. Further, most human rights legislation provides that those persons who infringe the rights provided for by the legislation are guilty of an offence and liable to pay certain fines.
1.3 - Occupational health and safety legislation
Occupational health and safety legislation creates health and safety obligations for both employers and employees to minimize the risk of workplace accidents. In all Canadian jurisdictions, employers are required to take all reasonable precautions to protect the health and safety of their workers. In some provinces, this obligation extends to the protection of the health and safety of all individuals at or near the employer’s workplace, whether or not those individuals are employees.
Aside from the general obligation to take reasonable precautions to protect employees, the regulations passed under occupational health and safety legislation contain many and very specific responsibilities that are imposed on employers to ensure that their workplaces are safe. Some of these responsibilities apply to specific industries. Other regulatory responsibilities relate to particular hazards that may exist in the workplace, including the use of toxic substances and hazardous materials, equipment, or sound levels.
Canadian occupational health and safety legislation also provides employees with certain rights designed to promote workplace safety. For example, employees have a right to be informed by their employer about hazards in the workplace and have the right to refuse work that they reasonably believe is dangerous. Although the right to refuse work is subject to specific procedural requirements in each Canadian jurisdiction, employers cannot discipline employees for properly exercising their statutory right to refuse dangerous work.
Generally, occupational health and safety legislation requires employers to promptly report, within specified timeframes, any workplace accidents that result in a fatality or critical injury. Additional reporting obligations may apply in most of the Canadian jurisdictions depending on whether medical attention was required and/or whether the worker was disabled from performing their normal duties.
Employees also have a right to participate in the creation of safe workplaces and in the resolution of health and safety problems. Occupational health and safety legislation provides for the creation of joint health and safety committees, which are advisory groups composed of worker and management representatives. The statutes contain specific provisions pertaining to the composition and operation of joint health and safety committees, including the duties and requisite size of the committees and the frequency with which the committees must hold meetings. Generally, joint health and safety committees are required to meet either monthly or quarterly to discuss health and safety concerns in the workplace, and to make recommendations to the employer for the benefit of the health and safety of workers.
In Ontario, the occupational health and safety legislation requires employers to conduct a formal assessment of the risk of violence occurring in the workplace. In addition, employers must prepare policies and programs on both workplace violence and workplace harassment and must provide information and instruction to employees regarding the contents of those policies and programs. Similar obligations exist in many Canadian jurisdictions.
1.3.1 - Enforcement
In all Canadian jurisdictions, government health and safety officers or inspectors enforce occupational health and safety legislation. These officers or inspectors typically have broad powers to investigate potential violations of the legislation and may be called to the workplace by a worker or employer or may audit the workplace without notice.
An officer or inspector who finds that an employer has failed to comply with occupational health and safety legislation has broad powers to make orders to require the employer to rectify that failure. An officer or inspector will typically order that violations be remedied within a certain timeframe. They may also issue “stop work” orders and require the removal of hazardous equipment or material from the workplace. Subject to the specific procedural requirements in the governing legislation, the orders of an officer or inspector may be appealed by the employer to a labour relations board or other adjudicative body.
Canadian occupational health and safety legislation also provides for the quasi-criminal prosecution of individuals and corporations for violations of the legislation, resulting in the potential imposition of fines and/or imprisonment. Maximum fines vary greatly and can be significant (e.g., C$1.5-million or more per count in some provinces). In addition to these quasi-criminal sanctions, the Criminal Code provides for both personal and corporate liability in the context of serious health and safety violations and workplace accidents. As such, employers and their representatives may also be subject to criminal sanctions with respect to a failure to ensure the health and safety of people in their workplaces.
1.4 - Workers’ compensation legislation
All provinces and territories in Canada operate a no-fault insurance plan with respect to injuries and illnesses arising from employment. Participation is compulsory for many employers. These plans provide workers who become sick or injured at work with compensation for both economic and non-economic losses, in certain circumstances.
Pursuant to such plans, an employee can collect benefits for workplace injuries causing temporary or permanent disabilities and make use of any rehabilitation services provided, but cannot sue their employer with respect to the injury. Workers’ compensation boards in each Canadian province and territory manage the insurance plans, and most provinces and territories have workers’ compensation tribunals to adjudicate disputes relating to benefit entitlements and other matters. Employees of federally regulated businesses are generally covered by the plan in the province or territory in which they work.
Many employers are required to register with the applicable workers’ compensation board and to pay premiums into the insurance fund. In some Canadian jurisdictions, employers who carry on business in low-risk industries are not required to participate, although they may choose to do so. The contribution an employer is required to make to the insurance fund will depend on the types of activities carried on in the workplace. In general, the greater the risk of accident in the workplace, the higher the premium that employer will be required to pay. In some provinces, workers’ compensation legislation provides that an employer’s claims history may also affect its premium, such that a surcharge is applied to the account of an employer with a poor claims history and an employer with a good claims history receives a rebate.
Workers’ compensation legislation establishes many additional employer obligations. Generally, the legislation requires employers to report any accidents that occur in the workplace within specified timeframes. Employers are also required to work with employees to prevent injuries and to help injured employees return to work. In some provinces, workers’ compensation legislation requires employers to reinstate certain workers to their previous or a comparable position when they are able to return to work following a workplace accident, even if the worker has been absent for a significant period of time.
Employers must also comply with various administrative obligations relating to the investigation and adjudication of benefits claims and the payment of insurance premiums. These obligations may vary significantly in each of the provinces and territories.
Employers and their representatives must comply with all obligations contained in workers’ compensation legislation. As with occupational health and safety legislation, workers’ compensation legislation generally provides inspectors with the right to conduct workplace audits to ensure compliance with workers’ compensation obligations, and for the quasi-criminal prosecution of individuals and corporations for violations, which may result in significant fines and/or imprisonment.
1.5 - Labour relations legislation
Labour relations legislation in each Canadian jurisdiction regulates trade union organization, certification, and collective bargaining. The legislation entrenches the right of employees to organize and to be represented by a bargaining agent, without interference from employers, through a certification process and by prohibiting conduct that interferes with the exercise of that right. The collective bargaining process is regulated to provide mechanisms for achieving collective agreements. Employers carrying on business in more than one province continue to be subject to provincial regulation, unless their business is subject to federal regulation as, for example, in the case of inter-provincial trucking.
If a provincially regulated employer carries on business in several provinces, a union must seek certification from the labour board of each province in which the employer is located to require the employer to deal with the union in each provincial jurisdiction.
Generally, Canadian labour relations legislation governs the conduct of unions and employers, and addresses the various rights and obligations relating to collective bargaining and industrial disputes. It is important to remember that it is generally the right of every employee in Canada to join a trade union, and to participate in any lawful activity of a trade union. Consistent with that right, employers cannot engage in reprisal against an employee because the employee has joined a trade union or is participating in an organizing drive.
1.5.1 - Union certification
Labour relations legislation sets out the process by which a trade union may be certified to represent employees in a specific bargaining unit. Certification is generally approved by provincial and territorial labour relations boards, although the process used varies in each Canadian jurisdiction. In some Canadian jurisdictions, a certification vote is required, whereas in others, the trade union need only sign up a certain percentage of the employees to be certified.
Although an employer in almost all Canadian jurisdictions has the right to communicate with employees during an organizing drive, labour relations legislation limits such communication to ensure that the employer does not coerce or unduly influence employees. Further, an employer must be careful not to interfere in other ways with a trade union’s organizing effort. If a trade union believes that an employer has committed an unfair labour practice during the certification process, it may file a complaint with the applicable labour relations board.
In many Canadian jurisdictions, labour relations boards may proceed to certify the trade union if it is determined that the true wishes of the employees are not (or were not) capable of being determined by a vote as a consequence of the employer’s inappropriate conduct (e.g., threatening to fire employees or shut down a plant if the workplace becomes unionized).
1.5.2 - Collective bargaining
Once a trade union is certified, the union becomes the exclusive bargaining agent for employees in its bargaining unit, and the employer has an obligation to bargain in good faith with the union to achieve a collective agreement. During the life of the collective agreement, strikes and lockouts are not permitted and all disputes are required to be resolved through grievance arbitration. Labour relations legislation in each Canadian jurisdiction sets out the procedures that trade unions and employers must follow before they are able to engage in a legal strike or lockout.
Generally, labour relations statutes also include provisions regarding the termination of a union’s bargaining rights. As a general observation, an employer cannot encourage employees to initiate an application for termination in any way. In addition, labour relations legislation in each Canadian jurisdiction specifically provides that if all or part of a business is sold, bargaining rights are protected.
1.5.3 - Strikes and lockouts
Strikes or lockouts are illegal during the life of a collective agreement. They can be undertaken only after the expiration of the agreement and after mandatory conciliation has failed to bring about an agreement.
1.5.4 - Picketing
Traditionally, there are two forms of picketing. Primary picketing is lawful and involves picketing at the place of business of the struck employer. Where the employer has multiple places of business, picketing at other locations is considered to be primary picketing.
Secondary picketing, on the other hand, involves picketing third parties dealing with struck employers. Injunctive relief to restrain secondary picketing might be available from the courts or labour relations boards in appropriate circumstances.
Picketing is controlled by the criminal law and by the law of torts in addition to labour relations law, and is limited to communicating information. Forms of intimidation, including verbal threats, physical assaults or unreasonable blocking of premises, are unlawful.
1.5.5 - Will the presence of a bargaining unit affect the sale of a business?
Generally, the purchaser of all or part of a business is bound by existing collective agreements and must recognize the certified union. In some cases, after a sale, where there has been an intermingling of employees, an application can be made to the applicable labour board to determine if the bargaining units are still appropriate.
2. Common Law Obligations to Employees
Over and above the statutory obligations summarized above, employers in Canada are also required to meet common law obligations owed to their employees working in Canada’s common law provinces and territories, that is, all Canadian jurisdictions other than Quebec. Common law is essentially a “judge-made” body of law consisting of judicial decisions and precedents, instead of statutes or codes created by legislatures.
In the absence of a written contract of employment, certain terms and conditions of employment between an individual and their employer are implied by common law. One of the obligations imposed upon employers by the common law is the obligation to provide employees with reasonable notice of termination of employment, or pay in lieu of reasonable notice, in the absence of just cause for dismissal. Given that just cause for dismissal exists in only the most exceptional cases (typically involving serious wilful misconduct on the part of the employee such as theft or sexual harassment), terminations of employment in Canada are generally effected without cause by providing employees with reasonable notice or pay in lieu of notice.
There is no fixed formula for determining reasonable notice in any given case. There are, however, many factors that have been taken into account by courts of law when determining reasonable notice, including the:
Age of the employee
Employee’s length of service
Availability of similar employment
Position held by the employee
Employee’s level of compensation
In essence, in each case, courts attempt to identify the length of notice that would be required to provide the employee with a reasonable opportunity to find alternate employment of a similar nature. Generally, notice periods determined by courts have not exceeded 24 months, but there are some exceptions. Further, any aggravating or “bad faith” behaviour on the part of the employer when dismissing an employee may serve to entitle the employee to additional damages in litigation.
Reference was made above to written contracts of employment. Written contracts of employment may contain provisions which speak to an employee’s entitlement to notice or compensation upon the termination of their employment. In general terms, any obligations regarding dismissal described by a valid contract will govern the termination of employment, as long as minimum statutory obligations are met by the contracted provision.
Common law principles are not applicable in the province of Quebec. Rather, employers’ obligations are established by the Civil Code of Québec. However, that legislation provides that an employee can claim reasonable notice (or compensation in lieu of notice) of the termination of their employment, such that an employee’s entitlements upon dismissal in that province are substantially similar to those of employees in the common law provinces.
However, Canadian employers should be aware of the fact that there are unique legislative and other requirements relating to employment in Quebec that are not necessarily present in the common law provinces and territories.
3. Pensions, Benefits and Executive Compensation
3.1 - Government-administered benefits: federal
Canada has many government-administered pension, benefit and welfare programs that provide a minimum degree of social security. Old Age Security provides pensions payable from general tax revenues from age 65, subject to residence requirements. The Canada Pension Plan is a compulsory, contributory, earnings-related plan that applies to employees and self-employed individuals in all provinces other than Quebec and provides basic retirement, survivor benefits, death, and long-term disability benefits. For individuals employed or resident in Quebec, the Quebec Pension Plan is applicable and is essentially identical to the Canada Pension Plan. The federal Employment Insurance Program (EI) provides for a number of different benefits, including a 26-week sickness benefit equal to 55% of the average weekly insurable earnings in the employee’s qualifying weeks to a fixed maximum. Most employers contract out of EI sickness benefits by providing equal or superior benefits, thereby reducing their EI premiums. The province of Quebec also maintains the Quebec Parental Insurance Plan (QPIP) to provide eligible residents of Quebec with maternity, parental and adoption benefits. QPIP provides certain similar benefits that Quebec residents previously received under EI. A reduced EI rate applies for employees working in Quebec because of the integration with QPIP.
3.2 - Government-administered benefits: provincial
All provinces maintain a hospital and medical insurance plan. In some cases, including in Ontario and British Columbia, it is financed by an employer health tax based upon annual payroll. Provinces also have workers’ compensation legislation that provides non-taxable disability and death benefits for accidents that are work related, and which replaces the employee’s right to take legal action against the employer in connection with work-related injuries. Workers’ compensation is funded by employer contributions determined on an industry-wide basis, depending on accident experience.
3.3 - Privately administered benefits
3.3.1 - Registered pension plans
Many employers voluntarily offer private pension plans. They, like employment and labour matters, are governed by federal or provincial legislation depending on the jurisdiction of the undertaking and must be registered in the jurisdiction where the plurality of members is employed. To qualify for preferential tax treatment, pension plans must also comply with federal income tax laws and must be registered under the Income Tax Act (Canada) (ITA). There are restrictions on benefits that may be accrued. Defined contributions are limited to 18% of the employee’s annual compensation per year, subject to the money purchase limit (which is C$31,560 for the 2023 calendar year and is generally increased each year). The defined benefit accrual rate is limited to 2% per year, subject to the defined benefit limit (which is one-ninth of the money purchase limit in any given year).
Pension legislation provides minimum standards applicable to registered pension plans and specifies rules relating to many aspects of the pension arrangement, including:
Funding
Eligibility
Vesting
Early, normal and postponed retirement
Accrual of benefits
Investing and withdrawing pension fund assets
Transfers of pension fund assets
Discontinuance of a pension plan
Fiduciary oversight
Employers with operations in more than one province or jurisdiction may operate one registered pension plan that contains terms required with respect to members employed in each province and jurisdiction. In addition, in some industries, it is common for employers to contribute to multi-employer pension plans for unionized employees pursuant to the terms of a collective agreement.
3.3.2 - Supplemental employee retirement plans and executive compensation
Employers in Canada may choose to establish a supplemental executive/employee retirement plan (SERP) for executives and more highly compensated employees, which will provide benefits in excess of the legislated limits applicable to registered pension plans under the ITA. SERPs often benefit from an exemption from the minimum standards legislation or registration requirements applicable to registered pension plans described in Section I.3.3.1, “Registered pension plans.” However, this should be confirmed when establishing an SERP. Assuming that an exemption applies and subject to any relevant employment agreements, benefits provided under a SERP need not be funded. Employers may choose to fund a SERP or secure the benefits provided pursuant to the SERP using a letter of credit. If this is the case, the SERP may be considered a Retirement Compensation Arrangement (RCA) under the ITA and subject to a refundable tax regime. There are unique withholding and reporting requirements when the SERP is an RCA.
There are a number of other ways in which employers may compensate executives and other highly paid employees, such as stock options, restricted share units or other types of equity-based compensation plans. Proper plan design, in particular with respect to the ITA requirements and any cross-border tax considerations, will be important when implementing such plans. For example, employee stock option plans typically work well for Canadian employees provided they are offered through an entity that is a corporation or mutual fund trust for Canadian tax purposes. In addition, there are special rules under the ITA which need to be considered when granting long-term incentive awards that are designed to settle in cash. Generally, equity-based compensation plans benefit from broad exemptions from prospectus and registration requirements under Canadian securities laws.
3.3.3 - Other retirement savings arrangements
The ITA contains a number of provisions designed to encourage individual savings for retirement. In particular, individuals may establish registered retirement savings plans (RRSPs). Contributions made to an RRSP are deductible in computing income, and income earned in the plan is not subject to tax prior to withdrawal. When the accumulated contributions and income are eventually paid out (generally upon retirement), tax is payable on amounts received. Thus, the effect of an RRSP is to defer tax on current earnings. Individuals may contribute up to 18% of earned income in the previous year to their RRSP subject to an annual dollar limit (which is C$30,780 for the 2023 calendar year and is generally increased each year). The ITA also contains provisions that permit an employer to assist with employee savings on a tax-sheltered basis with its employees through a deferred profit-sharing plan (DPSP), subject to an annual limit of half the money purchase limit for any given year. Employer-sponsored retirement income vehicles, such as a combined DPSP and group RRSP, have become relatively popular. There are many technical rules governing RRSPs and DPSPs, including the timing and method of withdrawal of contributions, the annual contribution limits described above (which vary depending on whether the individual also participates in a registered pension plan), and qualified investment restrictions.
Individuals residing in Canada can also contribute up to a set amount per year to a tax-free savings account (TFSA), currently C$6,500. Contributions are made with after-tax dollars but individuals are not taxed on any income or capital gains earned in their TFSA or withdrawals from the TFSA. Contributions made by an individual to their TFSA will not reduce the amount the individual is permitted to contribute annually to a registered pension plan or an RRSP, or the amount an employer may contribute to a DPSP under the ITA, and contributions to these latter arrangements will also not reduce the amount an individual may contribute to their TFSA.
The Canada Revenue Agency permits the establishment and administration of RRSPs and TFSAs as group arrangements, as long as the group arrangement is sponsored by an employer, an association or other organization and is limited to employees or members of that employer, association or organization.
The federal government and several provincial governments have enacted legislation to permit pooled registered pension plans (PRPPs). PRPPs are intended to be large, capital-accumulation plans administered by third-party administrators, such as, for example, Canadian banks or insurance companies, allowing for broad-based participation from multiple employers, individuals (without requiring employer contributions), and the self-employed. In Quebec, PRPPs are known as “voluntary retirement savings plans” or “VRSPs” and are mandatory in certain circumstances where no other specified retirement plans are offered.
3.3.4 - Employee benefit plans
In addition to sponsoring pension plans or other retirement savings plans, employers often offer health and welfare benefits to their employees. Such benefits typically include life insurance, accidental death and dismemberment insurance, long-term disability, short-term disability, extended health care and dental care. Employer-sponsored health and welfare plans supplement the universal health care provided in Canada, which generally does not provide coverage for prescription drugs or dental care outside a hospital setting. Health and welfare plans may be insured or self-insured, subject to statutory requirements to provide certain benefits on an insured basis. There will be different tax implications for employers and employees depending on the types of benefits provided under the health and welfare plan and the structure of the health and welfare plan.