Mintz On Air: Practical Policies — California vs. Canada: A Conversation About Cross-Border Employment Quirks

In the latest episode of the Mintz On Air: Practical Policies podcast, Jen Rubin is joined by Brad Tartick, an Employment Partner in Mintz’s Toronto office, for an unscripted conversation about key similarities in California and Canadian employment law — and some important differences.

Together, Jen and Brad discuss commonalities and differences relating to important employment concepts concerning:

• Non-competes
• Independent contractor classification
• Vacation and PTO
• Parental leave
• Severance pay and packages
• Reductions in force
• Health care benefits

Listen for insights on how these aspects of employment law in California and Canada have notable overlaps and differences — important considerations for anybody with operations in Canada and in the US.

This episode is part of a series of conversations designed to help employers navigate workplace changes and understand general legal considerations.

Practical Policies — California vs. Canada: A Conversation About Cross-Border Employment Quirks Transcript

Jen Rubin (JR): Welcome to the Mintz On Air: Practical Policies podcast. Today’s topic: California vs. Canada: A Conversation About Cross-Border Employment Quirks. I’m Jen Rubin, a Member of the Mintz Employment Group with the San Diego–based Bicoastal Employment Practice, representing management executives and corporate boards. Thank you for joining our Mintz On Air podcast. If you have not tuned in to our previous podcasts and would like to access our content, please visit the Insights Center at Mintz.com, or you can find us on Spotify.

Today I’m happy to be joined by my Toronto-based colleague Brad Tartick, who practices employment benefits and pensions law. His practice focuses on complex issues arising in day-to-day operations, mergers and acquisitions, and public offerings. He partners with both executives and organizations in all sectors — including private equity, life sciences, and telecommunications — to deliver practical, business-driven solutions that safeguard interests and achieve results. And he is my go-to partner for all things employment in Canada. Thanks for joining Mintz On Air, Brad.

Brad Tartick (BT): My pleasure, Jen. Thanks for having me.

JR: I think it’s important that we start with an instruction for our listeners. I’ve been told by my Canadian brothers and sisters that the “T” in Toronto is silent. Hence it’s pronounced “Toronno.” But if you really want to have some fun, you can treat the first “T” as silent and call it “Oronto.” Is that acceptable, Brad?

BT: Anything’s acceptable here, Jen.

JR: It’s always good to have a little bit of fun.

What We’re Not Talking About

JR: Today Brad and I will be comparing and contrasting little-known but important quirks of Canadian and California employment law.

This is not an entirely fair matchup, because Canada has 10 provinces and three territories and is, of course, a sovereign nation. California is but one of 50 states. And while California was a republic for about a month in 1846, it is time to move on from that. So a few important caveats before we dive in.

We are not going to talk about any matters relating to Quebec. Quebec is governed by civil law, and the other provinces in Canada are like the US, generally governed by the common law.

Another quick caveat: We are not covering unionized workplaces, either in the US or in Canada. In Canada, unions are governed primarily by labor relations legislation and not employment standards legislation.

Now that we’ve gotten out of the way all the things we’re not talking about, let’s turn to the focus of our podcast.

California and Canada: Some Shared Employment Law Quirks

JR: In addition to a mostly common language, we also share some oddities that might surprise employers. We thought we’d give you a little edutainment — yes, that’s a thing, education and entertainment — to chat a little about some of those.

BT: Très bien, Jen, with that introduction. I hope we can shed some light on both our similarities and differences from an employment law perspective.

Non-competes

JR: I’d like to start, Brad, with some of the quirks that California and Canada share. Let’s start with non-compete agreements. Where does our good neighbor to the north stand on unemployed mobility restrictions?

BT: Let’s start with Ontario. Ontario legislation prohibits employee non-compete agreements, with two narrow exceptions. One is for certain executive-level employees — think of your presidents and your chief officers. The other is in the context of a sale of a business. The other provinces in Canada don’t have the same statutory prohibition, which is not to say that they won’t enact similar legislation at some point. Notwithstanding there being nothing in those provinces from a statutory perspective, non-competes still remain challenging to enforce nationwide. Courts here generally view them as restraints of trade, and they presume that non-competes are going to be void unless an employer can demonstrate that the clause is reasonable, necessary, and unambiguous.

This is often a challenging feat to accomplish. As employer counsel, we typically advise clients across Canada to think about other effective protective measures aside from non-competes, like robust confidentiality and IP provisions, sometimes non-solicits, along with other tailored and creative strategies to safeguard business interests, given how unpredictable it is when it comes to enforcing a non-compete in Canada.

JR: This is where I think Canada and California share a similar worldview. Most people are aware that California basically bans all non-competes, almost without exception. A big exception is in the context of the sale of a business, but there are all sorts of carve-outs to that as well. Most people are aware that you need to tread carefully.

In addition, California has taken the additional step of making sure that people cannot get around the non-compete ban by importing another state’s law. So California has tried to tie up that loose end as well. That is an interesting area where we are very similar, and something that people need to be aware of.

Independent Contractors

JR: Let’s turn to our next topic — an area where I think we’re probably similar — and that’s the classification of independent contractors, a term we agree can be interchanged with consultants. Brad, can you give us some background on how you can properly class someone as an independent contractor in Canada?

BT: I’d be happy to, Jen. There’s no statutory test to determine whether an individual worker has been misclassified. Instead, the Canadian courts and the Canada Revenue Agency apply a holistic, multi-factor analysis that examines the true nature of the working relationship. It’s not as simple as just applying the contractual terms — although they are going to be a factor. Generally the analysis also considers factors like the degree of control. For example, who’s going to be directing the work and setting the schedule for the work? Who owns the tools? Who’s providing the equipment to carry out the work? Who has the opportunity for profit, and the risk of loss? Does the worker have a financial stake in the company and its business?

Exclusivity is another factor. Is the worker restricted from providing services to other third parties? Also considered is the worker’s level of integration in the business — whether the worker holds a title at the company or represents the company externally, and whether they have the authority to bind the company to contracts and the like. If an independent contractor is the acting CEO, that is almost certainly a misclassification.

But the analysis is not always that clear cut. We’re seeing rising regulatory monitoring and enforcement in Canada, and the courts here generally favor applying an employment relationship when there is a misclassification issue at hand.

We’re also seeing a lot of our clients opting for the more conservative approach to individuals who land in that gray zone — where you’re not so sure if they’re employee or contractor — and applying the employment relationship, especially given how significant the risk associated with misclassification can be in Canada.

JR: Tell me about that risk. Is it rap on the knuckles from the courts, or do you face stiffer penalties in Canada?

BT: It’s a bit more than a rap on the knuckles, Jen. The penalties for misclassification can be significant and wide ranging. A misclassified worker may be entitled to retroactive employer protections, not from the date they are determined to be misclassified, but from the date they should have been treated as an employee. This could go back years and years. This includes potential penalties for retroactive statutory entitlements like vacation pay and overtime pay. They’re also going to be entitled to employee protections on termination. (We’re going to talk later about statutory and common law termination entitlements.) These can be very expensive for employers who have entered into an independent contractor agreement thinking that they can provide one, two, three weeks of notice. In fact, if they’re misclassified, we’re looking at months potentially of working notice, if not years.

Employers and workers may also face liability for unremitted source deductions from the Canada Revenue Agency. We’re talking about Canada Pension Plan and unemployment insurance contributions that should have been made that have not been made. Also with respect to income tax deductions. Even on top of that, there are penalties and interest that can be applied.

So the risks are potentially significant. They underscore the importance of properly classifying your workers in Canada.

JR: It’s a great reminder that just calling somebody something is not good enough. I’m sure that California and Canada are similar in that regard. You can’t just take a contract and say, I’m calling you a consultant, therefore you are a consultant. I assume the Canadian courts would look at that and say, I don’t think so.

BT: That’s exactly right, Jen. The contract is going to be a factor. The courts are going to look at it. They’re going to give it some deference. But certainly it’s not going to move the needle if all other factors weigh in favor of an employee relationship.

JR: Here in California, we have the Uber Law that was passed a few years ago to prevent any type of independent contractor classification. Uber subsequently got itself exempt from that law. That’s a story for another day. The point is that it’s very difficult to classify anybody in California as an independent contractor. And the penalties are stiff, including some criminal penalties. So people need to proceed cautiously before classifying somebody as an independent contractor here in California in order to pass muster under AB-5, also known as the Uber Law.

Vacation and Paid Time Off

JR: Let’s talk about vacation and PTO. How is California similar to Canada, or not at all?

BT: In Canada we don’t typically refer to it as PTO. Time off is generally referred to as vacation, or at least that’s what it’s referred to under statutes, which provide for minimum vacation time and pay requirements. Those statutes are all at the provincial level typically. Employers may, of course, offer more than what’s included in the statutory requirements. They would do that through contract or company policy.

You’d think that vacation compliance would be straightforward, but unfortunately the rules in each of the provinces are very complex. Even well-intentioned employers frequently have gaps in their policies or practices. And these gaps tend to surface at the worst time, which is often at the time of separation of employment. And they can be very costly to an unsuspecting employer. For those reasons, I always recommend to our clients that they adopt a vacation policy that’s both legally compliant but also easy for administrators to apply.

As with any policy, they should be reviewed periodically and updated and reissued to the workforce as the law evolves.

JR: That’s a great point. The periodic reviews are important, but it also is a great segue into how California is kind of like Canada, but kind of not. How are we not similar? We don’t have any minimums. And first of all, vacation, PTO, time off — it doesn’t matter, there’s no minimum that you’re required to give. An important caveat, as I said at the beginning of this episode: This is nothing to do with labor-related matters. These are just regular common law employees. You don’t have to give any minimum. But if you do have a vacation policy, it becomes in the nature of a contract and you have to provide vacation as provided for in that policy.

Of course, in California, because you have to pay accrued but untaken vacation at termination, it becomes important to track the vacation and make sure you don’t run afoul of California’s wage-and-hour laws. A lot of employers in California have moved to an unlimited vacation policy, which basically says you can take as much vacation as you want within certain bounds, and you do not have to accrue for that under the circumstances, which means the employer doesn’t have a liability that it then has to pay at termination.

California policies are similar to the Canadian approach in that it’s important to make sure you understand those policies, that you enforce them in a way that makes sense. As you point out, Brad — make the policies in a way where people understand what they are and how they operate. It’s sometimes easier said than done. This is exactly the type of service we both can provide, in Canada and in California, and elsewhere in our offices.

BT: That’s exactly right, Jen. There’s nothing that stops an employer from Canada from providing vacation in excess of the minimum statutory entitlements. We are often seeing employers rolling out unlimited vacation entitlements just like you are in the States. But employers need to be cautious when they do that, such that, at a minimum, you still need to meet the requirements of the applicable employment standards legislation. That includes forcing employees at times to take vacation, at least to take the vacation that they’re required to take under the statute.

JR: That’s such an interesting concept, forcing people to take vacation. But that’s a podcast for another day. Let’s stick with “maybe we’re similar, maybe we’re not.”

Parental Leave

JR: How about parental leave, Brad? How does parental leave work in Ontario? Is it very different in some of the other provinces? Tell us how that works.

BT: Parental leave and employer top-up programs related to that sort of leave vary widely across Canada. Parental leave under the statute is unpaid. But the employer can always choose to provide paid top-ups. The eligibility requirements for parental leave differ by province. Some have minimum service requirements, while others do not. The provinces also differ in the length and types of leaves available, as well as their notice and documentation requirements.

JR: That is very similar to the US, where we have state laws relating to leave. We also have a federal law, the Family Medical Leave Act, which may or may not apply to certain employers depending on the number of employees the employer has. But it is interesting in that employers in California, while we also have statutorily regulated leaves — the California Family Rights Act, for example — they generally do not have to be paid, although employers may choose to pay them. If that’s what an employer elects to do, it’s important that those policies be very clear so people understand what part of their leave is paid and what part is not. So on that I think we’re very similar.

California and Canada: Key Differences

JR: I’d like to turn to a couple key differences between Canada and California. Brad, tell us about the provincial employment standards legislation and what those minimum requirements are about.

BT: In Canada, employment is primarily governed by provincial employment standards legislation, which sets minimum requirements that employers have to provide their employees. But if an employer operates in a federally regulated industry — there’s about ten of them, including telecommunications, railways, banking, transportation, etc. — employment is governed instead by the Canada Labor Code, which is a federal statute. While all these statues, whether provincial or federal, address similar subject matter, their approaches and requirements vary significantly.

As a result, the first step to figuring out what law to apply is determining, first, is it provincial or federal? And then second, if it is provincial, where does the employee perform the majority of their work? This can be complicated if the employee is working remotely or traveling frequently, which in our day and age seems prevalent.

JR: Let’s say in Ontario, you have an employee. Are there some aspects that you have to write into every employment agreement or offer letter?

BT: No. These aspects will apply regardless of whether they’re included in the employment contract, and they cannot be contracted out of. At the minimum, if you are going to cover a topic — such as vacation or overtime or termination entitlements — that’s prescribed by the employment standards legislation, you must make sure those provisions meet and are consistent with the applicable employment standards legislation that governs that employment contract. Otherwise a court’s going to throw it out and you’re going to be in big trouble.

JR: Can you give me an example of one of those things you have to include, like probationary period?

BT: That’s exactly right. Canadian provinces and territories recognize a probationary period, during which employers are generally exempt from providing statutory termination notice — typically it’s for the first three months of employment. But no jurisdiction actually requires employers to implement a probationary period. To rely on these protections and limit termination entitlements during a probationary period, employers generally need to expressly include probationary period terms in their employment agreement.

JR: That’s so interesting. We have no statute here in California about probationary periods, but I see them all the time. And I think people are trying to get at that concept that, in the first 90 days, I want to take a look at your performance, see if you’re a fit, so that I can decide to terminate you without any consequences.

Newsflash, everybody doesn’t always work that way. Before you employ those provisions, please talk to a California employment lawyer about that, because I’m not sure that that helps people. I think you’re almost better off going back to this at-will concept that we have here in California.

Severance Pay and Severance Packages

JR: Brad, can you tell us about how severance pay and severance packages operate in Canada?

BT: It’s fairly complicated. Termination entitlements arise from three sources. There’s statutory minimums pursuant to employment standards legislation. There’s contractual provisions you can include in an employment agreement that exceed those statutory minimums. And then there’s common law reasonable notice. So if a contractual termination clause is improperly drafted — for example, it doesn’t clearly exclude common law entitlements or doesn’t meet the statutory minimum requirements or it’s absent altogether, like the employment agreement doesn’t have a termination provision — the employee is going to be entitled to the greater of the contractual entitlement, if there is one, and common law reasonable notice.

Common law reasonable notice often far exceeds statutory minimums and what was actually bargained for between the employees and the employer. It can range from a couple of months up to 24 months or more in exceptional cases. It should come as no surprise that I see employee claims alleging entitlement to common law notice come across my desk all the time.

In order to determine the duration of the common law notice, courts look at a non-exhaustive list of factors. We call them the Bardal factors, given the leading case on this was the Bardal case. These factors include things like length of service, the employee’s age at termination, position, the availability of comparable employment, among others.

During the common law reasonable notice period, or in respect of it, employers must either allow the employee to continue working under unchanged terms of employment or provide compensation and benefits equivalent to what the employee would have received had they worked through it. Calculating this pay in lieu, this payout on a termination, can be contentious, especially among counsel, and especially when we’re talking about variable compensation that’s based on objective factors. We don’t know what the outcome is going to be two years from now or one year from now during the common law reasonable notice period.

It becomes a complicated analysis and typically a drawn-out negotiation between employer- and employee-side counsel as to how exactly to calculate that entitlement. So it is critical that termination provisions in Canadian employment agreements are carefully drafted, and that they’re regularly updated to comply with current statutory requirements in case law. Otherwise employers are going to be exposed to significant liability that they hadn’t originally bargained for when they first entered into the employment relationship.

JR: This is in stark contrast to California, where we have no minimum severance, no entitlements, and no notice. Some would argue that it’s not truly an “at will.” For those of you who practice or have employees here in the US, you understand what at-will employment means: you can terminate an employee at any time for any reason, with or without notice.

Some would argue that’s not the case here in California because of the number of claims that can be raised in connection with a termination. But it’s pretty clear there is no minimum severance that has to be provided. There’s no minimum notice that has to be provided.

However, there are always caveats. On the severance, if an employer decides to voluntarily put a severance policy in place, you have to comply with that. It becomes in the nature of a contract. If an employer, for example, tells an employee, “You need to give me two weeks’ notice before you leave,” most courts would interpret that as a minimum notice that the employer has to mutually give to the employee. So there are caveats, but it’s still a lot less regulated from a statutory perspective in California.

Reductions in Force

JR: Let’s turn to another question, which relates to reductions in force and how Canada treats reductions in force, and comparing that to how they happen in California. How do reductions in force work in Canada?

BT: In Canada, you can either terminate and end the employment relationship, or you can impose what is called a temporary layoff, which basically is a suspension of work that’s not automatically a termination of employment. Temporary layoff is generally only allowed if the employment contract or employment policy expressly permits the layoff. Each province sets a maximum length for the layoff. It’s all governed by statute. For example, Ontario allows between 13 and 35 weeks in a 52-week period.

If the layoff exceeds that statutory maximum, or if the employer was not allowed to impose it in the first place, it becomes a deemed termination, triggering termination entitlements. The bottom line is, in Canada, a layoff pauses the employment relationship, but it can convert into a termination if it’s mishandled.

JR: Here in California, there’s no statute that says this is what a reduction of force is, and this is how long you can lay somebody off. However, people need to be cognizant about the federal WARN Act, which requires certain notification to be given if you reach certain thresholds of terminations. California also has its own — we call it “mini WARN” — that may require a different type of notification or different threshold. So before you engage in any reduction of force, consult counsel who has expertise in the state in which you are terminating individuals to make sure you’re not inadvertently triggering those statutes — which could carry some significant penalties if you make a mistake.

I suppose in some ways that is a similarity as opposed to a difference, but it’s not a set period of time, so to speak, that you’re required to do these calculations. Instead, they go by headcount and percentages.

BT: To that point, what I was referring to earlier was on an individual basis. We have similar provisions when it comes to mass terminations. In certain provinces, if there’s been a certain number of terminations within a certain defined period of time, not only are there notification requirements to the Ministry, but there’s additional termination entitlements and notice that apply. So, very similar to the WARN Act and your mini WARN.

Health Care Benefits

JR: Before we leave, a quick note about health care benefits. How does Canada treat health care benefits in this context?

BT: There’s no Canadian legislation equivalent to that in the US that mandates employer-provided benefits. There are some employment standards, statutes that address specific benefit obligations — like Ontario has a requirement to continue benefits during the statutory notice period upon a termination without cause. But there’s no overarching federal or provincial law requiring employers to provide health or dental benefits. The main reason for that is the existence of our provincial health care system. That said, employers can provide supplemental benefits to its employees if they choose to do so. And they generally do that through a third-party benefits provider.

JR: Here in the US, you have obligations under COBRA, which most people are familiar with, to give notification to your employees who are covered under those health care plans of their opportunity to continue coverage under those plans. So that’s a significant federal statute in the US that applies to many employers, certainly those with more than 20 employees.

Wrap-up

Canada and California are similar in many respects. But there are also many differences. And it’s important to understand that if you’re asking things like ChatGPT how these differences apply, you’re going to miss some nuances that Brad and I have talked about today, including continuing to mispronounce “Toronno” — not “Oronto” but “Toronno.”

One other thing I want to add as a resource for those of our clients or prospects or people listening to this podcast who are interested in these matters: There’s a whole series that Brad has helped to bring forth, called Hiring Across the 49th Parallel: Traps for the Unwary for Cross Border US–Canada Hires. It’s very good; it goes into a lot of detail. You can reach that through our Mintz.com Insights Center. I recommend it to anybody who has operations in Canada and in the US who is trying to figure out some of these cross-border issues — because while we have many things that are different, we also have many things that are the same. And consulting counsel about how to apply those is very important.

Once again, I’m Jen Rubin. Thank you, Brad Tartick. Those of you who tuned in to our Mintz On Air: Practical Policies podcast, I invite you to visit Mintz.com for more content and commentary. You can find our podcast on Spotify. Thanks again.

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