In employment, some business owners may not be aware of one of the main differences between Canada and the United States: The concept of at-will employment. At-will employment is not legal in Canada. However, it is well-established in the United States.

In Canada, employers must provide employees with termination notice; in the United States, there is at-will employment with no such requirement. Despite this, employment contracts with at-will clauses occasionally appear in Canada, often due to US-based companies hiring employees in Canada.

What is at-will employment?

At-will employment in the United States works by having an employer make their new employee sign an at-will agreement upon hiring. This document gives an employer consent to terminate the employee at will without incurring legal liability. An employee is not required to sign the agreement, but employers can refuse to hire employees if they do not sign.

At-will employment also means an employer is free to change the terms of employment without giving notice or suffering consequences. An employer can change wages, benefits, and work schedules anytime.

Likewise, at-will employment means an employee is free to leave a job at any time for any reason or no reason without suffering potential legal consequences.

Employment relationships are presumed to be at-will in all US states except Montana. Montana allows at-will employment only for employees in their probationary period, 12 months following their hire date or for a period agreed to at the outset of their job. After that point, the employer must have “good cause” to terminate an employee.

However, at-will employment does not apply to employees under a signed employment contract that does not state at-will or allow termination for cause only, as part of a collective bargaining agreement, or in the public sector.

Each state has its labour laws that employers need to comply with, and some states may have further limitations on top of federal labour laws, including public policy exemptions, implied contract exemptions, and implied covenant-of-good-faith and fair dealing exemptions.

For example,

• Discrimination based on race, sex, age (40 and over), nation of origin, disability, or genetic information

• Retaliation for reporting illegal or unsafe workplace practices

• Refusing to conduct illegal activities

In these situations, no at-will employment can be applied.

At-will employment in Canada

Canada doesn’t recognize at-will employment. Instead, to lawfully terminate an employee’s job in any jurisdiction in Canada, employers must provide employees with a written notice of termination. Moreover, if there is no cause for an employee’s termination nor an enforceable termination clause in the employment contract, the employer must provide the employee with written notice of termination or termination pay instead of notice.

This written notice of termination varies depending on the employment/labour standards legislation of each Canadian jurisdiction.

For example, in Ontario, section 54 of the Employment Standards Act, 2000 (ESA) states that employers can terminate employees as long as they provide the employees with written notice of the termination or termination pay instead of notice of termination. Additionally, section 57 of the ESA sets out the amount of termination notice that must be given based on the employee’s length of employment with the employer.

What happens if an at-will clause is incorporated into a Canadian employment contract?

In Canada, employers are prohibited from making an employment contract at will. Canadian courts will void any employment contract that tries to call employment in Canada at will and replace it with a contract of indefinite duration that can be terminated by reasonable notice only.

In the case of Stanley v Advertising Directory Solutions, 2012 BCCA 350, an employee was ultimately awarded 19 months of pay in lieu of notice when her employer tried to rely on an at-will termination clause. The Court found that the plaintiff was an employee of both a Canadian company and its American parent company. Though she had at times in her career worked solely within the US, in her last role, she was an employee in British Columbia. At the time of her termination, the employer characterized her employment as at-will, per the written terms of her employment. The BC Court of Appeal found this term unenforceable, as it was inconsistent with the plaintiff’s minimum termination entitlements under BC’s Employment Standards Act. Thus, despite the at-will clause, her termination was found to be wrongful. 

This case highlights the importance of understanding that Canadian employees are entitled to protection under applicable jurisdictional employment-related law, regardless of what an employment contract may state. Employers who attempt to enforce at will clauses in Canada risk facing wrongful dismissal claims and being required to provide substantial compensation to the terminated employee.

Takeaways

For employers in Canada and the United States hiring Canadian workers, it is essential to recognize that at will employment is not a viable option. Any employment contracts with such clauses should be reviewed and revised to comply with Canadian employment laws. Failing to do so can lead to costly legal disputes and significant liabilities.

By Christina Catenacci and Marie-Yosie Saint-Cyr, First Reference Inc.

If you want more compliance guidelines on termination notices by jurisdiction, try The Human Resources Advisor (TM), Canada’s top HR/Payroll compliance service, published by First Reference.