In Canada, firing someone means more than just showing them the door—you’ll probably also be holding it open, offering them severance, and making sure you’re nice about it to avoid bad faith damages.
For U.S. employers with a Canadian workforce, there are several key differences in employment law, especially when it comes to terminating employees. In Canada, termination rules are much more protective of employees compared to the U.S., where at-will employment is common. Below are the key differences that U.S. employers should be aware of when terminating employees in Canada. See our past blogs here and here for past posts for our US employers.
Terminations in an Anti-At-Will Environment
Unlike most U.S. states, Canada does not have at-will employment. In the U.S., employers can terminate an employee for almost any reason, as long as it’s not discriminatory. However, in Canada, even in the absence of a written contract, employees are still protected under what’s known as “implied contract” law. This means employers cannot terminate an employee without notice or pay in lieu of notice unless they have just cause, a threshold that is very difficult to meet.
Just cause generally applies to situations where an employee has committed serious misconduct, such as theft or fraud. Minor performance issues or even repeated mistakes usually won’t qualify as just cause. As a result, firing someone without offering compensation or a notice period is extremely risky. Most employers, when terminating an employee, will have to provide a significant severance package or risk a likely threat of legal action.
How to Fire Nicely
Terminating an employee in Canada requires a more delicate approach than in the U.S. Employees are entitled to fairness and dignity, and how the termination is handled can affect potential legal claims. In cases where there is no just cause, employers must provide reasonable notice or pay in lieu of notice. Courts determine “reasonable notice” based on several factors, such as the employee’s age, length of service, and position. Without a properly written employment contract that limits termination pay obligations, employers may have to provide lengthy notice periods—often leading to substantial costs.
Unlike in the U.S., severance packages in Canada tend to be much larger. It’s not uncommon for employees to receive months of pay upon termination, depending on their tenure and seniority. Employers will want to prepare for these termination costs when employing Canadian workers, as they can significantly exceed what is typical in the U.S.
The Hairiest Differences:
Exempt vs Non-Exempt
In the U.S., employees are often classified as either exempt or non-exempt under the Fair Labor Standards Act (FLSA), which determines their overtime eligibility. In Canada, this classification system doesn’t exist in the same way. Whether your employee is part-time, salaried, hourly, etc is irrelevant. Rather, most Canadian employees are entitled to overtime pay unless they fall into a narrow set of managerial or professional roles exempt under employment standards legislation.
Overtime Canadian laws on overtime are generally stricter. While U.S. overtime laws vary by state, most Canadian employees are entitled to 1.5 times their regular wage for every hour worked over 44 hours a week (this threshold varies in some provinces). In most Canadian jurisdictions, if the employee works overtime, they are entitled to overtime pay unless their contract specifically requires managerial approval first.
Parental Leave
Another significant difference is Canada’s generous parental leave policies. Canadian employees are entitled to up to 18 months of job-protected leave, depending on the province, for maternity and parental leave. This is much longer than what is typically offered in the U.S., where parental leave is often unpaid and much shorter. In Canada, these leaves are largely covered by the federally managed Employment Insurance (EI) system, but U.S. employers must be prepared to manage long-term absences and maintain positions for returning employees.
Termination Costs in Canada
Perhaps the biggest shock for U.S. employers is the cost of terminating employees in Canada. Without clear termination provisions in the contract, employers may owe employees large termination payments under common law (ie judge-made case law). Reasonable notice periods, as interpreted by Canadian courts, can be lengthy—sometimes up to 24 months for long-service employees. Even for short-term employees, termination entitlements can be much higher than what is typical in the U.S.
Additionally, employers often need to provide benefits continuation during the notice period, which adds further costs. Courts will typically require an employer to make the employee whole during the notice period, which may include bonuses, commissions, equity vesting cliffs and other variable compensation beyond base salary and group benefits.
Take-Aways
U.S. employers with Canadian employees need to approach terminations with care, given the stark differences in employment laws. Unlike the at-will environment in the U.S., Canadian employees are entitled to notice or pay in lieu of notice, and just cause is difficult to prove. Add in stricter overtime rules, more generous parental leave, and potentially hefty termination costs, and it’s clear that managing a Canadian workforce requires careful legal planning and a solid understanding of Canadian employment law.
We work with a number of US employers with a workforce in Canada. We know the cross-border translation that is often required. Give us a shout if you need a hand.
