Think Hiring in Canada is the Same as in the US? Here’s Why You Should Consider an EOR or PEO in Canada

From litigation to human rights, compare the essential differences in the employment laws of Canada and the US. Learn their significance for PEOs & EORs in transnational ventures.

Comparing US & Canadian Employment Laws: PEO & EOR Insights

Canada offers an enticing combination of a highly skilled workforce, competitive salaries, and a vibrant business ecosystem. For US-based companies looking to expand north of the border, the Canadian talent pool is certainly hard to resist. But while the countries share a border and strong economic ties, their employment laws can sometimes differ quite considerably^[1]. Before tapping into Canada’s workforce, it’s crucial to recognize and navigate these distinctions^[2].

One way to manage these complexities, without getting tangled in potential compliance pitfalls, is by partnering with an Employer of Record (EOR) or a Professional Employer Organization (PEO)^[3]. Let’s delve into some of the significant differences between Canadian and US employment laws and how an EOR or PEO can provide invaluable assistance.

Termination of Employment

Canada: Employers are legally bound to provide notice, or pay in lieu, if they dismiss an employee “without cause.” The length of this notice can vary based on factors like the employment agreement, common law stipulations, and whether it’s under civil law. Not only do these rules vary by province, but they can also be more extensive than what many US employers might expect.

US: The US predominantly operates under the “at-will” employment doctrine. This means that, barring any specific contract or company policy, employers can generally terminate employees without having to provide advanced notice.

For businesses unfamiliar with Canadian laws, navigating terminations can be tricky. An EOR or PEO, familiar with regional and federal requirements, can help ensure that your company remains compliant and avoids potential legal consequences.

Severance Policies

Canada: Severance policies are not the norm in Canada. Even if a company has such a policy in place, it cannot usually override an employee’s legal rights to notice of termination. Thus, many businesses don’t see the point of establishing formal severance plans, relying instead on individual determinations.

US: Contrary to Canada, severance policies are common in the US. Benefits under these policies often correlate with the employee’s seniority or length of service. It’s not unusual for US employers to request that a departing employee signs a general release of all employment-related claims before receiving severance payments.

Given the disparities in how severance is handled between the two nations, it’s easy for US companies to mistakenly approach Canadian severance in the same way they would in the US. An EOR or PEO can guide companies through the nuances of Canadian severance, ensuring they don’t accidentally infringe on employees’ rights.

Employment Litigation

Canada: Over the years, Canadian wrongful dismissal litigation has matured significantly. This maturation has led to more predictable damage awards. By having a clearer legal precedent, employers and employees alike have a better understanding of potential outcomes should litigation arise.

US: The landscape of employment litigation in the US is a bit more tumultuous. Notoriously unpredictable damage awards resulting from jury trials in wrongful termination cases have become a characteristic feature of the US legal system. Despite this, a significant number of cases are settled outside of court, often to avoid the unpredictability and costs associated with jury trials.

When engaging with a PEO or EOR in either country, it’s vital for businesses to understand the litigation landscape. A knowledgeable PEO or EOR can guide businesses through the complexities, potentially avoiding litigation altogether by ensuring compliance and proper employment practices.

Consideration

Canada: In the realm of employment law, Canada does not recognize continued employment as a valid form of consideration. This means that if there are material changes to the terms and conditions of an employee’s contract, they require either reasonable notice or contractual notice.

US: Consideration laws in the US are largely state-dependent. The majority of states don’t view ongoing employment as sufficient consideration for entering new agreements. This can pose challenges for employers unfamiliar with state-specific regulations.

Navigating consideration laws can be challenging, especially for companies expanding into new regions. PEOs and EORs, with their in-depth local knowledge, can assist businesses in ensuring contracts and employment terms meet local legal standards.

Restrictive Covenants

Canada: Non-compete agreements in Canada are subject to intense scrutiny. Particularly for high-ranking executives, the enforceability of such agreements heavily hinges on their reasonability, considering factors like duration, geographical scope, and the specified business activities.

US: The US presents a mixed bag when it comes to non-compete agreements. While state laws govern them, many states are more accepting of such agreements. However, some states have grown increasingly skeptical, particularly when it comes to applying these covenants to ordinary employees.

Crafting and enforcing restrictive covenants requires a nuanced understanding of local laws. Businesses can leverage the expertise of PEOs and EORs to draft agreements that stand up in court and protect their interests, ensuring they’re compliant and enforceable.

Compensation Disclosure for Public Companies

Canada: While the US mandates “say-on-pay” votes for issuers, Canada adopts a more flexible approach, treating them as voluntary. Nonetheless, their popularity is gaining momentum among major public issuers in Canada.

US: Say-on-pay votes are compulsory for US issuers, making it a standard practice. This mandatory approach ensures shareholders have a voice in executive compensation matters.

Compensation disclosure intricacies, whether in Canada or the US, require careful navigation. PEOs and EORs can aid businesses in understanding and complying with these regulations, ensuring transparency with shareholders and avoiding potential pitfalls.

Options

Canada and US: Both nations have taxation rules that impact option holders on the difference between the stock’s market value at the time of exercising the option and its original exercise price. Where they diverge is in the specifics of who gets the tax benefits.

Stock options and their associated tax implications can be a complex matter for employers and employees. Businesses leveraging PEOs or EORs can benefit from tailored guidance on local tax regulations related to stock options. This can ensure employees are compliant and can maximize their benefits while minimizing tax liabilities.

Restricted Stock

Canada: When dealing with restricted stock grants, Canada’s tax system imposes the tax at the time of grant. This immediate taxation can influence the attractiveness of such stock options for potential employees.

US: In contrast, the US taxes restricted stock grants when the restrictions lapse. However, there can be variations depending on whether employees choose early income recognition.

Offering stock options as part of compensation packages is a strategic move for many businesses. PEOs and EORs provide valuable insights into how restricted stock is viewed and taxed in local jurisdictions, ensuring businesses craft competitive and compliant compensation packages.

Changes to Post-Retirement Welfare Benefits

Canada: In Canada, making alterations to post-retirement welfare benefits can be quite challenging, especially when it concerns existing retirees. The regulatory framework ensures retirees have significant protections.

US: On the other hand, the US provides more flexibility to businesses. The extent of changes to post-retirement benefits is largely contingent on the reserved rights businesses have to amend or end such benefits.

Retirement and post-retirement benefits can significantly influence an employer’s attractiveness in the job market. PEOs and EORs can advise businesses on tailoring benefits packages that are both appealing to employees and in line with local regulations.

Human Rights

Canada and US: Both nations are staunch proponents of prohibiting employment discrimination. However, they differ in specific areas. For instance, in Canada, the requirement for employers is to accommodate disabilities up to a point of “undue hardship.” This includes recognizing conditions like alcoholism and drug addiction as disabilities demanding accommodation.

Maintaining a discrimination-free workplace is a priority for every business. PEOs and EORs can provide guidance on local human rights regulations, ensuring businesses foster inclusive environments and avoid potential litigation. Their expertise is crucial in understanding nuances, such as Canada’s stance on accommodating disabilities like alcoholism.

Key Takeaways

With these complexities in mind, it becomes clear why an EOR or PEO is so crucial for US companies venturing into Canada. These entities shoulder the burden of ensuring compliance, managing administrative tasks, and absorbing any potential legal liabilities that might arise.

In essence, the Canadian employment terrain, while lucrative, is replete with nuances that require expert navigation. Leveraging the expertise of a Canadian EOR/PEO solution, such as Pivotal Integrated HR Solutions, can safeguard US companies against potential pitfalls, allowing them to harness the full potential of the Canadian workforce with ease.

Do you have questions about PEO, EOR or HR Outsourcing? Request a Proposal or ask questions of our experts:

SOURCES:

[1] – https://www.torys.com/en/our-latest-thinking/publications/2022/06/10-key-differences-between-canadian-and-us-employment-laws

[2] – https://drkristahiddema.com/blog/2021/3/16/us-employers-with-canadian-employees

[3] – https://www.pivotalsolutions.com/employee-management-services-choosing-between-peo-and-eor-pros-and-cons-of-each