Canada: Navigating Employment Law Tricky For Startups

Last Updated: January 13 2017
Article by Geoffrey Breen

So, you want to launch a business in Nova Scotia? Well, whether you want to disrupt the tech sector, break the Internet or brew some sour beer, you are going to need to understand what it means to be an employer subjected to a litany of employment laws.

In the spirit of our times, here's a list of the top-five employment law points that confront small businesses. Of course, I can't cover the whole ambit of employment law in just five points (that would take at least six points). However, this should be a good start.

(1) Who are your employees?

Spoiler: Probably everyone who works for you. Under the Nova Scotia Labour Standards Code, there is a presumption that pretty much anyone you retain to perform work is an employee. These employees have rights to, for example, minimum wage, vacation and holidays. And they cannot choose to forgo those rights.

This means that whether somebody is a company founder, volunteer, unpaid intern or independent contractor, in the eyes of the law, they will be employees unless you can meet very specific (and limited) legal criterion. You can call them what you want but they are probably employees.

(2) Employees aren't free

Seems simple enough, but I can't tell you how many times I've seen startups paying their employees in stock options or other intangibles rather than cash.

I understand the rationale. Cash is tight and getting shares in what might become a very successful enterprise can seem attractive to both sides. But, as a private company, regardless of the company's valuation, there is unlikely to be a liquid market for your shares. And it's going to be awfully difficult to convince a court or regulator that issuance of equity in the company satisfies wage requirements.

Now don't get me wrong, perks are great. When structured correctly, they help to entice good employees to stay and be invested in the long-term success of the company. However, employees cannot contract out of paying minimum wage.

(3) Plan for the breakup

No one wants to think about terminating employees before they are even hired. And I know that a small business can at times feel like (or even be) a family. But if you think you'll never need to fire an employee, you're probably wrong. It's an unhappy reality that, for various reasons, businesses invariably find themselves needing to fire employees, often including founders. Failing to contemplate termination early on can be a very expensive mistake for two key reasons:

  1. Just Cause does not mean Just 'Cuz. Yes, employers in Nova Scotia with just cause for doing so can generally terminate an employee without paying severance. However, just cause for termination is a remarkably high standard and the fact that someone isn't a great performer or a bad fit will rarely (if ever) suffice. As a result, the vast majority of employment terminations are on a without cause basis, which requires some form of severance arrangement is to be provided.
  2. The code is incomplete. In most circumstances, the code entitles employees to a maximum of eight weeks notice (or pay in lieu thereof). However, what the code doesn't tell you is that, absent a well-drafted employment contract that provides otherwise, the common law will also govern a terminated employee's rights. While determining an employee's common law rights is a nebulous exercise that keeps lawyers employed, it will generally end with you paying a terminated employee a lot more money than you are comfortable with.

Now, I would be remiss if I did not point out that Nova Scotia is a jurisdiction that places restrictions on the ability to terminate an employee with 10 or more years service. However, the takeaway here should be that, whether it be a stranger or your best friend, in order to mitigate your risks when the employment relationship ends, you'll want to implement a well-drafted employment contract when the employment relationship starts.

(4) All work no play makes Jill a legally aggrieved employee

Employees are not robots . . . unless your employees are actual robots. Otherwise, having the same employees working 24/7 won't fly. Now I know there will be times in starting up where it's all hands on deck, but you will need to schedule appropriately, both to save money and stay on the right side of the law.

For one, most employees are entitled to at least 24 hours off per week, half-hour breaks every five hours and overtime pay at one and one-half times their regular hourly rate for hours in excess of 48 per week (and no, salaried employees are not automatically exempt from overtime pay).

While there are certain variances and exemptions from these rules, such variances and exemptions are very specific and should be well understood if relied upon.

Finally, virtually all employees accrue at least two (2) weeks paid vacation per year. To be clear, it doesn't matter whether they are part time or full time.

Oh, and you are required to keep a record of all pay, hours or work and vacation for each employee. If you are audited or inspected by the Ministry of Labour, the inspector is unlikely to take your word for it.

(5) Don't kill your employees and 10,000 other safety rules

Employers are legally obliged to provide a safe workplace to employees, not only in relation to accidents but also harassment and violence. The obligation is not simply a general one. There are all sorts of specific and often technical safety requirements that employers must abide by. Many businesses, including those engaged in retail or liquor sales, are specifically required to implement a workplace violence prevention program, including policies and training for employees.

By the way, you could go to jail if found responsible for a serious workplace safety violation.

All these issues are manageable and Nova Scotia needs more businesses. So, don't be discouraged and ask lots of questions about your obligations as a business owner.

This article was originally published by the Chronicle Herald on January 9th, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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