Employment Law for Business Owners: Key Take-Away Points
If you’re thinking of hiring employees for your small business, there are certain employment law principles that you should first be aware of.
Basic Employment Standards
In BC, the Employment Standards Act (“ESA”) governs employee relationships and applies to all employees (whether they are employed on a part-time, full-time, temporary, or permanent basis). Here are some key concepts to keep in mind when it comes to the ESA.
Minimum Wage: The minimum wage in British Columbia is currently $13.85 per hour and applies to all employees (whether they are paid hourly, salary, commission, or other incentive basis).
Minimum Daily Pay: An employee who reports for work must be paid for at least two hours and if the scheduled shift scheduled was for more than eight hours, they must be paid for at least four hours—this applies even if the employee is sent home early.
Meal Breaks: An employee must not work more than five hours in a row without a 30-minute unpaid meal break. Alternatively, an employee who is required to work or be available for work during a meal break must be paid for the meal break.
Paydays: All employees must be paid at least twice a month.
Overtime: Employees who work more than eight hours in a day must be paid time and a half for each additional hour, and employees who work more than 12 hours in a day must be paid double time for each additional hour. On a weekly basis, employees who work over 40 hours in a week must be paid time and a half (however, only the first eight hours worked in a day count towards weekly overtime).
Deductions: As the employer, you are required to make deductions from wages required by law (e.g. income tax, EI, CPP).
Personal Liability of Directors
It is important to note that directors and officers of a company can be liable for unpaid wages, vacation pay, and over-time pay. This may also extend to severance pay that is due and owing. A director or officer of a company can also be held personally liable where the company has failed to deduct or remit to the CRA source deductions relating to salaries, wages, or other taxable benefits of employees.
What this means is that if the company runs out of money and can’t pay its employees or the CRA, those payments may have to come out of the pockets of the directors and officers.
Consideration for Existing Employees
Consideration is the legal principle that each party to a contract must give and receive something in order to make a contract binding.
The courts have held that continued employment does not constitute sufficient consideration for signing an employment agreement. What this means is that if an employee has already started working for an employer at the time an employment agreement is signed, no consideration exists for the written employment agreement and additional consideration (often in the form of a signing bonus) is needed.
Given this, it is extremely important that all employees sign their employment agreements before they start working for the company.
Although we see many employment agreements that include non-competition provisions (particularly for businesses in the technology sector), be aware that in Canada, non-competition clauses in an employment relationship are sometimes difficult to enforce as they prevent a former employee from earning a livelihood and are considered to be contrary to public policy. The law generally favours employee mobility, encouraging free competition in the marketplace, and avoiding restraints on the supply of services.
Having said that, non-competition provisions have been upheld in some scenarios. Some factors the courts consider when determining whether these clauses are enforceable and reasonable are:
the nature of the employee’s position and their relationship with the employer’s client-base;
the duration of the covenant (it would not be reasonable to prevent an employee from working indefinitely; the shorter the restriction, the more likely it will be considered reasonable);
the geographical area it covers (depending on the type of work, it may be reasonable to restrict the employee from working in the town, city or province); and
the scope of the restriction (if the employee is so restricted from working for any other employer in his or her field of work, then it may not be reasonable).
If you are ever wondering whether the inclusion of a non-competition provision is appropriate in a particular circumstances, it’s a good idea to discuss the situation with a lawyer.
Termination of Employees
In BC, unless you have a fixed term contract or contractual notice provision, an employer can dismiss an employee by giving the employee minimum notice under the ESA plus “common law reasonable notice” (or payment in lieu of notice).
The notice requirements under the ESA are fairly straightforward because they’re based on length of service. The employer’s liability for compensation for length of service is as follows:
after 3 consecutive months of employment, an amount equal to one week’s wages;
after 12 consecutive months of employment, an amount equal to 2 weeks’ wages; and
after 3 consecutive years of employment, an amount equal to 3 weeks’ wages plus one additional week’s wages for each additional year of employment, to a maximum of 8 weeks’ wages.
The length of "common law reasonable notice", on the other hand, is based on four less straightforward factors:
length of service;
the age of the employee;
the type of position held, including salary, and whether supervisory responsibilities are present; and
the availability of similar employment in the job market at the time of termination.
If you’re thinking the second list is vague—you’re right. It is. Which is exactly why you don’t want a court battle over what an appropriate notice period should be in a given case. This is another reason to have a clear notice provision set out in a written employment contract.
Going from business-owner to employer can be a big step. And it’s not a process to be taken lightly. Without proper planning, you could find yourself, at best, with an unhappy employee. At worst, you could find yourself in front of the Employment Standards Tribunal. If you are unsure about any of your responsibilities as an employer, we’d encourage you to speak with a lawyer to make sure you are complying with the necessary ESA provisions.