What Company Should Employ Your Expats in Canada?

By Rachel Ravary of McCarthy Tetrault
and Brian P. Smeenk, formerly with McCarthy Tetrault

When you send an employee to work in Canada, what company should be named as the employer? Your U.S. company? A Canadian subsidiary or affiliate? Perhaps your parent company?

Why is this important?
It’s important to be clear about which company is the legal employer because this may determine many of the employee’s rights and entitlements, such as:

• what country’s laws apply to the employment relationship while the employee is in Canada;
• what corporate policies apply to the employee;
• what benefit plans apply;
• whether the employee has the right to return to his or her job after the stint in Canada;
• where future disputes would be litigated or otherwise resolved;
• the length of service that will be recognized;  and
• the employee’s entitlements to severance pay and other benefits upon termination.

The company that is the legal employer doesn’t necessarily have to be the company that pays the employee’s salary and overhead. It’s not uncommon for one company (normally the one that benefits directly from the employee’s service) to pay, while another company is the legal employer. Appropriate inter-company billings or adjustments can easily be done.

How should you decide?
The decision of which company should be the employer is partly a human resources issue and partly a legal issue. Ask yourself how management would want to answer the questions listed above. And consider what the employee would be most comfortable with? Is the employee expected to return home in the near to medium term?

Sometimes the answers to these questions will lead you in opposite directions. You may want your Canadian subsidiary’s policies and bonus program to apply to the assignment, but you know the employee would be more comfortable remaining an employee of the U.S. company. You may want to avoid some of the more onerous obligations of being a Canadian employer, but you don’t expect the employee to return to the United States in the foreseeable future. What should you do?

Many of these issues can be resolved contractually. Check the laws of the province or other Canadian jurisdiction where the employee is assigned. Find out the extent to which the local laws will be binding. Then deal with discretionary issues in an employment contract.

After the decision
Once the decision is made, how do you put it into practice?

• Get legal advice to compare the legal consequences of applying the law of a particular Canadian jurisdiction versus U.S. employment laws. Consider at least the key issues like benefits coverage, tax consequences, and rights upon termination of employment.
• Once you decide, clearly identify who the employer will be in the offer of employment or transfer letter. The company that will be the employer should make the offer.
• Stipulate which country’s laws apply.
• Ensure the offer or contract complies with the laws of the jurisdiction you have chosen. Don’t say that the federal law of Canada applies and then write a contract that violates those laws!
• Be clear about where and how disputes will be resolved.
• If possible, the employing company should pay salary and benefits. Otherwise, advise the employee in writing that the company actually paying salary and benefits is acting as the agent of the employing company.
• Make sure that the employing company is identified correctly on any visa application or other immigration paperwork prepared by or for the employee.
• Be clear with the employee about whether the assignment is permanent. If not, set out what will happen when the assignment ends.
• Make sure that the administration of benefits and other programs is consistent with your decision about which company is the employer.

McCarthy Tétrault has a great deal of experience dealing with international employment arrangements and can assist you in sorting through this complex set of issues.