Northern Exposure

Remote Control: U.S. Employees Based in Canada

By Stephen Acker and Julia Kennedy

Gone are the days when a white-collar job always meant going into the office and occupying a cubicle from 9 to 5. New information technology and network capabilities have made the home office and telecommuting, if not commonplace, at least attainable for many. Employers have realized that they can have access to skilled employees from anywhere on the continent without the headaches of relocation or satisfying immigration laws. While the benefits of remote employment arrangements may be debatable, access to a rare skill set will often outweigh employers’ concerns about supervision.

And so we are in the age of the remote employee.

But Canadian law may still govern
It’s not uncommon for U.S. employers to have their remote Canadian employees sign typical U.S. employment contracts – the same ones that all the employees working in the States sign. And these contracts often contain statements indicating that U.S. law governs the employment relationship. But U.S. employers might be surprised to learn that even very clear statements that U.S. law governs may not prevent Canadian employment standards legislation from applying.

Employers simply can’t contract out of some legislated employee protections. For example, an employee located in Ontario would benefit from that province’s employment standards legislation, including its overtime laws and termination and severance pay provisions.

No employment at will
The at-will employment relationship commonly found in the United States is unknown in Canada. While employers can still fire employees without cause (which usually involves serious misconduct or nonperformance), they must provide those employees with reasonable notice. Where there is no valid termination provision in an employment contract, for example, reasonable notice (or pay instead) depends on a number of factors and can be as high as one month per year of service.

What about U.S. contracts?
An employer can avoid lengthy reasonable notice periods by having a valid termination provision. But problems often arise when an employment contract between a U.S. employer and an employee working in Canada provides the employee with less notice (or pay in lieu of notice) than mandated by provincial law. In Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986, the termination provision was null and void. Without a valid written termination provision, the employee may be entitled to a lengthy reasonable notice period. And that’s the risk of using a standard American contract for an employee working remotely in Canada. The result is a U.S. employer trying to enforce an American contract, often in the United States, and an employee trying to obtain Canadian reasonable notice in a Canadian court.

Litigation in the U.S.?
That begs the question – where will the dispute be fought? Can a U.S. employer force a remote employee in Canada to resolve a contractual dispute through arbitration in the employer’s state, rather than have it resolved in the appropriate provincial court?  Recent cases have come to different conclusions about the enforceability of such a clause. In Donna Houston v. Exigen (Canada) Inc., 2006 NBQB 029 (CanLII), the court determined that the employee had been “vulnerable” when she signed the contract. Not only did the court void the at-will condition of employment, it also said the arbitration clause (providing for arbitration in the United States) was invalid. A serious consequence of such a ruling is that, having assumed jurisdiction, a Canadian court is likely to award reasonable notice (or pay instead), as opposed to the much shorter termination notice in the contract.

In Ross v. Christian & Timbers Inc., 2006 NBQB 29 (CanLII), the employee sued the U.S. employer in Ontario for wrongful dismissal. This time, however, the court said the arbitration clause providing for a U.S.-based arbitration was valid. In doing so, the judge made clear that the at-will term of the contract could not be valid under Ontario law.  However, since there was no evidence before him that the U.S. arbitrator, in applying U.S. conflict of law rules, would award less than the applicable statutory minimum, he found that the employee was bound by the choice of venue clause in his contract and was obliged to go to arbitration in the United States. Not a happy, or cheap, result for the employee.

And the verdict is . . .
Clearly, this is an unsettled area of the law. To avoid having Canadian courts assert jurisdiction and potentially award damages far in excess of what a U.S. arbitrator might award, employers with remote employees in Canada should ensure they have appropriate written contracts in place. Those contracts should have:

  • — Termination provisions that at least meet Canadian provincial standards; and
  • — Forum and arbitration provisions making it clear that any dispute will be fought in the United States.

It’s clear that off-the-shelf U.S. precedents likely won’t stand up in the great white North.

Contact the authors, Stephen Acker and Julia Kennedy

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