The Canadian legal system

Every business decision has a legal dimension. Hiring a cashier creates an employment relationship with statutory minimums and rights that cannot be signed away. Accepting a purchase order forms a contract. Posting a review of a competitor's product can expose the company to a defamation claim. Leasing a delivery van, collecting customer email addresses, borrowing from a bank and firing an underperforming manager all trigger rules that managers are expected to know well enough to spot problems early and ask for advice before they become expensive. This course gives that working knowledge. It does not turn you into a lawyer, and nothing in it is legal advice; its goal is to help you recognize legal risk, speak the language of the professionals you hire and make better business decisions.

This first lesson explains how the Canadian legal system is built: where law comes from, how authority is divided between Parliament and the provinces, how the Canadian Charter of Rights and Freedoms affects business, how courts create binding precedent and how administrative agencies regulate whole industries. Later lessons build on this map. BUS-101 introduced the forms of business ownership and the business environment; this course goes deeper into the legal rules behind them.

What law is and why it matters to managers

Law is the body of rules that a society enforces through its institutions: legislatures make rules, courts interpret and apply them, and police, regulators and sheriffs enforce the results. Law differs from ethics and social norms because it is backed by state power. A business that breaks a social norm may lose customers; a business that breaks the law may pay damages, fines or penalties, lose its licence to operate or see its managers imprisoned. Many rules overlap: lying to a customer is unethical, and if the lie induces a contract it may also be an actionable misrepresentation or an offence under consumer protection law.

For a manager, legal knowledge serves four purposes. It prevents problems, because a well-drafted contract or a compliant hiring process costs far less than a lawsuit. It identifies opportunities, because intellectual property, limited liability and secured lending are legal tools that create value. It supports negotiation, because knowing what a court would likely do sets the bargaining range in a dispute. And it improves communication with lawyers, who can do their best work only when clients give them the right facts at the right time.

Classifying law

Lawyers classify rules in several ways, and the classification often decides who can sue, which court hears the case, what must be proved and what remedy is available. Public law governs the relationship between the state and individuals or organizations; it includes constitutional, administrative, criminal and tax law. Private law governs relationships between private parties; it includes contract, tort, property and corporate law. Substantive law defines rights and duties, such as the rule that a contract needs consideration; procedural law sets out how rights are enforced, such as the deadline to file a defence.

The most important distinction for business is between civil and criminal matters. In a civil case a private party, the plaintiff, sues another, the defendant, usually for money. The plaintiff must prove the case on a balance of probabilities, meaning that its version is more likely than not. In a criminal case the state prosecutes an accused person for conduct that harms society, and guilt must be proved beyond a reasonable doubt. Between these sits a large body of regulatory offences, such as breaches of workplace safety, environmental or securities rules, which are prosecuted by the state but usually carry fines rather than imprisonment and often allow a due diligence defence.

Sources of law

Canadian law comes from four main sources. The Constitution is the supreme law: it includes the Constitution Act, 1867, which divides legislative powers, and the Constitution Act, 1982, which contains the Charter of Rights and Freedoms and the amending formula. Any law inconsistent with the Constitution is of no force or effect to the extent of the inconsistency. Legislation, also called statutes or acts, is passed by Parliament or a provincial legislature; examples include the Canada Business Corporations Act and Ontario's Employment Standards Act, 2000. Regulations are detailed rules made by the government or an agency under authority delegated by a statute, such as the regulations that set provincial minimum wages. Finally, the common law, or case law, is the body of principles developed by judges deciding individual cases, which governs large areas such as contract and negligence where no statute applies.

Canada is bijural. Quebec uses the civil law tradition for private law: the Civil Code of Québec sets out general principles in a comprehensive code, and judges reason from the code rather than from precedent alone, although decisions remain highly persuasive. The other provinces and the territories use the English common law tradition for private law. Federal law, such as criminal law and bankruptcy law, applies across the country and is drafted to work with both traditions. A business operating in Quebec should expect different rules on topics such as contracts of adhesion, warranties, the language of commercial documents under the Charter of the French Language and some aspects of employment.

The division of powers

The Constitution Act, 1867 divides law-making authority between Parliament and the provinces. Section 91 gives Parliament power over matters of national concern, including trade and commerce, banking, currency, bankruptcy and insolvency, patents and copyrights, criminal law, interprovincial transportation and telecommunications. Section 92 gives the provinces power over property and civil rights in the province, local works and undertakings, the incorporation of provincial companies and the administration of justice. Because property and civil rights is a broad category, most everyday business law, including contracts, sale of goods, consumer protection, most employment law and real estate, is provincial. Courts resolve disputes over which level of government may legislate; where valid federal and provincial laws genuinely conflict, the doctrine of federal paramountcy makes the federal law prevail.

The result is that a manager must ask two questions about any regulated activity: which level of government has authority, and which province's law applies? Banks, airlines, railways, interprovincial trucking, telecommunications, broadcasting and federal Crown corporations are federally regulated, so their employees are covered by the Canada Labour Code rather than provincial employment standards. A retailer, restaurant or manufacturer is usually provincially regulated. Municipalities have no constitutional status of their own; they exercise powers delegated by provincial statute, such as zoning, business licensing and property taxes.

The Charter and business

The Canadian Charter of Rights and Freedoms protects rights such as freedom of expression (section 2(b)), protection against unreasonable search and seizure (section 8), equality rights (section 15) and mobility rights (section 6). Section 32 applies the Charter only to government: Parliament, the legislatures and government bodies and agents. A private employer that refuses to hire someone is not bound by the Charter, but it is bound by human rights legislation, such as the Canadian Human Rights Act or a provincial human rights code, which prohibits discrimination in employment, services and housing.

Businesses can rely on the Charter when government regulates them. Corporations have successfully challenged laws on the basis of freedom of expression, which includes commercial expression such as advertising. In RJR-MacDonald Inc. v. Canada (Attorney General), decided in 1995, the Supreme Court of Canada struck down parts of a federal ban on tobacco advertising as broader than necessary. Charter rights are not absolute: section 1 allows reasonable limits prescribed by law that can be demonstrably justified in a free and democratic society, tested using the framework from R. v. Oakes (1986), which asks whether the law has a pressing and substantial objective and whether its means are rationally connected, minimally impairing and proportionate. Section 33, the notwithstanding clause, lets Parliament or a legislature override certain rights for renewable five-year periods.

Precedent and how courts make law

In the common law system, judges follow precedent under the doctrine of stare decisis, Latin for to stand by things decided. A lower court must follow the decisions of higher courts in the same hierarchy on the same legal question; this is binding precedent. Decisions from other jurisdictions, or from courts of the same level, are persuasive: a judge may adopt their reasoning but need not. The binding part of a decision is the ratio decidendi, the legal principle necessary to decide the case on its material facts. Comments that are not necessary to the decision are obiter dicta and are only persuasive, although obiter from a top court carries great weight.

Precedent gives predictability, which business needs to plan. It also allows the law to evolve. Courts can distinguish a precedent by showing that the material facts of a new case are different, and the highest court can overrule its own earlier decisions when they are clearly wrong or out of step with social change. Because legislation overrides the common law, a legislature can also reverse a judge-made rule by statute, provided the statute is constitutional.

Administrative agencies and regulation

Much of the law that affects business day to day is made and enforced by administrative bodies rather than courts. Examples include the Canadian Radio-television and Telecommunications Commission (CRTC), the Competition Bureau and the Competition Tribunal, the Canada Revenue Agency, provincial securities commissions such as the Ontario Securities Commission, workplace safety and insurance boards, labour relations boards and liquor and cannabis regulators. These bodies issue licences, make rules under delegated authority, investigate, hold hearings and impose penalties. A business that disagrees with a decision can usually ask for an internal review, appeal if the statute allows it or apply to a superior court for judicial review. In Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, the Supreme Court held that courts should generally review administrative decisions for reasonableness, deferring to decisions that are justified, transparent and intelligible, while reviewing some questions, such as constitutional questions, for correctness.

Law, ethics and the legal professions

Legal compliance is a floor, not a ceiling. Conduct can be legal but unethical, such as aggressively enforcing a contract term against a small supplier in crisis, and the reputational cost can exceed any legal gain. Conversely, ethical intentions do not excuse legal mistakes: a manager who sincerely believes a worker is a contractor still exposes the company to unpaid payroll taxes and penalties if the law says otherwise. Good legal risk management combines compliance programs, training, sound contracts, insurance and early advice. Lesson 12 pulls these tools together in a legal risk audit.

Legal services in Canada are regulated by provincial law societies. Lawyers, called barristers and solicitors in the common law provinces, must hold a licence from the law society of the province where they practise. Ontario also licenses paralegals to appear in Small Claims Court and before some tribunals. In Quebec, advocates (avocats) handle litigation and advice, while notaries (notaires) handle real estate transactions, wills and many contracts. Communications between a client and lawyer for the purpose of legal advice are protected by solicitor-client privilege, which is close to absolute; this is one reason to involve a lawyer early when a dispute or investigation looms.