Employment law

Employment law governs one of the most important relationships in any business. It sets minimum standards that contracts cannot undercut, protects workers against discrimination and unsafe conditions, regulates unions and collective bargaining and determines what happens when the relationship ends. Mistakes are common and expensive: misclassifying workers, miscalculating overtime and mishandling terminations are among the most frequent legal claims against small and mid-sized businesses. This lesson focuses on the legal framework. BUS-130 discusses harassment, motivation and pay from an organizational behaviour perspective, and the HSE courses cover workplace health and safety law in depth.

Employment law in Canada is mostly provincial. About 94 % of workers are covered by the employment standards, human rights and labour relations laws of their province; the remainder, in federally regulated industries such as banking, interprovincial transportation, telecommunications and broadcasting, are covered by the Canada Labour Code and the Canadian Human Rights Act (lesson 1). On top of these statutes sits the common law of employment contracts, which gives non-unionized employees important rights, especially on termination. Unionized employees are governed instead by their collective agreement, enforced through grievance arbitration.

Employee or independent contractor?

The first question is whether a worker is an employee at all. Employees get the protection of employment standards, workers' compensation and other statutes, and employers must withhold and remit payroll taxes and contributions. Independent contractors run their own businesses and get none of these protections. Labels in a contract are not decisive: courts and agencies look at the substance of the relationship. Misclassification exposes a business to back wages, overtime, unpaid payroll taxes, penalties, interest and, in some cases, class actions.

In 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, the Supreme Court held that the central question is whether the worker is performing services as a person in business on their own account. Relevant factors include the level of control the company has over the worker's activities, whether the worker provides their own equipment, whether the worker hires helpers, the degree of financial risk taken, the opportunity for profit and the worker's investment and management responsibilities. No single factor is decisive. Canadian courts also recognize an intermediate category, the dependent contractor: a worker who is a contractor but economically dependent on one business, often working exclusively for it for years, is entitled to reasonable notice of termination. Ontario's Digital Platform Workers' Rights Act, 2022, in force since July 1, 2025, gives app-based ride-share and delivery workers certain rights, such as a minimum wage for work periods and pay transparency, without deciding whether they are employees.

Minimum standards

Provincial employment standards statutes, such as Ontario's Employment Standards Act, 2000 (ESA), set minimums that employers cannot contract out of: minimum wage, hours of work and overtime, public holidays, vacation, leaves of absence, termination notice and severance pay. Any term that gives less than the statutory minimum is void. Rules vary by province, so employers must check the law where each employee works. In Ontario, for example, overtime at 1.5 times the regular rate is generally payable after 44 hours in a week, employees are entitled to at least two weeks' vacation (three after five years) with vacation pay of 4 % or 6 % of wages, and there are nine public holidays. The federal minimum wage under the Canada Labour Code rose to $18.15 an hour on April 1, 2026; provincial rates are set separately and change regularly, usually each year. Employment standards offices investigate complaints, can order payment of wages owed and can prosecute.

Human rights and discrimination

Federal and provincial human rights statutes prohibit discrimination in employment on protected grounds, which typically include race, colour, ancestry, place of origin, ethnic origin, citizenship, creed or religion, sex (including pregnancy), sexual orientation, gender identity and expression, age, marital and family status and disability; some provinces add grounds such as social condition or record of offences. The prohibitions cover hiring, pay, promotion, discipline, termination and harassment. Discrimination does not require intent: a neutral rule that has an adverse effect on a protected group is discriminatory unless the employer shows it is a bona fide occupational requirement. Under the test from British Columbia (Public Service Employee Relations Commission) v. BCGSEU (the Meiorin case, 1999), the employer must show that the standard was adopted for a purpose rationally connected to the job, in an honest and good-faith belief that it was necessary, and that it is reasonably necessary, which requires showing that accommodating individual employees is impossible without undue hardship. Employers have a duty to accommodate employees' disability, religion and family status up to the point of undue hardship, considering cost, outside sources of funding and health and safety. Complaints are heard by human rights tribunals, which can order compensation, reinstatement and policy changes. Workplace harassment and violence are also governed by occupational health and safety statutes; BUS-130 and HSE-109 cover them.

Ending employment: notice and just cause

Non-unionized employees in Canada can be dismissed in two ways. An employer can dismiss for just cause, meaning serious misconduct that is incompatible with the employment relationship, such as theft, serious dishonesty or wilful disobedience, without notice or pay in lieu. Courts take a contextual approach: in McKinley v. BC Tel, 2001 SCC 38, the Supreme Court held that dishonesty does not automatically justify dismissal; the question is whether the misconduct, in context, breached an essential condition of employment. Just cause is hard to prove, and employers often rely on documented progressive discipline. Alternatively, an employer can dismiss without cause at any time by giving reasonable notice or pay in lieu of notice.

The employee's entitlement on dismissal without cause is the greater of the statutory minimum and the common law reasonable notice, unless a valid employment contract limits notice to the statutory minimum. Under Ontario's ESA, termination notice is generally one week per year of service up to eight weeks, and employers with a payroll of $2.5 million or more must also pay severance of one week per year of service, up to 26 weeks, to employees with five or more years of service. Common law reasonable notice is usually much longer. Courts apply the factors from Bardal v. Globe & Mail Ltd. (1960): the character of the employment, length of service, age and the availability of similar employment, considering the employee's experience, training and qualifications. Awards commonly range up to about 24 months for long-service senior employees, and occasionally more in exceptional cases. During the notice period, the employee is entitled to all compensation they would have earned, including benefits and, unless clearly excluded, bonuses (Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26). The employee must mitigate by looking for comparable work.

Employers can limit notice to the statutory minimum by contract, but courts scrutinize termination clauses closely and strike them down if any part could give less than the ESA requires. In Waksdale v. Swegon North America Inc., 2020 ONCA 391, the court held that an invalid just-cause provision invalidated the entire termination section, even though the without-cause provision was valid on its own; subsequent Ontario decisions have voided clauses that allowed termination at the employer's sole discretion or at any time. Clauses must also be agreed at the start of employment or supported by fresh consideration. Employers can also be liable for constructive dismissal, when they unilaterally make a substantial change to an essential term of employment, such as pay, duties or location, or make continued employment intolerable (Potter v. New Brunswick Legal Aid Services Commission, 2015 SCC 10). Finally, employers must act in good faith in the manner of dismissal; in Honda Canada Inc. v. Keays, 2008 SCC 39, the Supreme Court held that damages for bad faith conduct in dismissal, such as being untruthful, misleading or unduly insensitive, compensate actual harm caused, while punitive damages require separate, malicious conduct.

Restrictive covenants

Courts treat restrictive covenants in employment contracts as presumptively unenforceable restraints of trade, enforced only if reasonable in duration, geography and activity and necessary to protect a legitimate proprietary interest such as confidential information or customer relationships. In Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6, a non-compete covering the "Metropolitan City of Vancouver", a term with no legal meaning, was struck down as ambiguous, and the court refused to rewrite it. Courts strongly prefer non-solicitation clauses to non-competition clauses. Since October 25, 2021, Ontario's ESA has prohibited non-compete agreements with employees, subject to exceptions for executives and for the sale of a business where the seller becomes an employee of the buyer. Confidentiality and non-solicitation clauses remain enforceable if reasonable.

Unions and collective bargaining

Provincial labour relations acts and the Canada Labour Code give employees the right to join unions and bargain collectively. A union becomes the exclusive bargaining agent for a bargaining unit through certification by a labour relations board, either by a secret ballot vote or, in some provinces and industries, by card check when enough employees sign membership cards. Employers must not interfere with organizing, for example by threatening, disciplining or promising benefits to employees to discourage union support. Once a union is certified, the employer must bargain in good faith, and strikes and lockouts are permitted only after the collective agreement expires and conciliation steps are completed. During the agreement, disputes go to binding grievance arbitration.