The following blog post is the first installment of a two-part series on Employment Law.
What is Employment Law and Why Is It Important for Your Start-up?
Employment law is the body of laws and regulations that govern the relationship between workers and employers. It includes everything from hiring and terminating employees to workplace safety, discrimination, and minimum wage requirements.
It is important for start-ups to consider employment law obligations and it is strongly recommended to consult legal experts to ensure that your business is compliant with the applicable laws – the violation of which can be very costly, especially in the early stages of your business.
There are certain key elements that start-ups may want to consider relative to employment law. These include what laws apply to your business and the difference between employees and contractors.
Which Laws will Apply to your Start-up?
In Quebec, employment law is largely governed by the Civil Code of Quebec (the CCQ), the Act Respecting Labour Standards (the ARLS), as well as various related laws and regulations.
In some cases, however, the workplace will be federally regulated, and federal legislation will apply in tandem with provincial legislation. This largely affects federally regulated industries which are listed by the Government of Canada.
Classification of Employees
In Quebec, there are two types of remunerated workers: employees and independent contractors A third class of workers referred to as dependent contractors may be emerging – however, this classification is still being debated by the courts.
Difference between Employees and Contractors
There are a number of key distinctions between employees and contractors that are important to consider when making decisions regarding your business’ employment relationships. Most notably, start-ups may want to consider utilizing contractors to avoid some of the obligations that come with hiring employees.
Employees are persons who enter into an employment contract, which can be concluded in writing or verbally. Employees enter into a contract of service while contractors enter into a contract where fewer rules apply, also known as a contract for services.
An important distinction between employees and contractors is that the employer has more obligations towards employees than contractors. For example, they need to pay for the pension plan, insurance, and withhold payroll taxes. In turn, the employee also has more obligations towards their employer than a contractor does, such as personally performing the work they are assigned to do as opposed to hiring helpers or assistants (unless by express consent).
Moreover, employees are under the employer’s direct supervision and are much less independent than contractors.
For the business, independent contractor relationships can be advantageous in certain circumstances. As previously mentioned, there are often fewer administrative obligations toward contractors. Employers do not have to pay for the applicable pension plan, employment insurance premiums (EI), disability insurance, medical plan, vacation pay, extended health benefits, workers compensation, nor deduct and remit payroll taxes.
Generally, terminating the relationship with independent contractors is also less costly as independent contractors do not require reasonable notice of termination or severance pay. There are fewer safeguards against termination for independent contractors. Often, the terms of termination for contractors are set out in the contract.
For the contractor, this type of relationship can also be advantageous as their working hours and conditions are more flexible, they are more independent, they can work for multiple businesses simultaneously, as well as benefit from tax advantages.
However, one major disadvantage is that contractors are often liable for their actions in operating their businesses while employers are often responsible, through vicarious responsibility, for the action of their employees. This essentially means that if a contractor commits a civil wrongdoing, they may be held liable and be ordered to pay damages. Whereas if an employee commits a civil wrongdoing, the employer may be liable in certain circumstances.
In short, employees have more restrictions but are reliably compensated for their work. On the other hand, contractors are free to work on their own time but are open to liability. Employees are part of the business while contractors are in business for themselves.
Classification of Employees and Contractors
The proper classification of your workers is essential for your success. Misclassifying an employee as a contractor, or vice-versa, can be very costly for your start-up.
Claiming that a worker is a contractor based entirely on their contract is not sufficient. Courts will not only look at the contract when determining the classification of the worker, but also at the facts of the particular situation. While there is not a bright line test for the classification of a worker as an employee or contractor, courts tend to look at the following factors in their evaluation:
- The independence of the contractor (Are they subordinate to the business, under the business’ direct control or supervision? Or are they independent in managing their own work?);
- Whether the business provides office space and tools;
- The exclusivity of the contractor's services;
- The share of the contractor's income that comes from particular business.
It is not clear in Quebec law whether or not volunteers can work for for-profit companies. It is important to differentiate between a true volunteer and an employee who is not remunerated, which is strictly illegal. In order to determine under which category a person falls, there are a number of questions you can ask yourself that will help make the distinction, such as:
- Is there a relationship of subordination between employer and "employee"?
- Does the employee have to comply with the employer's requirements in terms of work performance, work schedule and availability for work?
- Does the employer rely on the employee's services?
Overall, classifying employees and contractors are an important consideration for start-ups and needs will vary from business to business. Answers to specific questions should be determined with the advice and assistance of a lawyer.
Sources and Helpful Links