From Hiring to Firing: Employment Law 101 for Emerging Companies
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This document provides an overview of key employment law issues for emerging companies. It discusses how to determine if a worker is an employee or independent contractor, issues around hiring "interns", the importance of employment agreements, common employment compliance issues, and proper termination procedures. The key points are: employees have more legal protections than contractors; interns will usually be deemed employees; employment agreements are important risk management tools; compliance issues include employment standards, human rights, and health and safety; and terminations require sensitivity and following best practices to avoid legal issues.
From Hiring to Firing: Employment Law 101 for Emerging Companies
- 1. Osler, Hoskin & Harcourt LLP Steven Dickie From Hiring to Firing: Employment Law 101 for Emerging Companies February 22, 2017
- 2. EMPLOYMENT ISSUES 101: 1. Employees vs. Independent Contractors 2. Hiring “Interns” 3. Importance of Employment Agreements 4. Key Employment Compliance Issues 5. Termination of Employment
- 3. 3 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Employees vs. Independent Contractors EMPLOYEE INDEPENDENT CONTRACTOR Employment-specific statutes Fewer statutes apply Administrative obligations Fewer administrative obligations Reasonable notice for indefinite hires unless there are clear terms regarding termination of employment (except Quebec) Termination-related obligations are generally set out in the contract “Contract of service” “Contract for services” Part of the business of the Company In business for themselves
- 4. 4 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Employees vs. Independent Contractors (cont’d) The true nature of the relationship depends on the “total relationship of the parties” • Exclusive service • Control by the principal over the service to be provided, and when, where and how it is to be performed • Provision of tools necessary to provide the services • Expectation of profit or chance of loss • Integration of activities to the principal’s business organization McKee v. Reid's Heritage Homes Ltd. (2009, ONCA)
- 5. 5 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Independent Contractors…what’s the catch? • “If it quacks like a duck…” • Adjudicators will generally err on the side of finding workers to be employees, even if they’ve agreed in writing to call themselves contractors • Unexpected reasonable notice obligations, missed opportunity to limit obligations with an employment agreement, tax withholding penalties • Balance business needs vs. legal risks
- 6. 6 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES “Interns” • “Intern” is not a recognized class of individual or worker • Very limited carve-outs and exceptions under employment standards legislation • Individuals engaged to provide services/work are likely either employees or independent contractors • Practically, the nature of the type of work that interns provide means they will almost always be considered employees
- 7. 7 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Importance of Employment Agreements • Not “mere paperwork” – key component of risk management for all start-ups • Clear and mutual understanding of the expectations and obligations during the relationship • In the absence of a prior agreement, common law reasonable notice or pay in lieu for employees hired on indefinite basis • They protect your Company • They will save you $$$
- 8. 8 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Common Issues re: Employment Agreements • Sign before individual commences employment… or else unenforceable! (avoid start date signing as well) • Be mindful of “substratum doctrine” • Not following terms; agreements altered “on the fly” • Options – agreement cannot specify a percentage of the Company; need a separate option agreement and Board approval
- 9. 9 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Common Issues re: Employment Agreements (cont’d) • Problems can usually be “fixed” – provided relationship hasn’t already broken down • Keep it simple! • “Hold the line” on standard terms
- 10. 10 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Key Employment Compliance Issues A) Employment Standards ◦ Record keeping, hours of work, minimum wage, overtime pay/time off, vacation time off and pay ◦ Minimum wage: it applies to all employees ◦ RED ALERT: Possible significant changes to overtime rules that may effect software engineers, designers, developers B) Human Rights ◦ Employee’s right to freedom from discrimination or harassment in the workplace based on protected grounds – “performance issues" C) Occupational Health and Safety ◦ Requirement to have workplace violence and harassment policy and procedure; health and safety representative or joint health and safety committee
- 11. 11 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Termination of Employment: Basics • For cause vs. without cause ◦ Cause = very high threshold; “industrial capital punishment” ◦ Without cause often far more cost effective, although sometimes important to take a stand ◦ Properly drafted and enforceable employment agreements help manage risk • Be cognizant of bonus, incentives, commission and options vesting terms • Obtaining a release is key – investors don’t like uncertainty re: employee litigation
- 12. 12 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Firing: “DOs and DON’Ts” DOs: • Ensure no one is made aware in advance except on the most restricted “need to know” basis • Select the right people to deliver the message (ideally 2 employer reps) • Select a time and place that optimizes privacy • Have the termination letter ready to hand to the employee and be ready to explain it • Provide a brief explanation for termination that is accurate, but does not open up a debate • Keep the discussion short, focused and calm • Explain how the employee is to return company property • Obtain all of the employee’s passwords (e.g., for voicemail, computer log-in) • Allow the employee to obtain his/her personal belongings at a convenient time • Take notes after the meeting • See the employee off/ensure that the employee gets home safely DON’Ts: • Be too soft or too hard • Dither – get to the point without small talk • Go into detail regarding the reason for the termination • Argue • Force the employee to pack up their personal belongings immediately following the termination • Avoid the “security march to the door”
- 13. 13 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Termination Meeting Objectives “DOING IT RIGHT” AVOIDS: • Employee suffering pain, stress and embarrassment • Hurting remaining employee morale • Hurting the Company’s reputation • Having to pay the employee more money (e.g. aggravated/punitive damages)
- 14. 14 EMPLOYMENT LAW 101 FOR EMERGING COMPANIES Questions? Steven Dickie Associate CONTACT INFORMATION [email protected] 416.862.4275 Toronto