Canada at a Glance

Most employment agreements are for an indefinite term. Where an employment agreement is for a fixed term, the employee may not be entitled to notice of termination if his or her employment is terminated when the contractual term expires. However, where an employee continues to be employed once the contractual term has expired, or where the employee continues to be employed by the same employer under consecutive fixed-term employment contracts, law courts are likely to find that the employment contract was in substance one of indefinite duration. Employment standards legislation may also establish maximum time frames for fixed term employment contracts to operate as such.

Employment contracts may be indefinite, fixed-term, full-time, part-time or casual. Employers can generally provide for differential treatment between these categories of employees; however, basic employment standards apply to all categories in each Canadian jurisdiction. These employment standards set minimum legislative standards in respect of matters such as minimum wages, hours of work, overtime pay, vacations and holidays, and leaves of absence. Employees and employers may not waive or contract out of these rights except to provide more favourable conditions to employees.

If an employer wishes to hire an employee on a probationary basis to determine their suitability for the position, this should be clearly set out in a written employment contract. In most jurisdictions, a probationary period of up to 3 months is permitted. During the probationary period, an employer, in most provinces, may be able to terminate an employee without being required to provide statutory notice of termination or pay in lieu.
Once a person has been employed for three months, the minimum notice requirements for termination will apply. Any agreement for a probationary period that exceeds three months should clearly state that the employee will be provided with his or her statutory entitlements upon termination.

Most provinces have legislation that governs the maximum hours that employees may work. Such legislation sets out maximum daily and weekly figures (typically 8 hours per day and 40 hours per week). In certain situations, these maximum hours of work may be exceeded, such as: where overtime is paid; where employees agree; or where there is an emergency. Specific provisions also exist in some provinces, which permit employers to implement “compressed” four-day work weeks or “continental shifts” with 12-hour work-days where the requirement for such can be reasoned. Additionally, some professions (for example, doctors) and certain roles such as managers and supervisors may be exempt from such minimum standards and overtime rules.

Overtime rules vary by province with some jurisdictions having daily overtime thresholds (often 8 hours) and others having weekly overtime thresholds (often 40 to 44 hours per week). Overtime is generally payable at 1.5 times the regular rate and in some jurisdictions, 2 times the regular rate once a particular threshold is passed. Overtime entitlements apply to both salaried and hourly employees. However, most jurisdictions specifically exclude certain employees from this entitlement, such as managerial or supervisory employees and certain types of professionals.

Grounds

Termination for cause without notice or pay in lieu is permissible. It is very difficult to establish just cause for dismissal; the standard is high. However, in general, if an employee engages in conduct that is incompatible with the fundamental terms of the employment contract, such as gross and wilful misconduct, wilful neglect of duty, fraud, theft, or repeated insubordination he or she may be dismissed without notice.

Termination without cause is permissible in most jurisdictions, provided that proper notice of termination or pay in lieu is provided.

Employees entitled to termination protection

Generally, employees in Canada cannot be terminated without just cause or without proper notice or pay in lieu and severance pay, if applicable, under statute and at common/civil law. The right to reinstatement, however, is generally limited to unionized employees, employees terminated contrary to human rights legislation, employees terminated for exercising a statutory right with respect to working conditions or legislated employment standards (such as the right to a pregnancy leave).

Federally regulated employers may not terminate a non-managerial employee with at least one year of service without sufficient reason (generally just cause or a discontinuance of the job function). Employers are federally regulated if they operate in industries that fall within the federal government’s constitutional jurisdiction and concern matters of national interest.

In Québec and Nova Scotia, additional protections exist for certain employees who have acquired tenure (achieved a certain length of service), and in those circumstances, termination may not be possible except for bona fide reasons, such as position elimination or lack of work.

Notice tendered by Employer

The statutorily required minimum length of notice of termination varies by province and, for individual terminations, is typically based on an employee’s length of service. For individual terminations, most jurisdictions limit notice of termination to 8 weeks. If a written employment contract that is otherwise enforceable provides that the employee will receive only his or her minimum entitlements under the applicable statute, this may be sufficient to rebut the legal presumption that the employee is entitled to reasonable notice at common law.

However, statutory entitlement only sets out an employee’s minimum entitlements upon dismissal. Unless the parties have expressly agreed otherwise, there is a legal presumption that an employee will also be entitled to reasonable notice period under common law, and such period may be significantly longer. Factors that will be considered by an adjudicator in determining the appropriate notice period include: the character of employment; the employee’s length of service; the age of the employee; and the availability of other employment. The range of the notice period that may be awarded by a court generally may range from two or three months up to twenty- four months.

In Québec, similar entitlements exist and generally cannot be limited by contract at the outset of the employment relationship.

Notice tendered by Employee

Similarly, employees are also obliged, under common law, to give a “reasonable amount” of notice. Again, the calculation of this reasonable amount will depend on specific circumstances. Alternatively, parties can displace the common law requirement for an employee to provide “reasonable” notice by including in the employment contract, at the time of hire, a specific amount of notice an employee must give when he or she resigns.

Payment in Lieu

Pay in lieu of notice is permitted. “Garden leave” is becoming more common and, with appropriate care and planning, an employer can often achieve this objective for a reasonable period.

Post-Termination Restraints / Restrictive Covenants

Non-compete clause

Non-compete clauses will typically not be enforceable for regular employees and particularly not where a non-solicitation provision would have been sufficient to protect the employer. In Ontario, employers are prohibited from entering into employment contracts or other agreements with an employee that include a non-compete agreement. In other provinces, any such clause must be reasonable in scope geographically and temporally, and in some jurisdictions, must also specify the type of restricted employment and the restricted job functions. The language should be clear and unambiguous. A requirement not to interfere with business relationships might also be more likely to be enforced if it is reasonable, clear and unambiguous.

Customer non-solicit clause

A customer non-solicit clause is more likely to be enforced than most non-competition agreements. Non-solicitation agreements must still be reasonable in scope geographically and temporally and be clear and unambiguous.

Employee non-solicits

Again, these are likely to be enforced if reasonable, clear and unambiguous.

In Canada, the level of union participation is low and declining in the private sector. Unions continue to have high levels of representation in the public sector, especially in certain traditionally unionized industries such as automotive, construction and transportation. Many businesses have no union or other worker representation and there are no works councils. Industry-level collective bargaining agreements are rare other than in Québec for certain industries.

In Canada, there is no legal requirement for a company to hire a minimum number of local employees if it is hiring expatriates.

Work Permits

Most people will require a work permit to work in Canada. (There are very few exceptions for particular work types such as: academic experts evaluating or supervising academic projects, proposals or university theses).

There are two types of work permits – Open work permits and Employer-specific work permits. Most permits will be Employer-specific. To commence an application there will be various requirements but typically and most importantly, proof of an offer of employment and a Labour Market Impact Assessment (LMIA) confirmation letter. A LMIA is a document that an employer in Canada may need to get before hiring a foreign worker. A positive LMIA will show that there is a need for a foreign worker to fill the job. It will also show that no Canadian worker or permanent resident is available to do the job.

Getting a Tax Number

The Canadian Social Insurance Number (SIN) is a 9-digit number that is required in order to work in Canada or to have access to government programs and benefits. A SIN is issued to one person only and it cannot legally be used by anyone else. Applications to the Social Insurance Registration Office can be made online or by post. There is no fee.

For individuals resident in Canada, their authorized tax identification number is their nine-digit Canadian Social Insurance Number (SIN). Every individual resident in Canada with income tax filing obligations is required to have a SIN.

There must be at least one shareholder.

There is no minimum capital requirement (but there are thin- capitalization rules that could deny deductions for interest payments to specified non-residents).

At least 1 Director is required; under federal law, 25% of directors must be a resident of Canada (if it has less than 4 directors, at least one director must be a Canadian resident resident Canadian). However, certain provinces do not require any directors to be a Canadian resident.

Officers can also be appointed, but not generally legally required.

In some provinces, a local resident is required to be the company’s administrator. Requirements vary by province. For example, Ontario does not require resident directors, but provinces like Alberta and British Columbia require at least 25% of directors to be Canadian residents.

No physical office is required and a virtual office is sufficient for incorporation.

Insurance

Provincial workers compensation may apply dependening on the client industry and gross payroll.

The typical timeframe to open a business bank account in Canada is one to two weeks. Please note that requires proof of identity, address, and possibly SIN (Social Insurance Number). The process can be done online with some banks but typically requires in-person verification.

Maintaining accounting records is a legal requirement for businesses operating in Canada. The requirements are set out by both federal and provincial laws, and compliance is crucial for tax, regulatory, and financial management purposes. Canada uses IFRS for publicly accountable entities and ASPE for private companies. Not-for-profit organizations follow ASNPO.

Must annually file tax returns with federal and provincial tax authorities.

Most provinces require initial registration, as well as annual filings to the extent the corporation caries carries on business in the province.

Federal corporate tax rates 15% and combined federal and provincial tax rates are between 26.5% and 31%.

Annual tax returns with federal and provincial tax returns and are due generally no later than six months after the end of each tax year. Taxes owed are due within two or three months, depending on the corporation’s status.

Fiscal year choice is discretionary – it can also be changed at a later date.

Tax Obligations

Periodic returns

Reporting periods are monthly, quarterly or annually, depending on the level of taxable and zero-rated supplies made by the registrant.

• Registrants whose turnover exceeds CAD6 million a year must file returns monthly.
• Registrants whose turnover is between CAD1.5 million and CAD6 million a year must file returns quarterly (with an option of filing monthly).
• Registrants whose turnover does not exceed CAD1.5 million must file annually (with an option of filing monthly or quarterly).

Any registrant has the option of filing returns monthly, even if revenue from taxable and zerorated supplies is less than CAD6 million.

Nonresident vendors or nonresident distribution platform operators registered under the simplified system for e-commerce must file on a quarterly basis.

Periodic payments.

Any net tax due for the period must be remitted with the return. Payments must be made in Canadian dollars (except under the simplified system for e-commerce where it is possible to pay in US dollars or euros under certain conditions).

Payments may be made in various ways, including electronically through CRA’s website, in person or through a financial institution’s internet or telephone banking system, or by mailing a check or money order. Where tax is owed in respect of a particular reporting period, that tax must be remitted to the receiver general by the date on which the return is required to be filed. In contrast to the rule that deems a return to be filed when it is mailed, a tax remittance is regarded as having been paid only when it is received by the receiver general.

Foreign Companies

A foreign company is not legally required to have a tax representative in Canada, but appointing one can be very beneficial for managing tax compliance and correspondence with the CRA. Having a tax representative can simplify the management of tax obligations and ensure that all regulatory requirements are met efficiently.

• Provincial Sales Tax (PST), levied by individual provinces
• Goods and Services Tax (GST), a value-added tax levied by the federal government
• Harmonized Sales Tax (HST), a blended combination of PST and GST used by some provinces.

Income tax is levied at two different levels; federal and provincial. Provincial tax is computed in much the same way as federal tax, but applying the applicable province’s tax brackets, rates, and credits to taxable income. The Canada Revenue Agency (CRA) administers both federal and provincial taxes (except Québec’s). Taxpayers calculate their federal and provincial taxes on one return (other than in Québec, which will require filing of both a federal and separate Québec tax return).

Residents

All individual resident in Canada are subject to Canadian income tax on their worldwide income, regardless of where it is earned or where it is received. However, they may be eligible for a credit or deduction for foreign taxes paid on income derived from foreign sources.

Non-residents

Non-resident individuals are subject to Canadian income taxes, at the same rates applicable to residents, on the following types Canadian earned income:

• employment income
• business income
• gains from the disposition of “Taxable Canadian Property”.

Below are the federal rates for 2025:

Canada has a well-developed and extensive social security system that provides benefits such as disability, death, family allowances, medical care, old age, sickness, and unemployment benefits. Funding for the social security system is by wage and salary deductions and employer contributions. It is the employer’s responsibility to collect both employer and employee contributions.

In some provinces, there is an Employer Health Tax (EHT) contribution, and this rate varies.

In addition, Quebec mandates a Parental Insurance Plan.

Second Additional CPP Contributions (CPP2)

Pensionable earnings between CAD 71,300 and CAD 81,200 are subject to CPP2 contributions. Employee and employer CPP2 contribution rates for 2025 are 4%, and the maximum contribution will be CAD 396.00 each.

*The above table serves as a broad guideline. Actual rates charged will differ.

Bonuses are not required. However. many employers will choose to offer bonuses as an incentive both to attract and retain employees. For the employer, it is extremely important that the wording of any bonus policy is very clear. Clarity is key in limiting liability for payment of bonus, particularly upon termination. Employers must consider using explicit language and clear examples in defining the bonus criteria, the payment dates, and the entitlement, if any, applicable in the event of resignation, retirement or termination of any kind. Merely calling a bonus “discretionary” in the employment contract does not insulate an employer from claims for bonus amounts by terminated employees.

Ontario is the only Canadian jurisdiction that provides employees with severance pay, which is distinct from payment for notice of termination. Eligible employees in Ontario and employees under the federal jurisdiction are eligible for severance pay. In Ontario, eligible employees are those with 5 or more years of service. They will receive 1 week for each year of service, with partial years prorated to a maximum of 26 weeks. In the federal jurisdiction, eligible employees receive the greater of 2 days’ wages per year of service or 5 days’ wages.

In Quebec, wages must be paid to workers at intervals no longer than 16 days, as per the law. Similarly, in most provinces, the law mandates regular payment intervals, typically weekly, bi-weekly, semi-monthly, or monthly.

A statement of wages (often known as a pay stub) must be issued on or before the day of the related salary payment. The pay stub must include:

• the employees’ rate of pay
• the pay period
• wages for that period, before and after any deductions, and how that was calculated
• the amount and reason for any deductions

• Employment standards legislation provides employees with a statutory entitlement to vacation time and vacation pay. Amounts and related requirements vary by jurisdiction but in all provinces, after one year of employment, employees are entitled to at least two weeks of vacation time per year and vacation pay of 4% which begins to accrue immediately upon the commencement of employment. In many provinces this entitlement will increase with an employee’s length of service, for example typically 3 weeks and 6% vacation pay after 5 years of service.
• Many employers provide a greater (than statutory) vacation entitlement and allow vacation to be taken in the first year of employment as the vacation time accrues.

***Vacations must be approved at least 30 days in advance.

Use It Or Lose It

In most jurisdictions “use it or lose it” policies are not permissible. This applies to the statutory vacation. Employers are required to ensure that employees take the statutory vacation as per the deadlines of the applicable legislation.

Entitlements to sick leave – and employers’ obligations to pay for these absences – vary by province. Employees in all provinces will have the statutorily protected right to a certain number of days of unpaid sick leave. Many employers choose to provide paid sick leave where these entitlements do not exist.

Some provinces provide for a certain number of statutorily protected but unpaid days to deal with responsibilities in relation to caring for family members.

Importantly, employers also have a duty to accommodate an employee on the basis of any disability and family status, etc. Therefore, an employer may be required to permit an employee to be absent (without pay) for more than the mandated statutory leave days.

Maternity and parental leave entitlements differ from province to province. In general, pregnant employees have the right to take Maternity, or Pregnancy, leave of up to 17, 18 or 19 weeks depending on the province. This leave is unpaid. In Québec, birth fathers are also eligible for up to 5 weeks of unpaid paternity leave.

Additionally, in most jurisdictions, new parents (also parents by adoption) have the right to unpaid Parental leave of between 67 and 78 weeks (depending on the jurisdiction) when a child is born or comes into their care for the first time. Parental leave does not have to commence immediately following the birth of the child (or in the case of adoption when the child first comes into the care of the parents). Timeframes and rules for this leave vary in different jurisdictions. However, in most jurisdictions, birth mothers who have taken pregnancy leave must commence parental leave immediately after the end of the pregnancy leave.

An employer cannot in any way penalize any employee that is eligible, or will be eligible, to take pregnancy/parental leave, or for taking such pregnancy/parental leave. Generally, benefits must be maintained and in almost all cases employees have the right to return to their job following the leave, whilst the employee’s seniority and length of service will also be maintained.

As often Employment Insurance benefits only cover a fraction of the employee’s regular income, many employers will have a scheme to offer a “top up” of benefits for a further portion of the regular income.

Under the Employment Standards Act, there is no statutory entitlement for employees to receive paid bereavement leave in Canada (except in Québec). Under most circumstances, employees are entitled the right to take at least 2 days of unpaid job-protected leave per calendar year for the death of immediate family members. The employees’ job is protected in the event of them taking such leave. Many employers will both pay for this leave and indeed extend the number of days allowed via agreement in the employment contract or in an emergency leave policy.

The definition of immediate family members is: an employees’ siblings, spouse, their or their spouse’s parents, step-parents or foster parents, their or their spouse’s grandparents or step-grandparents, their or their spouse’s child, step-child or foster child, their or their spouse’s grandchildren or step-grandchildren, their child’s spouse, or a dependent relative.

Public holidays in Canada are typically known as statutory holidays. They are legislated at Federal, Provincial and Territorial levels. There are five nationwide federal statutory holidays and seven additional holidays for federal employees. Each of the provinces and territories observes a number of statutory holidays in addition to the nationwide days.

Most workers are entitled to take the day off with regular pay. Some employers may require employees to work, but the employee must either receive a day off in lieu of the holiday or must be paid at a premium rate – usually 1½ or twice the regular pay for their time worked that day, in addition to the holiday pay.

The Canadian social security system is broad and encompassing, incorporating federal law on welfare issues such as unemployment insurance and old age security, as well as provincial policies and programs on welfare issues, such as education, social services and social assistance.

The benefits system also provides for benefits including retirement, unemployment, disability and healthcare benefits and are available to residents of Canada.

Additionally, the federal Employment Insurance (EI) system provides benefits in the event of a loss or interruption of employment. Canada’s public health care system also greatly decreases the cost to employers of providing private medical insurance to employees when compared to countries without such systems. Participation in a government-run workers compensation program in each province is either mandatory or optional, depending on the type of work the employer is engaged in.

Other Benefits

Typically, employees in senior roles are offered supplementary benefit packages, which may include:

• Private pension programs
• Supplementary health care/dental plan (which typically cover costs of items or care that are not covered by Canada’s universal healthcare system such as prescription drugs or vision ware)
• Additional paid annual leave/emergency leave
• Corporate bonus program
• Vehicle allowance