Employment Law Basics for Startups

If you’re a startup and thinking of hiring employees to help you scale, there are certain employment law principles that you should first be aware of. In British Columbia, the Employment Standards Act (ESA) governs employee relationships and, for the most part, applies to all employees regardless of their working hours or schedule (i.e., whether they are part-time, full-time, temporary, or permanent). This article covers some basic employment standards and other key legal aspects you need to know.

Minimum Wage: The current minimum wage in British Columbia is $15.65 per hour (as of June 1, 2022) and applies to all employees, including those paid hourly, salaried, by commission, or other incentives. Effective June 1, 2023, minimum wage in British Columbia will be increasing to $16.75 per hour.

Minimum Daily Pay: Employees who report to work must be paid for at least two hours. If the scheduled shift is more than eight hours, the employee must be paid for at least four hours, even if they are sent home early.

Meal Breaks: An employee who works more than five consecutive hours must have a 30-minute unpaid meal break. However, if the employee is required to work or be available for work during the break, they must be paid for it.

Paydays: Employers must pay their employees at least twice a month (so monthly paydays won’t work).

Overtime: Employees who work more than eight hours in a day must be paid one and a half times their regular pay for each additional hour. Those working more than 12 hours in a day must be paid double time. On a weekly basis, employees who work over 40 hours must be paid time and a half. Only the first eight hours worked in a day count towards weekly overtime.

Deductions: As an employer, you are responsible for making deductions from employee wages required by law, such as income tax, EI, and CPP.

Personal Liability of Directors

It is important to note that directors and officers of a company can be held personally liable for unpaid wages, vacation pay, overtime pay, and severance pay due and owing. They can also be held liable for the failure to deduct and remit source deductions relating to employee salaries, wages, or other taxable benefits.

What this means is that if the company runs out of money and can’t pay its employees or the CRA, those payments may have to come out of the pockets of the directors and officers.

Consideration for Existing Employees

Consideration is the legal principle that each party to a contract must give and receive something in order to make a contract binding.

The courts have held that continued employment is not sufficient consideration for signing an employment agreement. What this means is that if an employee has already started working for an employer at the time an employment agreement is signed, no consideration exists for the written employment agreement and additional consideration (often in the form of a signing bonus) is needed.

Given this, it is extremely important that all employees sign their employment agreements before they start working for the company.

Non-Competition Provision

Although we see many employment agreements that include non-competition provisions (particularly for businesses in the technology sector), be aware that in Canada, non-competition clauses in an employment relationship are sometimes difficult to enforce as they prevent a former employee from earning a livelihood and are considered to be contrary to public policy. The law generally favours employee mobility, encouraging free competition in the marketplace, and avoiding restraints on the supply of services.

Having said that, non-competition provisions have been upheld in some scenarios. Some factors the courts consider when determining whether these clauses are enforceable and reasonable are:

• the nature of the employee’s position and their relationship with the employer’s client-base
• the duration of the restriction (it would not be reasonable to prevent an employee from working indefinitely; the shorter the restriction, the more likely it will be considered reasonable)
• the geographical area it covers (Canadian courts have consistently held that a non-competition clause must have geographical limits and have not yet adapted their approach to online or e-commerce businesses, in which the geographical location of the business is of little importance)
• the scope of the restriction (if the employee is so restricted from working for any other employer in their field of work, then it may not be reasonable)

If you are ever wondering whether the inclusion of a non-competition provision is appropriate in a particular scenario, it’s a good idea to discuss the situation with your lawyer.

Termination of Employees

In BC, unless you have a fixed term contract or contractual notice provision, an employer can dismiss an employee by giving the employee minimum notice under the ESA plus “common law reasonable notice” (or payment in lieu of notice).

The notice requirements under the ESA are fairly straightforward because they are based on length of service. The employer’s liability for compensation for length of service is as follows:

• after 3 consecutive months of employment, an amount equal to 1 week’s wages
• after 12 consecutive months of employment, an amount equal to 2 weeks’ wages
• after 3 consecutive years of employment, an amount equal to 3 weeks’ wages plus one additional week’s wages for each additional year of employment, to a maximum of 8 weeks’ wages

The length of “common law reasonable notice”, on the other hand, is based on four less straightforward factors:

• length of service
• the age of the employee
• the type of position held, including salary and whether they have supervisory responsibilities
• the availability of similar employment in the job market at the time of termination

If you’re thinking the second list is vague—you’re right. It is. Which is exactly why you don’t want a court battle over what an appropriate notice period should be in a given case. This is another reason to have a clear notice provision set out in a written employment contract.

What If You Are a High-Technology Company?

High-technology companies in BC are exempted from certain ESA provisions, including minimum daily pay and overtime. Stay tuned, as we’ll cover this topic in more detail in a future article!

Final Thoughts

Going from startup founder to employer can be a big step. And it’s not a process to be taken lightly. Without proper planning, you could find yourself, at best, with an unhappy employee. At worst, you could find yourself in front of the Employment Standards Tribunal. If you are unsure about any of your responsibilities as an employer, we’d encourage you to speak with a lawyer to make sure you are complying with the necessary ESA provisions.

Ava Aslani has built a successful practice specializing in tech startups and digital entrepreneurs. She can help ensure you get up and running with a solid legal foundation and set your company up for success!