Your US Employment Contract Is Worthless in Canada
And It Could Cost You Thousands in Severance You Never Saw Coming
Ever looked at expanding into Canada and thought, "It's right there—how different could it really be?"
Have you ever copied your US employment contract, changed the currency, and called it a day?
Do you think hiring a "contractor" instead of an employee keeps everything simple and clean?
Here's the truth: Canadian employment law doesn't work like US employment law. At all.
And the mistakes US companies make when they cross the border? They're expensive. Like, tens of thousands in unexpected severance expensive.
Laura Tolhoek, founder of Essential HR and certified HR leader with over 20 years navigating Canadian employment law, has seen it happen more times than she can count. US companies hire Canadian talent using American practices, and everything's fine. Until it's not.
(00:52) Meet Laura Tolhoek: Your Canadian Employment Law Reality Check
Laura Tolhoek, founder of Essential HR, has spent over 20 years helping companies navigate Canadian employment law.
She works with fast-paced industries like retail, restaurant, and food service. Businesses that need clarity when things get complicated.
Here's what she knows: US companies hire Canadian talent using American practices all the time.
Most of the time, it works fine. But when it doesn't? The bills are massive.
This conversation is her guide to avoiding those expensive mistakes. The border might be thin, but the employment law on the other side is radically different. Understanding that difference is what saves you thousands.
(03:45) At-Will Employment Doesn't Exist
Let's start with the big one: You can't terminate someone in Canada the way you do in the US. There's no at-will employment. None.
Here's what happens instead: If you don't have a rock-solid employment contract with an airtight termination clause, you're looking at common law severance. That's not two weeks. That's not even a month.
That's the courts deciding how much you owe based on the employee's age, seniority, and role. Could be three months. Could be a year.
And you don't get to negotiate. The court tells you what you owe, and you pay it.
The problem? Most US companies use their standard employment contracts in Canada. And those contracts? They're often null and void the second a Canadian employee signs them.
(09:52) The Contract Clause That Voids Everything
Want to know how easy it is to invalidate your entire employment contract in Canada? One line. That's all it takes.
Example: You include a standard drug testing clause. It's in all your US contracts, so you put it in your Canadian ones too.
Congratulations. Your entire contract is now worthless.
Drug testing in Canada is heavily restricted. You can't just require it across the board like you can in many US states. And if you put it in your employment contract anyway? The whole thing gets tossed.
Now you're operating under common law, and your employee has way more leverage than you ever intended to give them.
Other clauses that can void your contract:
Overly broad non-compete language
Termination clauses that don't meet provincial standards
Anything that conflicts with Canadian employment standards
Laura put it simply: "Everything can change on a dime in Canada. If you don't have a really strong employment contract with a really strong termination clause, it's going to cost you."
(16:30) The Dependent Contractor Trap
So you decide to hire a contractor instead of an employee. Smart move, right? Wrong.
Here's what happens: If someone gets 75% or more of their income from your company, Canadian courts don't see them as a contractor. They see them as a dependent contractor.
And dependent contractors get treated like employees.
That means you suddenly owe back taxes, employment insurance, Canada Pension Plan contributions, vacation pay, overtime, and severance. All the things you thought you were avoiding by hiring a contractor in the first place.
The real kicker? The government says, "Company, you decide how much you think you owe them and we'll tell you if we think you're right."
You're essentially guessing at what you owe and hoping the courts agree. Spoiler: they rarely do.
Laura's seen this happen over and over. "In any subcontractor relationship, all is good till it's not."
(19:37) Why Canadian Talent Is Worth the Effort
Okay, so Canadian employment law is complicated. Why bother?
Because there's real opportunity here.
The talent pool is excellent. Canada has a strong education system and highly skilled workers across industries. You're not compromising on quality.
The exchange rate matters. Right now, it's sitting around 30-35%. That mid-level manager who'd cost you $90K in New York? You can find someone equally qualified in Toronto or Calgary for $60-80K CAD.
Do the math. That's significant savings.
And here's the thing employees love: When you offer a Canadian worker $90K USD (which converts to over $120K CAD), they think the world is great. They think your company is great. You build loyalty and engagement just by paying market rate in your currency.
It's a win-win. If you do it right.
(25:00) Quebec Is a Whole Different Game
Think you can take what works in Ontario and apply it in Quebec? It’s not that easy.
Quebec has French-first requirements. That means contracts, job postings, and workplace materials all need to be in French. Not just translated—written with a French-first approach.
But it's not just about language.
The culture is different. People in Quebec want Quebec people. If you come in as a Western Canadian company, let alone a US company, you're going to hit resistance.
Laura's advice? "If you're going to invest in people across the border, make sure you're investing where it's needed. Those cultural differences are surprisingly real."
Montreal isn't Toronto. Calgary isn't Halifax. And Quebec? Quebec operates on its own rules entirely.
So Where Do You Start?
Canadian expansion isn't as simple as posting a job on Indeed and hoping for the best.
But it's not impossible either. The talent is there. The cost savings are real. You just need to understand the rules before you play the game.
Here's what's also true: Small mistakes have big consequences. One bad clause in your contract can cost you a year of severance. One misclassified contractor can cost you back taxes and benefits you never budgeted for.
In the full episode, we go even deeper into provincial differences, parental leave structures that impact your workforce planning, and why employees in Canada always get the benefit of the doubt in legal disputes. We also talk about Target's failed Canadian expansion and what it teaches us about understanding cultural and operational differences before jumping in.
If you're even thinking about hiring in Canada, this episode will save you from expensive mistakes.
Want to connect?
Laura Tolhoek: LinkedIn
Essential HR: LinkedIn | Website | Instagram
Contact Traci: https://linktr.ee/HRTraci
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Disclaimer: Thoughts, opinions, and statements made on this podcast are not a reflection of the thoughts, opinions, and statements of the Company by whom Traci Chernoff is actively employed.
Please note that this episode may contain paid endorsements and advertisements for products or services. Individuals on the show may have a direct or indirect financial interest in products or services referred to in this episode.