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Top 3 Takeaways from our Employment Law workshop

On September 22, 2022, MT>Ventures and the DMZ hosted an Employment Law workshop with founders and entrepreneurial leaders at the DMZ’s Toronto co-working space. Aliya Ramji and Eashan Karnik, along with Simmy Sahdra of McCarthy Tétrault’s Labour & Employment Group, promoted the collaboration between MT>Ventures and the DMZ and shared expert insight on labour and employment practices in the startup space.

See below for our top three takeaways:

  1. Classifying workers is not as easy as you think

One of the first steps in hiring an individual is identifying which worker classification is most appropriate for the position. Many founders believe that labelling workers as independent contractors will allow their startup to minimize their obligations and the worker’s entitlement to employment standards such as: benefits, vacation pay, and termination pay. The truth is that classification is not based on what the worker is labelled as in the agreement, but on what the worker actually does in performing the work. Some of the factors used to assess the appropriate worker classification include:

  1. Exclusivity – does the individual work exclusively for the company?
  2. Control – does the worker have discretion over when/how to perform work?
  3. Ownership of Tools – does the worker have their own tools/equipment?
  4. Chances of Profit/Risk of Loss – does the worker bear the risk of losses of the company?
  5. Integration – how deeply integrated is the worker within the company?

Startups must be mindful of the risk and penalties for misclassification of workers as these can often build up from a monetary standpoint and create potential liability e.g. claims for unpaid entitlements under the ESA.

  1. All employees have employment contracts

Every employee that a founder hires has an implied employment contract that governs their relationship with your company. Employment contracts can be oral or written. When drafting a written employment contract, it is important to keep in mind that for every worker in Canada, the employment contract must comply with the applicable employment standards legislation. If your employment contract contravene these minimum employment standards, the higher standards will continue to apply and risk your employment contract being deemed void and unenforceable.

Some of the most common terms in an employment agreement include:

  1. Position details
  2. Conditions of Offer
  3. Probation
  4. Hours of Work
  5. Duration of Employment
  6. Vacation
  7. Compensation and Benefits
  8. Termination Obligations and Entitlements

Drafting clear terms that govern the employment relationship is important, as well as ensuring the applicable employment standards legislation is complied with.

  1. Compensation can take a variety of forms

Startups often use unique compensation structures to better incentivize their employees while maintaining cash reserves. Salaries, bonuses, vacation entitlements, and equity compensation all play an important role in creating a compensation package that would allow you to retain top talent, but founders should always consider the implications and long-term effects that these different compensation structures may have.

A perk that has become increasingly common in the startup space is offering unlimited vacation days to employees – this perk often has significant consequences when employees who are terminated believe they can “cash out” their remaining vacation days, knowing that this would technically be an infinite amount of cash! With effects like these in mind, it is important that your employment agreements and compensation structure is reviewed regularly by counsel to avoid tricky situations upon termination.  

For more information about our services or to contact our team, please visit our MT>Ventures site.



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