Important Factors for Employers and Employees to Consider in Interprovincial Remote Working Arrangements
By Matthew Wise and David Yun
Employment law has undergone rapid developments as a result of employers, employees and legislators responding to the societal shifts caused by the pandemic and its associated lockdowns. Lockdowns ordered by public health officials needed to be balanced with the need for life and commerce to move on. A complete prolonged standstill of the economy would have proven cataclysmic, arguably far beyond the impact of a physical virus. Accordingly, Canadian employers have accommodated remote working arrangements, where possible, for many of their employees. Now, as Canadians begin to place the COVID-19 pandemic lockdowns in the rear-view mirror, many employees advocate for continued remote working arrangements.
In recent months, a trend has emerged where employees seek to work remotely interprovincially. A broad view example would be an employee requesting to work remotely from Atlantic Canada when their employment obligations and head office are located in Ontario. The reasons for the employee election are myriad. One potential reason is the current economic climate. With the recent economic downturn and rising cost of living due to inflation, many Canadians are being priced out of major metropolitan areas. For other employees, they may seek to be closer to family or their province of origin. Whatever the reason, this trend has emerged, and employers should be prepared to respond appropriately.
It is important to note that in most employment contexts, the right to work remotely is not prescribed by law. The employee is not automatically granted the right to work remotely and cannot elect this right unilaterally. Whether or not the employee is permitted to work remotely will depend on the specific employment contract and the nature of the work. If the contract permits remote employment, it may be difficult for employers to refuse a remote working arrangement request so long as the fulfilment of the work responsibilities remains a practical reality. Should an employee elect for an interprovincial remote working arrangement unilaterally where their contract does not permit it, this could constitute job abandonment. Due to the potentially severe consequences associated with such an action, it is important for employers and employees to convene prior to commencing such an arrangement.
From the employers’ perspective, there are two important factors to bear in mind when granting an employee’s request for an interprovincial remote working arrangement.
- Tax deduction and remittance
- Employment law applicability
Canadians working in Canada pay taxes in Canada. This remains true whether the individual works remotely, hybrid, or exclusively in office. Canadian taxes are comprised of two components: federal and provincial. Employers are expected to continue deducting and remitting both federal and provincial taxes for employees irrespective of their remote working status and their physical location within the country.
For instance, an Ontario employer would deduct, at minimum, Canada Pension Plan (CPP) contributions, employment insurance premiums (EI), income tax at the federal rate and income tax at the Ontario tax rate.
The Canada Revenue Agency (the “CRA”) has provided guidance for determining the applicable provincial or territorial tax table.1 For remote employees, the CRA provides that if the employee is not required to report for work at the employer’s place of business, the employer should deduct the applicable taxes according to the province or territory in which the business is located and from which the employee’s salary is paid. If both are in Ontario, the Ontario provincial tax table applies. If an employer is unsure of the CPP/EI status for a given employee, the employer can log into their CRA My Business Account and request a CPP/EI ruling.
On an individual level, an employee’s tax obligations are based on their residency. If an employee is working for an Ontario employer but works remotely from and resides in Halifax, Nova Scotia, they would be subject to the Nova Scotian provincial tax rate. Any discrepancies in the tax rates would be resolved when the employee files their taxes.
According to the Canada Revenue Agency, an individual will be considered a resident only in the province in which the individual has the most significant residential ties for the purposes of computing the individual’s provincial tax payable. Factors involved in determining an individual’s significant residential ties include an individual’s dwelling place and location of their spouse, common-law partner and/or dependents.
In terms of tax deduction and remittance, employers can continue to treat remote employees as they would hybrid and in-office employees.
Employment Legislation Applicability
Employment legislation governing interprovincial employment relationships largely predates the COVID-19 pandemic. As a result, the existing legislation does not fully contemplate the challenges of permanent remote working relationships. One practical example of interprovincial working relationships that current employment legislation contemplates is a teamster fulfilling interprovincial contracts. Interpretations of provincial employment legislation are subject to change if legislators opt to address permanent remote employment relationships in amendments to employment legislation.
That being said, according to section 3 of the Ontario Employment Standards Act (the “ESA”), if the employee’s work performed outside of Ontario is a continuation of the work performed in Ontario, the Ontario ESA will apply to the remote employee.
The following is one interpretation of this section applied to an interprovincial remote working arrangement. Consider an employee that is hired by an employer located in Ontario. The ESA will govern the employment relationship for this employee even if the employee relocates to a different province so long as the work performed is a continuation of the work originally performed in Ontario.
This interpretation must be balanced against the 2019 decision in Shu Zhang v IBM Canada Limited (“Shu Zhang”), an employment standards case. It is integral to note that this decision predates the COVID-19 pandemic and the ensuing prevalence of remote working. Accordingly, the judicial approach to remote working may have shifted to reflect current societal expectations of remote work. In Shu Zhang, the Ontario Labour Relations Board held that an employee of an Ontario-based company who had worked out of British Columbia for two years was not entitled to ESA statutory severance pay. The board relied on two factors. First, the employee reported to a US-based manager and second, the employee had not visited the Ontario office for more than two years. As a result, the work could not be considered a continuation of the work that had begun in Ontario. As mentioned, however, given that employment circumstances have shifted considerably since the date of the decision and today, it is difficult to prognosticate whether the board would rule on a similar fact scenario.
Further, Ontario employers should consider that a newly hired employee in a permanent remote employment arrangement will never have had work in Ontario. As a result, the interpretation of continuance of work in Ontario cannot apply to this employee. Therefore, it is likely that the employment legislation of the newly hired employee’s location will apply.
Whether an employee is requesting a move to an interprovincial remote working arrangement or an employer is considering a new hire for an interprovincial remote working arrangement, it is important for employers to consider which employment legislation governs the relationship. If there is any uncertainty or doubt, it is recommended that the employer seek specific legal advice to allay and address these concerns.This article does not constitute legal advice or a legal opinion nor does it serve as a substitute for receiving tailored legal advice from a seasoned professional. If you have a question pertaining to an employment law matter, you are advised to seek specific legal advice from a member of Macdonald Sager LLP (or your own legal counsel).