Canadian HR Reporter

CANADIAN HR REPORTER SEPTEMBER 2018 10 NEWS Our customers say we're the best! Why? Because they have consistently returned a higher pass rate than the average and they achieve the highest marks! Join the over 12,000 HR pros who have used our product to acquire their HR credential. Canada's leading Exam Prep Product for the HR Exams! HR Professional Development 2 0 1 7 READERS' HR PROFESSIONAL DEVELOPMENT EDUCATION PROVIDERS CHOICE 2 0 1 8 READERS' HR PROFESSIONAL DEVELOPMENT CHOICE Legal concerns Employee poaching occurs when an employer entices a competi- tor's employee to leave her posi- tion and join its staff. Similarly, non-solicitation and non-compete clauses are com- mon in employment contracts, though most non-compete claus- es are unenforceable in Canada, said Nicole Simes, associate at MacLeod Law Firm in Toronto. "Employers still put them in to threaten employees or make them worried about what could happen if they were to go to a competitor," she said. "(But) most employers know they are not enforceable and don't actually do anything about those after the fact if someone were to go work for a competitor." However, non-solicitation clauses — an agreement to not obtain specific clients or custom- ers after leaving a company — are enforceable and more commonly used, said Simes. "We see them frequently in sales-related positions, but they're actually becoming almost a stan- dard clause for every employment contract." In a free-enterprise soci- ety, competition is encouraged to promote growth and push progressive development, said Grosman. "Now, in particular, poaching is popular because of the increased need for technological expertise," he said. "If you can buy an indi- vidual by paying him more, you avoid the developmental costs in your specialized field. You just buy the person with the knowledge and away we go." "So there is a significant battle for brains going on right now, be- cause of the highly technical kinds of proprietary information that companies want to gain, without having to spend millions of dollars in developmental costs." e restrictive covenants, in- cluding non-compete, non-solici- tation, confidentiality and fiducia- ry duties, can make up two-thirds of contracts in the tech sector, said Grosman. "is is a very big deal." Courts have been reluctant to restrict mobility and financial op- portunities for individuals, unless there is a cogent reason to do so, he said. "An ex-employee should not be able to raid his former employer and denude them of their key em- ployees, and they understand that. But in terms of restricting your ability to take a job or earn more money, that on its face is contrary to public policy." Specialized positions No-poaching or non-solicitation clauses are most common in sales, technology or specialized roles, said Lior Samfiru, a partner at Samfiru Tumarkin in Toronto. A restaurant server is not a spe- cialized position, however, and, as such, these types of clauses — in- cluding non-hire — should be non-starters, he said. "If you have a very specialized position — a position where the skills of the employee doing that position are very rare and very dif- ficult to replace — in those situa- tions, the company may want ad- ditional protections, and it would be reasonable to say that," said Samfiru. "For people in very senior or very specialized positions, where if you go to work for a competitor, it's going to hurt me so much… it's reasonable for me to expect from you not to do that, at least for a period of time." "ere has to be a good reason, based on how specialized the po- sition is, and also the potential damage that would be caused to the company losing the employee — if that employee left them. But from a public policy standpoint, it's very difficult to tell an em- ployee 'You can't go somewhere. You're not allowed to work for certain companies.'" at was the crux of the issue for the U.S. restaurant chains — McDonald's, Auntie Anne's, Ar- by's, Carl's Jr., Jimmy John's, Cin- nabon and Buffalo Wild Wings — served with litigation over serving staff, he said. "It's not a specialized position, it's not a position that's necessar- ily going to be that difficult to re- place. It just doesn't make sense," said Samfiru. "And a lot of these individuals are not making a lot of money. ey're going to be making right around minimum wage," he said. "By these provisions, you ac- tually are preventing them from potentially bettering their spot in life by making a bit more money. at's unfair, that's unreasonable, and that offends a number of pub- lic policy considerations." "If these were senior individu- als, individuals making a lot of money, individuals with very spe- cialized provisions, I don't think you'd see the same debate." As for non-competition claus- es, the obligation has to be rea- sonable to hold up in court, said Samfiru. "If it said, 'You can't work for a competitor, ever,' I don't care who you are, I don't care what posi- tion you have, that would never be worth the paper it's written on." Best practices Going forward, case law sur- rounding these types of clauses will only become clearer, he said. "It's a matter of time, espe- cially in an age where people do change jobs very frequently," said Samfiru. "Any contract that tries to prevent a frontline worker from changing jobs, or being hired somewhere, is probably not going to be worth the paper it's written on, if properly challenged." Litigation is often served when an ex-employee actively attempts to take customers, clients or em- ployees with him to a new busi- ness, said Simes. "e vast majority of employees aren't looking to ruin the business of the employer that they're either currently working for, or just left, and are cautious not to do so." Plenty of case law exists in terms of how non-solicitation clauses are interpreted, she said. e court will examine if the clause is reasonable, what geog- raphy is covered, and what type of customer or client is affected, said Simes. "It could be the case that a clause is reasonable even if it does not have a set geographic region, as long as it's very narrowly and specifically drafted." Non-solicitation clauses are en- forceable by the courts and can be bulked up, said Grosman. Intellectual property can also be further protected by expanding confidentiality clauses to include customer lists, he said. "In many cases, you can't stop someone from jumping ship. ey just do it and they take whatever information. ey say, 'Well, it's part of my expertise, and I should be able to take my expertise with me.'" It is difficult to restrict employ- ees from making moves to better themselves in terms of compen- sation or future well-being, but stick-and-carrot options do exist, said Grosman. Educating employees around non-poaching, non-competition and non-solicitation clauses serves as the stick, while employ- ing golden-handcuff methodol- ogy — ensuring the employee makes more money the longer she stays — is a carrot, he said. Additionally, if the poaching employer knows, or ought to know, that a non-poaching agree- ment is in place, a case could be made that both the employer and the employee agreeing to leave his previous company could be held liable for breach of contract, said Grosman. 'Significant battle for brains going on right now' NO-POACHING < pg. 1 "Any contract that tries to prevent a frontline worker from changing jobs, or being hired somewhere, is probably not going to be worth the paper it's written on." It is also important to have buy- in from business unit leaders and C-level employees. Determining how to track em- ployees' business travel should also be part of the company's pol- icy. Some best practices are to use reports from a dedicated travel provider the company may use for travel, expense reports, and log-books for high-traffic offices or plants. To help navigate the certifica- tion requirements, here are three scenarios a certified employer may see: Scenario 1: A qualified employ- ee travels to work in Canada and the estimated Canadian source income is less than $10,000: • A qualified employer is not re- quired to remit taxes or obtain waivers. • No T4 filings are required. Scenario 2: A qualified employ- ee's estimated Canadian sourced income is greater than $10,000 and they have either fewer than 45 workdays during the calendar year or fewer than 90 physical days in a 12-month period: • A qualified employer is not re- quired to remit taxes or obtain waivers. • T4 filings are required to report Canadian source income. Scenario 3: A qualified em- ployee's estimated Canadian days exceed 45 workdays in Canada or 90 presence days in a 12-month period: • e employee is not a qualified employee under certification and the exemption from withhold- ings does not apply. • e employer will need to remit taxes or send a letter to CRA with a completed waiver application, R-102R, to seek withholding re- lief. • Filing of a Canadian tax return is recommended. A comprehensive business travel policy with clearly defined responsibilities for both the em- ployee and the employer will help ensure compliance with complex tax regulations. Marni Halpern and Jennifer Santos work for KPMG LLP in the Global Mobility Services practice, specializ- ing in cross-border payroll compliance and advisory. ey can be reached at (416) 777-8500 (main) or by email at mhalpern@kpmg.ca or jennifer santos@kpmg.ca. PAYROLL < pg. 9 Buy-in needed

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