What if Canada became the 51st American state? A look at key employment law differences

Now that Donald Trump has been inaugurated as the 47th president of the United States, his threats of import tariffs on Canadian products loom closer – but what about the other threat, the one about Canada becoming the 51st U.S. state?

While the concept is largely hypothetical at this point, Trump’s suggestion of annexation highlights the differences between the two countries when it comes to employment law, impacting everything from severance pay to workplace protections.

Canadian HR Reporter spoke with a Canadian employment lawyer and a U.S. immigration lawyer about the contrast.

Termination costs and employment contracts

One of the most significant differences between Canadian and U.S. employment laws lies in how termination costs are determined, says Andrea York, partner at Blakes in Toronto.

In Canada, termination conditions are governed by various levels of compliance and law, in contrast to the at-will-employment system in the States, which essentially means employers are permitted to terminate an employee at any time for any cause.

“At-will employment means that employers in the U.S. can terminate the employment of employees for just about any reason,” York explains.

“Obviously, if it’s discriminatory or retaliatory, that’s not permitted, but you can terminate for just about any reason and not actually pay the employee anything on termination. So that that is one big difference as between our two laws.”

In contrast, Canadian employees are entitled to significant severance packages, often capped at 24 months of pay depending on employment contract provisions. As York highlights, this is a point of shock for U.S. employers operating in Canada:

“In Canada, the sort of ‘soft cap’ is 24 months, so there’s a huge difference. So, when I say ‘24 months,’ they fall off their chairs in terms of those costs,” says York.

“Sometimes [U.S. employers will] have a severance plan that would apply to a group of employees, the amount that would be payable to even the most senior employees is sort of capped at something like six months.”

Litigation and class actions

The U.S. labour system is notably more litigious, with steep payouts meaning higher risks for employers who are more exposed to discrimination and class-action suits than in Canada. For Canadian employers, the introduction of jury trials and class actions could mean facing larger, less predictable awards.

While Canadian employees may file frequent discrimination claims, they often do so to seek non-taxable settlements. In a U.S.-style system, the potential for larger financial awards could incentivize more litigation, creating additional challenges for employers.

“The awards for discrimination in the U.S. seem to be much higher – I’ve seen newspaper reports where it’s millions,” York says, adding that litigation in Canada has risen in recent years. “In Canada, we do see employees frequently making discrimination claims, harassment claims, because they’re seeking non-taxable damages.”

Job-protected leaves and benefits coverage

Another key difference between the two systems is the scope of job-protected leaves. Canadian laws, such as those under the Employment Standards Act, provide extensive leave options, including maternity and parental leave of up to 18 months.

Additionally, the healthcare systems differ drastically. Canadian employers benefit from publicly funded provincial healthcare, which reduces the cost of supplementary benefits like dental and optical coverage.

As York explains, this is not the case in the U.S.:

“From an employer’s perspective, that’s good, because we know we have some of it covered through provincial health insurance. Then from the employee’s perspective, it would also be less expensive.”

Immigration complexities and workforce mobility

A major area of concern is the potential impact on immigration and cross-border workforce mobility; currently, Canada’s immigration system allows employers to address local labour shortages relatively easily compared to the U.S., explains Jennifer Behm, partner at Berardi Immigration Law in Buffalo, NY.

“Canadian employers are accustomed to hiring foreign talent with relative ease compared to the U.S.,” says Behm, noting America’s more restrictive immigration laws and complex visa categories. 

“If U.S. immigration laws were imposed on Canada, Canadian employers would face increased administrative burdens and potential challenges in attracting global talent, due to the more stringent and intricate U.S. immigration framework.”

Behm also points to the significance of temporary visa programs in the U.S., such as H-1B, L-1, and TN. These programs all involve annual caps, complex adjudication processes, and employer sponsorship, which employers in Canada could be burdened with if a U.S.-style system was adopted.

The potential loss or destabilizing of the TN visa, currently used under the United States-Mexico-Canada Agreement (USMCA, formerly NAFTA) to facilitate professional cross-border employment between Canada and the U.S., would add another layer of complexity to the potential scenario.

“Currently, under the USMCA, Canadian and U.S. professionals can work across borders with relative ease via the TN visa,” Behm says.

“Annexation would likely make this visa category irrelevant, potentially complicating cross-border employment relationships … or easing them, depending on which way you look at it.”

U.S. versus Canadian employment law: the big picture

Adapting to U.S.-style employment and immigration laws would likely require Canadian employers to overhaul their HR systems, contracts, and policies, she says.  

“The restrictive U.S. immigration framework might make Canada less appealing to international talent and force employers to rethink recruitment strategies.”

The idea of Canada becoming a U.S. state will likely remain hypothetical, but possible implications for Canadian employers are clear, pointing out exactly why Canada remains a good place to work.

“I don’t think it would be a good thing for employees or employers, on both sides. For employees right now, at least at the time of termination, there’s protection, in terms of severance and termination payments that would be made to them,” says York.

“For employers, they would potentially be exposed to these large, multi-million-dollar awards. From a human resources perspective, I think it’s good for both parties to stay in Canada.”