Labour and Employment

Workplace Christmas parties are just around the corner. While such celebrations are a great opportunity to strengthen team spirit and acknowledge everyone’s hard work, it’s important to remember one thing. It is not only up to employers to make sure they run smoothly—their entire workforces, managers and employees alike, are also responsible. Just think of the potential for harassment where alcohol and fun times are combined. Who is responsible for what when it comes to Christmas parties? Employer’s obligations Legal framework Generally speaking, many existing employer (and employee) obligations provided for in legislation, regulations or company policies, can be transposed to employer-organized Christmas parties. This is particularly true where harassment is involved. In recent years, the scope of legislation offering protection against harassment and violence in the workplace has broadened. In addition to the obligation to take reasonable steps to prevent psychological harassment1 since 2021, employers must take measures to protect an employee who has been “exposed to physical or psychological violence, including spousal, family or sexual violence, in the workplace.”2 Even more recently, on November 23, 2023, the Minister of Labour introduced Bill 42, An Act to prevent and fight psychological harassment and sexual violence in the workplace (the “Bill”). Although the Bill is only at the introduction stage and may see a number of amendments, the Minister explains that its aim is to make workplaces healthier, more respectful and safer, and to eliminate unacceptable behaviour.3 Further information on Bill 42 will be provided in another bulletin. Employer’s management rights When an employer witnesses or otherwise becomes aware of inappropriate behaviour at a Christmas party it has organized, it is well within its rights to investigate and take appropriate action, including disciplinary action up to and including dismissal.4 For example, an employer may impose a three-day disciplinary suspension on an employee having committed a gesture of a sexual nature during a Christmas party.5 Dismissal was also deemed to be an appropriate measure for an employee who committed acts of violence against his colleague and former spouse at a Christmas party.6 An employer’s investigation can sometimes even cover events having taken place after a Christmas party, outside the workplace. For example, in a decision handed down in 2022, an arbitrator reiterated that the employer in question was entitled to conduct an investigation into allegations of sexual assault and harassment that were said to have taken place in a hotel room after a Christmas party, because the link between the personal activities and the employer was sufficient.7 Despite the private character of the events, they had a negative impact on the work climate, and an employer investigation in which employees were required to cooperate was warranted.8 Similarly, another arbitrator upheld the dismissal of an employee who had assaulted his supervisor, even though the events had occurred during an after-party.9 Measures to avoid excessive drinking and abusive situations Employers can implement a number of measures before their parties to avoid excessive drinking and abusive situations, including: Reminding employees of applicable policies, including codes of conduct and harassment prevention policies Authorizing only a limited number of alcoholic drinks per person Closing the bar or ceasing alcohol service a few hours before the party’s end Making sure there’s enough food, water and non-alcoholic beverages throughout the evening Providing individual hotel rooms Providing a safe-ride-home service Obligations of employees During employer-organized Christmas parties, employees who attend as part of their employment do so under the same status they hold with their employer.10 They must therefore comply with their various obligations, including having good manners and being civilized, not endangering their or their colleagues’ health and safety, using appropriate language and not engaging in harassment, and generally adhering to their employers’ policies. In a sense, the party venue becomes an extension of the workplace. In the specific case of managerial staff, employers are entitled to have higher expectations of exemplary behaviour. Moreover, when an employer investigates events that are said to have taken place during or after such a party, its employees are required to cooperate in good faith. What about witnesses? As mentioned above, making sure that a Christmas party runs smoothly is everyone’s business. However, is it realistic to rely on employees to report problematic behaviour they may witness during such events? Is the duty of loyalty sufficient to create a general obligation to report all wrongful behaviour? The answer isn’t clear. As concerns managers, who are employers’ eyes and ears, they are even further bound by their duty of loyalty given their line responsibilities.11 Employers can therefore expect them to report problematic behaviour if it takes place at a Christmas party. In the case of regular employees (non-managerial staff), the imposition of a general obligation to report all wrongful behaviour was deemed unreasonable,12 as such an obligation “[translation] jeopardizes the serenity of the work climate.”13 However, there are cases where the obligation to report is legitimate. It applies where the obligation is intended to protect the health and safety of colleagues and the public. The very nature of the duties performed by an involved employee will be decisive in determining the validity of the obligation to report.14 In all cases, that employee must dissociate themselves from the wrongful behaviour and avoid participating in it. Lastly, despite the absence of a general obligation to report harassment, employers may validly encourage employees to report harassment, without making it mandatory.15 Conclusion Employer-organized Christmas parties are certainly something to look forward to. With the situation in recent years and the explosion of telecommuting and hybrid working conditions, such events are even more important to bring people together. But, they have to be fun for everyone. With simple yet reliable measures, such as making everyone aware of their own responsibilities and mutual respect, your celebration can be a real success. Happy festivities to all! The Act respecting labour standards, CQLR, c. N-1.1, section 81.19. The Act respecting occupational health and safety, CQLR, c. S-2.1, section 51 (16). Office of the Minister of Labour and Minister responsible for the Mauricie and Nord-du-Québec regions, “Le ministre Jean Boulet présente le projet de loi 42, Loi visant à prévenir et à combattre le harcèlement psychologique et la violence à caractère sexuel en milieu de travail Gouvernement du Québec” (quebec.ca), November 23, 2023 (in French only). For more information, read the following bulletin: Lavery, “The return of Christmas parties: What employers need to know,” December 9, 2022, URL: The return of Christmas parties: What employers need to know (lavery.ca). Teamsters Québec, section locale 1999 and Univar Canada ltée (Jean-Martin Gobeil), 2020 QCTA 344. Travailleurs et travailleuses unis de l’alimentation et du commerce, section locale 500 (TUAC-FTQ ) and Royal Vézina inc. (St-Hubert), 2017 QCTA 304. Syndicat des salariés(es) de l’agroalimentaire de Ste-Claire (CSD) and Kerry Canada inc. 2022 QCTA 224. See also: CSN-Syndicat du personnel de bureau du CISSS de la Gaspésie and Centre intégré de santé et de services sociaux de la Gaspésie, 2023 QCTA 131. Syndicat des inspecteurs du RTM-CSN and EXO (Charles-David Lapointe), 2020 QCTA 24. Association internationale des machinistes et des travailleuses et travailleurs de l'aérospatiale, district 140, section locale 2309 and Servisair (Avo Minassian), D.T.E. 2009T-448 (T.A.). Shell Canada ltée and Travailleurs unis du pétrole du Canada, section locale 121 du SCEP, D.T.E. 2010T-68 (T.A.); Journal de Montréal and Syndicat des travailleurs de l’information du Journal de Montréal (CSN), 2015 QCTA 52. Id.; See also: Viterra inc. and Unifor, Local 2022, 2020 QCTA 565. Shell Canada ltée and Travailleurs unis du pétrole du Canada, section locale 121 du SCEP, D.T.E., supra, note 11, para. 88. Id. Journal de Montréal and Syndicat des travailleurs de l'information du Journal de Montréal (CSN), supra, note 11.

On November 2, 2023, in response to certain controversy, the Canada Revenue Agency (“CRA”) sought to clarify the application of the new disclosure rules, in force since June 22, 2023. The CRA’s comments relate, in particular, to the impact of reporting obligations on severance agreements, a topic we initially covered a few weeks ago1. We believe it is appropriate to go over these clarifications. As a reminder, the disclosure rules generally apply to so-called avoidance transactions carried out to obtain a tax benefit and presenting one of the following three generic hallmarks: contingent fee arrangements, confidential protection or contractual protection. At first glance, the interpretation of these hallmarks suggests that severance agreements involving an employee’s undertaking to indemnify their employer are subject to reporting obligations. However, in response to questions from a number of legal experts, the CRA commented on the disclosure rules, specifying, in particular, that a tax indemnity granted under a severance agreement is not subject to the reporting obligation where it occurs in a business or financial context between persons dealing at arm’s length, and acting freely and prudently. In this regard, the CRA pointed out that the contractual protection included in such an agreement would not be considered a generic hallmark insofar as it does not cover a tax treatment giving rise to an unwarranted benefit. The CRA gave as an example a settlement reached between an employer and employee further to dismissal, harassment complaints or other employment-related recourses, providing for severance pay or warranted damages. Even if the employee were to undertake to reimburse the employer in the event of unexpected tax treatment, this type of agreement would not give rise to reporting obligations. Although the CRA’s clarifications were meant to clear things up, they did not definitively establish how the mandatory disclosure rules apply to severance agreements. A certain level of uncertainty remains with regard to severance agreements with no real legal basis awarding tax-free damages to an employee. In such a case, it would be difficult to argue that the business context warranted a favourable tax treatment for the employee. In the case of an agreement providing for the payment of unwarranted damages, and where contractual protection extends to the tax treatment of the amount paid, the avoidance transaction may, despite the CRA’s comments, require disclosure to the tax authorities. One thing is certain: tax indemnity clauses may well disappear from severance agreements.  Ultimately, the new rules reinforce the principle that the granting of tax-free damages should be limited to circumstances that warrant it. Quebec case law has long established that the mere fact of losing one’s job does not give rise to damages, barring exceptional circumstances. In short, the CRA’s guidelines do not have the force of law, and may be amended or revoked at any time. Consequently, maintaining a cautious and conservative approach will be crucial when determining whether the new mandatory disclosure rules apply to severance agreements. Our team of employment law and tax professionals is available to answer your questions about these major changes and help you make informed decisions when negotiating severance agreements. Termination agreements: New reporting requirements apply!

On June 22, 2023, the federal government significantly expanded the reporting requirements for certain so-called avoidance transactions, in particular with respect to termination agreements.1 The new rules will make it easier for the Canada Revenue Agency (CRA) to detect certain avoidance schemes, conduct tax audits and issue notices of assessment and penalties more quickly when warranted. The reporting requirements now apply to reportable transactions defined as avoidance transactions, which are primarily aimed at obtaining a tax benefit. If these avoidance transactions involve one of the three markers set out by the Minister of Finance: contingent fee arrangement, confidential protection or contractual protection, they must be reported to the CRA in accordance with the rules in force. These enhanced rules cover a large number of transactions, in particular those which are part of agreements made specifically in the context of end-of-employment negotiations. In settlements between an employer and an employee following termination, harassment complaints or other employment-related disputes, damages may be awarded as part of the negotiation process. However, the award of these damages, which are normally granted in situations where the employee has suffered personal or moral harm, may not always have a strong legal foundation. In some cases, these damages may be part of a tax-driven strategy: while severance payments are taxable as employment income or as a retirement allowance, damages may be tax-exempt. This type of agreement allows the employer to pay less while maximizing the net amount for the recipient. An agreement providing for the payment of a tax-free amount for damages usually includes an undertaking by the employee to indemnify the employer when a tax audit concludes that the payment should be taxable. The new reporting requirements are likely to prevent these types of settlements in cases where it is reasonable to conclude that their main purpose is to obtain an unfair tax benefit. These avoidance transactions also exhibit the hallmark of contractual protection, which refers to a protection or guarantee against any failure of the transaction to produce a tax advantage. This is the case when the employee agrees to compensate the employer following a tax recalculation. Such contractual agreements now meet the new reporting criteria. In these transactions, the reporting obligation is incumbent on the employee (i.e., the person who obtains the tax benefit), the employer (i.e., the person who completes the transaction), and the advisor who obtains fees for setting up the transaction. They have 90 days from the time they entered into the transaction to submit Form RC312 to the CRA. Failure to do so will result in penalties and an extension of the normal reassessment period. As a result, it is inevitable that these updated rules will be taken into account when negotiating termination settlements, and it will be particularly important to review all agreements made since June 23, 2023. Our team of employment law and tax professionals is available to answer your questions about this major change and help you make informed decisions when negotiating termination agreements. Bill C-47: An Act to implement certain provisions of the budget tabled in Parliament on March 28, 2023

On March 21, 2023, during his traditional budget speech, the Minister of Finance of Québec announced that Quebecers will benefit from a general reduction in personal income taxes starting in 2023. The effect will be a reduction in the tax rates that apply to the first two taxable income brackets of the personal income tax table. In addition to having a positive impact on Quebecers’ disposable income, the tax cut will also have repercussions on source deduction rates applied to certain payments and remuneration. The fixed rates used for provincial income tax source deductions on lump-sum payments have been changed. Employers will therefore have to adjust their calculations for such payments. This will be the case, for example, where sums are paid as retiring allowances, as is frequently the case in the settlement of certain employment termination agreements. Previously, the rate used to calculate provincial income tax source deductions on a retiring allowance payment was 15% for amounts up to $5,000, and 20% for payments over $5,000. The income tax deductions on such payments made after June 30, 2023, is now 14% for amounts up to $5,000, and 19% for payments over $5,000. Table of provincial and federal income tax source deduction rates for lump-sum payments, effective July 1, 2023, by amount of lump-sum payment (e.g. retiring allowance): $5,000 or less Provincial tax rate 14% Federal tax rate 5% Over $5,000 up to $15,000 Provincial tax rate 19% Federal tax rate 10% Over $15,000 Provincial tax rate 19% Federal tax rate 15% Although it may seem trivial, this review of provincial income tax source deduction rates has far-reaching implications, given that these are often used by parties especially in the negotiation of employment termination agreements. Human resources and payroll professionals must use the new income tax source deductions in their employment termination negotiations to ensure that they are tax compliant. A positive outcome of these rates is that employees will now have more disposable income after tax for the same amount paid by their employer. Such a measure could make reaching an agreement easier in the context of tough negotiations. As an employer, it is essential that you update your payroll systems and processes to correctly reflect the new income tax rates and ensure tax compliance. Our team of labour law and tax professionals is available to answer your questions about this change and help you make informed decisions that will benefit your business.