In the competitive world of tech start-ups, attracting and retaining top talent often requires innovative and creative strategies. However, as demonstrated in the recent Ontario Labour Relations Board ("OLRB") decision in Yujie Hou v Kinglory Inc. decision (see full case here), these strategies can inadvertently lead to breaches of the Employment Standards Act, 2000 ("ESA").

This case serves as a crucial reminder for employers about the importance of adhering to minimum legal standards when designing compensation packages.

Case overview

In this case, Kinglory Inc. attempted to pay half of its employees' salary in a company-created cryptocurrency. The employment contracts stipulated an annual salary of $240,000, with $120,000 paid in traditional currency and the remaining $120,000 in Kinglory cryptocurrency.

The employees contested this arrangement, asserting their entitlement to the full salary in legal tender. The OLRB ruled that the payment method violated the ESA, which mandates that wages be paid in cash, cheque or direct deposit.

Legal requirements under the ESA

The ESA sets out clear guidelines for wage payments. According to subsection 11(2) of the ESA, wages must be paid in cash, by cheque, or by direct deposit into an employee's bank account. This provision ensures that employees receive their earnings in a universally accepted form of currency, protecting their financial security and upholding minimum employment standards.

The pitfalls of non-traditional compensation

While creative compensation strategies – such as offering equity, stock options or even cryptocurrency – can be attractive to potential employees, they must be implemented within the existing employment standards framework.

Had Kinglory Inc.s' employment contract clearly specified that the employees would be paid a base salary of $120,000 plus an additional $120,000 in Kinglory cryptocurrency, the end result would have almost certainly been different. The Kinglory Inc. case highlights several risks:

  1. Compliance with legal tender requirements: Any form of compensation that deviates from cash, cheque or direct deposit must be carefully evaluated to ensure it does not contravene the ESA. Employers must understand that cryptocurrencies, despite their growing popularity, do not constitute legal tender under the current legal framework.
  2. Transparency and clarity in contracts: Employment contracts must clearly outline the terms of compensation in a manner that complies with the ESA. Ambiguous or unconventional payment methods can lead to disputes and legal challenges, as seen in this case.
  3. Imbalance of bargaining power: The ESA is designed to protect the interests of employees, particularly non-unionized workers, from potential exploitation. Employers must be mindful of the inherent imbalance of bargaining power and ensure that compensation packages do not undermine the employee's right to earn wages.

Key takeaways for employers

To avoid similar pitfalls, employers should consider the following best practices:

  1. Consult legal experts: Before implementing any non-traditional compensation strategies, seek advice from legal professionals specializing in employment law. This will help ensure compliance with the ESA and other applicable legislation.
  2. Clear communication: Ensure that all employment contracts are transparent and clearly communicate the method and amount of salary in compliance with legal standards. This clarity helps prevent misunderstandings and potential disputes.
  3. Regular compliance reviews: Conduct periodic reviews of compensation practices to ensure ongoing compliance with the ESA. Staying updated with legislative changes is crucial to avoid inadvertent breaches.

The decision in Kinglory Inc. underscores the importance of aligning creative recruitment and compensation strategies with the minimum legal requirements of the ESA. By adhering to these guidelines, employers can take steps to attract and retain top talent without risking legal repercussions. Employers must prioritize compliance, transparency, and fairness in their compensation practices to build a sustainable and legally sound business.

For further information on the regulatory requirements related to compensation plans and strategies, or if you have any other questions, please contact a member of the Employment, Labour & Equalities Group.