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All in the family (business): The impact of family ties on an employer’s HR obligations

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My grandfather started a small business fifty years ago, a modest par-3 golf course, which my mother, aunts and uncles continue to operate today.  I worked at the golf course during my summer holidays and performed every duty from minding the cash register, serving food, and hurrying slow golfers to picking up garbage.  Even then, I knew that my experience as an employee of a family-run business was different from the employment experience of my friends.  (For example, it is impossible to call in sick when your boss is your mother.)

As an employment lawyer looking back on my youth and my time as an employee of a family business, I know that there are other distinctions between family-operated businesses and other businesses, and that there are particularly salient differences that relate to an employer’s HR obligations. Specifically:

Talking it Over: More so than independently-run businesses, operators of family businesses discuss and resolve issues informally, including over the dinner table.  While it is commendable to have any productive communication regarding workplace issues, informal resolution techniques have a downside.  If an employer does not “paper” various agreements, including offers of employment, or document serious issues, including disciplinary incidents, and a dispute arises, the employer may be at a disadvantage.  A court may not accept the employer’s evidence about those agreements or issues if there is no written document to support that evidence.  Employers cannot rely on goodwill and hindsight when addressing employment law issues, even if those issues relate to their family.  Seemingly insignificant human resource issues may have important legal consequences.

“It’s the Way It’s Always Been Done”: Some family-run businesses make exceptions that are not based on legitimate business needs, but rather on family ties (e.g. the president’s daughter can leave early but all other employees must stay until 5:00 pm, or it’s not a problem if Cousin Joe doesn’t meet the quota that all other employees must meet).  Some of these exceptions, such as paying employees in cash, are also illegal.  When asked why these exceptions are in place, the response is often, “it’s the way it’s always been done.”  Like any other business, family businesses need to ensure that all employees are treated fairly and reasonably and in accordance with human rights, occupational health and safety, employment standards, tax law and other relevant legislation.  All employees, family or not, should be held to the same standards.  Failure to follow proper HR practice is clearly risky from a legal perspective, and could lead to costly litigation that could carry punitive damage awards.  More commonly, engaging in inconsistent treatment and favouritism of family members has a negative impact on employee morale and retention.

Goodbye…but Not for Long: Generally, a termination of employment means the end of any relationship between the employer and the employee.  In a family business, you may end the employment relationship but still have to sit next to the former employee at Grandma’s birthday party.  More so than in other businesses, terminations must be conducted in a reasonable, considerate manner.  Family business operators must be careful to sever the employment relationship without permanently damaging the familial relationship.

Special Rules for Some Family Businesses: There are several instances in which the government treats employees differently depending on their relation to the employer:

  • In some jurisdictions, such as Manitoba, an employer that only employs family members is exempt from the application of certain employment standards, including overtime pay and hours of work.
  • If an employee is related to the employer (or an individual who controls the employer, such as the sole shareholder) by marriage, blood or adoption, the employee may not eligible for EI benefits if his or her employment is terminated.  On that basis, the employer should assess whether they or the employee is required to remit EI premiums for that employee.  (Read more here.)

It is important for people who are operating family businesses to remember that they are playing two roles: family member and employer.  They must strike a balance between the two roles, and to do so, they should keep these tips in mind:

  1. Keep accurate records, whether it relates to hours of work, vacation time, compensation or workplace safety issues for all employees, family or not.
  2. Draft clear and enforceable agreements setting out an employee’s duties and entitlements, even if they are related to you.
  3. Assess the business from both a family perspective and an employer perspective.  While those perspectives are not always at odds, a business operator should ensure that his or her judgment is not skewed too strongly toward one perspective at the cost of the other.  Seek independent advice from a legal or accounting professional if you are unsure about your obligations as an employer.

Even though family comes first, you cannot treat your human resource obligations lightly – we can all agree that’s just bad for business.

Jennifer Heath