Canadian Compensation Arrangements – When Do I Need U.S. Counsel?

Imagine a Canadian company adopts a deferred share unit plan (DSU Plan) for its directors.  At the time the plan is adopted, the company does not have the plan reviewed by U.S. counsel, because none of their directors reside in the U.S.  It is not until several years later that the company learns that one of its directors, despite living in Canada, has dual citizenship with the U.S.  Because the typical form of Canadian DSU Plan will not comply with U.S. tax laws governing deferred compensation, particularly U.S. Internal Revenue Code Section 409A (Section 409A), the company has quite a mess on its hands.  You can read our prior articles on common payment timing issues...

SEC Amends Schedule 13D/G Requirements

On October 10, 2023, the Securities and Exchange Commission approved amendments to the Regulation 13D-G reporting regime for persons who beneficially own more than 5% of a class of securities (“5% Owners”) that is registered under Section 12 of the Securities and Exchange Act of 1934, as amended.  The amendments accelerate the deadlines by which 5% Owners must file initial reports and amendments on Schedule 13D or 13G, mandate the use of machine-readable language in those reports, and provide for additional amendments and guidance.  The amendments apply to 5% Owners of all Section 12 registered securities, including 5% Owners of Canadian foreign private issuers and MJDS filers listed on Nasdaq, the New York...

New SEC Cybersecurity Disclosure Rules

Canadian issuers that are reporting issuers with the Securities and Exchange Commission should be aware of new rules that impose disclosure requirements regarding cybersecurity risk management, strategy, governance and incidents. The new rules have two basic components.   First, certain issuers will have new disclosure requirements regarding the registrant’s processes and policies for cybersecurity risk management, strategy and governance.  These disclosures (which we refer to as “risk management disclosures”) will be required in the registrant’s annual report. The new risk management disclosures apply to nearly all domestic SEC reporting issuers (including Canadian issuers that report on domestic forms) and those foreign private issuers that report on Form 20-F. Second, in the event of a material...

Noncompete Agreements are Slowly Going Extinct in the U.S.

Companies utilizing noncompete agreements in the U.S. in the employment context should reevaluate their practices in light of recent changes to law and a rapidly changing legal landscape that is growing increasingly hostile to noncompete agreements. Early this year, the Federal Trade Commission (“FTC”) proposed a rule that would ban noncompete clauses nation-wide in the U.S. However, there is a long road ahead for the FTC’s proposed noncompete ban, and the proposed ban may very well be struck down by U.S. courts even if it is ultimately adopted. The FTC will not vote on the proposed ban until next April, and while 18 states’ attorneys general submitted a joint public comment letter in...

The U.S. Equal Employment Opportunity Commission Has Confirmed That Employers Face Potential Liability If They Use AI Tools To Screen Applicants. Employers Should Listen.

The U.S. Equal Employment Opportunity Commission (“EEOC”) has released guidance confirming that employers face potential liability if they use AI tools to screen applicants in a way that disproportionately impacts employees on the basis of a protected class such as race, color, religion, sex, or national origin. While ChatGPT and its competitors are new, the legal framework used to assess other applicant screening tools has been around for quite some time.  Employers and the legal system have struggled for years over whether and to what extent employers should be allowed to take a person’s credit scores or even their criminal record into account when making hiring decisions. Indeed, the system by which a...

Canadian Companies Listed on the NYSE, NYSE American, or Nasdaq Must Adopt Updated Clawback Policies by December 1, 2023

As discussed in our Governance & Compliance Insider blog and a recent Dorsey eUpdate, all companies with securities listed on NYSE, NYSE American, or Nasdaq will be required to adopt and comply with updated clawback policies governing the recovery of erroneously awarded compensation by December 1, 2023, pursuant to rules proposed by each stock exchange and approved by the SEC under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  The new clawback requirements will apply to substantially all listed companies, including foreign private issuers and Canadian MJDS filers.

U.S. National Labor Relations Board Restricts Confidentiality and Non-Disparagement Terms for Separation and Release Agreements

Employers have frequently included confidentiality and non-disparagement terms in their separation and release agreements. Confidentiality terms help ensure that employees won’t brag to coworkers about large payouts and encourage them to seek similar payouts. Such payouts can also give the impression that a company is looking to avoid exposure for wrongdoing, and confidentiality terms can help maintain the privacy of such payouts. Non-disparagement terms can help companies deter departing employee from publically trashing their former employers on their way out the door. Employees don’t always leave on good terms and non-disparagement terms can help incent employees to keep their negative opinions to themselves. U.S. employers, however, must re-evaluate their use of confidentiality and...

Initial Guidance for New U.S. Excise Tax on Stock Repurchase Transactions: IRS Substantially Expands Scope of Applicable Canadian Companies

In our blog post dated August 22, 2022, we discussed the one percent (1%) excise tax on certain stock repurchase transactions by certain publicly traded corporations enacted as part of the Inflation Reduction Act of 2022 (the “Excise Tax”). The Excise Tax became effective on January 1, 2023. The Internal Revenue Services (the “IRS”) issued initial guidance describing future Treasury Regulations expected to be promulgated regarding the Excise Tax that, when finalized, are expected to be effective retroactive to the beginning of 2023. That initial guidance is contained in Notice 2023-2. (the “Notice”). Among other changes and clarifications, the Notice substantially expands the scope of Canadian corporations that may be subject to the...

Implications of SEC Amendment to Insider Trading Safe Harbor for Canadian Issuers

On December 14, 2022, the SEC adopted final rules amending Rule 10b5-1, a safe harbor from liability under the U.S. insider trading rules.  The safe harbor permits directors, executive officers and others, including issuers, to engage in securities transactions while in possession of material non-public information, by entering into a binding contract, instruction or plan adopted prior to effecting the transaction and at a time when the seller or buyer was not in possession of material non-public information about the issuer. The new rules include a number of measures intended to limit certain potentially abusive strategies permitted under the old rules and certain new disclosure requirements intended to enhance investors’ understanding of the...

U.S. Equal Pay and Pay Transparency Laws Are Getting More Complex

Several U.S. states have been adopting more complex pay transparency laws and stricter equal pay statutes that prohibit employers from paying two employees differently to perform the same role based on factors such as race or gender. While these two types of laws are different, they go hand in hand since pay transparency laws require employers to disclose the very information that tips off employees (and plaintiffs’ attorneys) to the facts necessary to bring equal pay claims. Companies looking to hire in the U.S. must become familiar with these laws or face substantial statutory penalties and civil liability. Equal Pay Laws Most U.S. states have some form of equal pay law. Many U.S....