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Class Actions – The Risks of Non-Compliance with Employment Standards

Woman calculating class actions

Class actions are a risk for every employer if you are not in compliance with employment standards legislation.  While the answer to avoiding liability may seem easy (just comply!) its not always that straight-forward.  Compliance is time consuming and it is complicated.

That’s not just our view – in a review of federal employment standards legislation it was found that “… most violations [of employment standards] resulted from unintentional misunderstandings of the requirements of complex laws and regulations“. The problem with this is that those unintentional misunderstandings can be costly.  Non-compliance can result in administrative penalties, offences, personal liability of directors and officers and litigation, including class actions.

Woman calculating class actions

Class action lawsuits may be the biggest risk of non-compliance because:

  • they are public and often attract media attention
  • they are expensive to fight
  • they usually involve high monetary claims
  • they can last for years

The public aspect of class actions means that there can also be longer term reputational impacts.  A damaged reputation can lead to lost clients, customers and employee talent.  It’s hard to put a dollar value on these potential losses.  Add to that the time commitment that is involved in fighting a class action, and you start to see how the impacts add up.

To understand some of the risks of that can lead to class actions, we’ve provided an overview of class actions that have been brought for non-compliance with employment standards.

Overtime Class Actions

The largest group of employment class actions have been claims for overtime pay.  While some of these claims involve issues about the classification of employees, they all also involve non-compliance with basic requirements under employment standards legislation.

These class actions typically involve non-compliance with the following employment standards:

  • record keeping
  • averaging agreements
  • overtime thresholds
  • overtime pay rates

The impact of these class actions can be significant.  For example, in 2007 a $500 million overtime class action was brought against CIBC.  The main allegation in that case was that over a period of 16 years, CIBC’s overtime policies and record-keeping systems did not comply with the employment standards set out in the Canada Labour Code.  In addition to claiming $500 million for unpaid overtime, the class action also claimed $100 million in punitive damages.  This claim and its progress through the courts has been widely published in the media.

This claim has slowly made its way though the system.  On March 30, 2020 the court found that CIBC was liable to the class members because it had failed to pay overtime and keep records in accordance with the Canada Labour Code.  The court reviewed the employment standards requirements under the Act and found that CIBC did not keep the records that it was required to keep and did not pay overtime as required by the Act.  Failure to comply with these employment standards created clear liability.  The court has not yet made a ruling on the amount that CIBC will be required to pay (although the court has said that CIBC will not be required to pay punitive damages).  At least one other overtime class action was settled after the court held that it could proceed as a class action.

Vacation and Holiday Pay Class Action

Class actions have also been brought for non-payment of vacation and holiday pay.  These class actions involve non-compliance with employment standards provisions related to:

  • entitlement to vacation and holiday pay
  • the calculation of vacation and holiday pay
  • the definition of wages

For example, in the class action against BMO, the claim alleges that BMO calculated vacation and holiday pay on an employee’s base pay only, and did not include money paid for bonuses, commissions, stock options and share units.  This class action, along with the other vacation and holiday pay class actions, are still making their way through the courts.

Group Termination

Class actions have also been brought related to group or mass terminations.  Employment standards legislation provides minimum standards for the termination of employees, including specific requirements when an employer terminates a group of employees.  The employment standards that have been at issue in these claims include:

  • the notice that is required to be given to employees
  • the notice that is required to be given to the government
  • unpaid wages and vacation pay payable on termination

For example, a class action was brought against CTS of Canada Co.  CTS terminated 77 employees.  Under the Ontario employment standards legislation there are specific requirements that apply to the termination of 50 or more employees.  Those requirements include providing notice of the termination to the Director at the time notice is given.

In this case, CTS gave notice to the employees on April 17 and gave notice to the Director on May 12.  By failing to comply with the requirement under the Act to give notice to the Director at the same time as notice to the employees, the court held that the employer was not entitled to credit for working notice between giving notice to the employees and notice to the Director.  The notice period did not start to run until notice was given to the Director.

Key Takeaways

Class actions against employers for non-compliance with employment standards seem to be here to stay.  While it is easy to say that the best way to avoid this costly litigation is to stay in compliance with your obligations, we know that that is harder than it sounds.  Employment standards legislation changes all the time.  And it is often written in a way that makes it hard to understand, or hard to find the answer you are looking for.  As an employer though, it is your obligation to make sure that you are in compliance.  This means you need to dedicate the time or resources to understand your obligations and stay on top of the changes.  Be sure you understand your obligations, and have clear policies and processes to ensure that you are in fact complying with those obligations.

About the author

Gayle Wadden
Gayle Wadden CLO, Compliance Works
Gayle Wadden is a senior lawyer with deep experience in employment and corporate law. She is responsible for overseeing Compliance Works’ legal content.

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