What happens when an employer fails to comply with their obligations under employment standards legislation? As we discussed in a previous post, the risks of non-compliance include administrative penalties, fines, compliance orders and being sued. In this post, we’ll talk about one particular example where non-compliance with employment standards regarding group termination ended up costing the employer more than $1 million.
Summary of Events
The employer was a manufacturer with several plants. It decided to close one plant (located in Ontario) which meant terminating 77 employees. The employer did the following:
- April 17, 2014 it advised the employees by letter that their employment would terminate on March 27, 2015.
- May 12, 2015 sent notice of group termination (called a Form 1) to the Director.
- The company subsequently extended the termination date for most employees to June 28, 2015.
Group notice was required under the Employment Standards Act, 2000 (“ESA”), just as it is required in most jurisdictions (although the thresholds for triggering the requirement vary from jurisdiction to jurisdiction). Because group notice was required, notice also had to be given to the Director within a specified number of weeks prior to termination and posted for the employees.
During the notice period, the employer increased production so that it could stockpile product. To facilitate this, a number of employees worked overtime during the notice period. Some employees agreed to work overtime and others were effectively forced to work overtime.
A class action was brought on behalf of the terminated employees alleging that they were not provided the proper notice of termination. There were three significant issues, all related to compliance:
- The impact of the late group notice to the Director.
- The impact of extending the termination date for employees beyond 13 weeks.
- The impact of the overtime that employees worked during the notice period.
These compliance issues resulted in significant litigation – costing the employer both time and money. Ultimately, the Court concluded that the company had failed to comply with the ESA.
The late notice to the Director meant that the company was not given credit for 12 days of the notice that it provided. This meant that the company did not provide the employees with enough working notice and would be required to pay those 77 employees for the 12 days for which the employer lost credit.
Extended Termination Date
A regulation under the ESA provides that if an employer extends an employee’s termination date (by continuing to employ them) by more than 13 weeks from the initial termination date, the initial notice of termination is no longer valid and new notice must be given. This meant that the notice given to employees who worked for more than 13 weeks past their initial termination date was no longer valid. The effect of this is that the employer changed those employees’ termination date and a new notice of termination was required. The employer did not provide a new notice of termination, which meant those employees were terminated without notice and were entitled to pay in lieu of notice for their full notice period.
Under the Act, there is a limit on the number of hours an employee can work in a week. Employees can work beyond that number of hours if they agree in writing and the employer gets the approval of the Director. In this case, some of the employees agreed to work overtime, although they did not provide agreement in writing and the employer did not get the Director’s approval. Another group of employees were told that they were required to work overtime.
The court held that the overtime worked by all employees was in violation of the Act. With respect to the employees who agreed to work overtime, the Court said “had [the employer] simply complied with the overtime provisions of the ESA by obtaining the hourly paid employees’ written agreement to work the additional hours and the director’s approval, the result would have been different“. The effect of this was that the employer was also not given full credit for the notice of termination that it provided to these employees. The purpose of giving notice of termination is to give employees an opportunity to find new employment. By violating the overtime provisions of the ESA, the employer did not give those employees a reasonable opportunity to find new work.
Given these findings of non-compliance by the court, the employer ended up settling this class action. The employer paid out more than $1 million as compensation for its non-compliance. In addition to the settlement costs, the employer would have incurred significant legal fees and internal costs.
All of these costs could have been avoided if the employer had:
- Given notice to the director on time.
- Understood that the initial notice was no longer valid and given a new notice of termination to employees whose termination date was extended.
- Complied with overtime requirements by not forcing employees to work overtime and getting the written approval of those who agreed to work overtime, as well as the approval of the Director.
While there were some complicating factors in this case, at its core, the class action stemmed from non-compliance with some basic employment standards obligations. These requirements may seem like a simple formality, but there can be serious consequences for getting this wrong. It is important to understand that there are potentially significant consequences to any non-compliance with the ESA. This case is also a good reminder that you need to fully review the legislation to understand your obligations – your obligations are found in the regulations as well as in the Act itself. See our recent post on the Top 4 HR Compliance Mistakes for more on this and other issues.