Divisional court decision
In the past year, in three prominent cases, the Ontario courts have considered whether employee claims for unpaid overtime are suitable to be brought as class actions.(1) The latest decision in this trilogy of cases - the decision of the Ontario Divisional Court in Fulawka v The Bank of Nova Scotia - was released on June 3 2011. In Fulawka the divisional court upheld the decision of Justice Strathy (of the Superior Court) certifying the employee plaintiff's action for overtime pay as a class action.
The Fulawka action was commenced by non-managerial employees of the Bank of Nova Scotia (Scotiabank), who alleged that the bank, in breach of a number of systemic duties, made it difficult for class members to claim and recover appropriate overtime compensation by requiring that overtime work be pre-approved, with the result that class members regularly worked overtime for which they were not appropriately compensated. Specifically, the plaintiff asserted causes of action for breach of contract, unjust enrichment, negligence and breach of the Canada Labour Code (RSC 1985, c L-2). Strathy certified all of the causes of action, with the exception of the claim for alleged breach of the code. The divisional court upheld Strathy's decision with respect to these causes of action, as well as his conclusions regarding the other requirements for certification under Section 5(1) of the Class Proceedings Act 1992 (SO 1992, c 6).(2)
The recent Fulawka decision represents an interesting development in overtime pay class actions, as it differs significantly in outcome and, arguably, in approach from Fresco and McCracken, wherein the plaintiffs asserted similar claims against the defendant employers on the basis that their overtime policies had unlawful pre-authorisation requirements.
In Fresco the divisional court refused to certify the action as a class proceeding.(3) In that case the court determined that the common issues raised by the plaintiff would not significantly advance the litigation - a requirement for certification under Section 5(1) of the Class Proceedings Act. By contrast, the court in Fulawka held that the resolution of the common issues would significantly advance the claims of each class member. As discussed in greater detail below, the difference between the evidentiary records in the two cases was a significant factor in these different outcomes, but it also appears that the court's reasoning in the two cases differed. The Fulawka decision also differs markedly from McCracken, wherein the Superior Court adopted different approaches with respect to the causes of action under the code and in negligence.
This update first outlines the recent Fulawka decision and then discusses some of the important differences between it and the two other overtime pay decisions released this year.
Scotiabank's appeal of Strathy's certification decision focused on two main issues:
- whether the causes of action propounded by the plaintiff were bound to fail; and
- whether the claims asserted constituted common issues.
The divisional court also considered whether a class proceeding was the preferable procedure in this instance. These issues are dealt with in turn below.
Causes of action
The test for certification under Section 5(1)(a) of the Class Proceedings Act is identical to the test on a motion to strike a pleading as disclosing no cause of action. It must be "plain and obvious" that the claim cannot succeed, assuming all facts alleged in the statement of claim to be true. In Fulawka the divisional court held that it was not plain and obvious that the causes of action certified by Strathy could not succeed. The cause of action for breach of the code was not considered on appeal, as the plaintiff did not appeal Strathy's decision refusing to certify this cause of action.
The divisional court upheld Strathy's conclusion that it was not plain and obvious that the plaintiff's breach of contract claim could not succeed, pointing to the fact that claims for breach of contract based on the interpretation of common contractual provisions have frequently been certified as class actions.(4) The divisional court also agreed with Strathy that the provisions of the code could inform the duties owed by Scotiabank to its employees, including contractual duties, even if there was no direct cause of action for breach of the code per se.(5) It held that there was a "factual basis for the pleading that relevant provisions… of the Code are implied or otherwise incorporated by fact in Class Members' contracts of employment", and that therefore the provisions of the code could inform contractual duties.(6)
The divisional court also concluded that it was not plain and obvious that the plaintiff's claim based on an implied contractual duty of good faith could not succeed. The plaintiff argued that class members were in a position of vulnerability in relation to Scotiabank and that, consequently, the defendant owed a duty to act in good faith, which included a duty to honour its statutory and contractual obligations. The plaintiff alleged that Scotiabank created a work environment and culture that encouraged and even required employees to work beyond their scheduled hours, while its pre-authorisation policy made it impracticable or generally impossible for employees to be paid for overtime work.
While it was not in dispute that employers owe a duty of good faith to employees,(7) Scotiabank argued that the failure to compensate class members properly for their overtime work would not defeat the purpose and objective of the employment contract because overtime pay is only a small part of the employment agreement, and that therefore the argument alleging a breach of the duty of good faith was bound to fail. The court disagreed with this analysis, concluding that:
"The essence of the employment agreement is an exchange of time and effort for wages. Overtime compensation is a form of wages, and it is arguable that actions or omissions which deprive Class Members of proper wages for their labour do defeat the central purpose and objective of the employment contract."(8)
The divisional court also upheld the cause of action in negligence, concluding that the harm alleged was a reasonably foreseeable consequence of the defendant's actions. The court reasoned that if only pre-authorised hours were compensable and class members' work hours were not recorded, it followed that class members were at risk of not being paid for all hours worked at the appropriate rate of pay and were thus exposed to a foreseeable risk of harm. The requisite relationship of proximity was also clear and direct, as the relationship was one between employer and employee, with an employer's actions having an impact on the relatively vulnerable employee.(9) The divisional court found no residual policy consideration that would override this duty of care and held that courts "should be very circumspect about striking claims" based on residual policy concerns at preliminary stages in the absence of full evidentiary records.(10)
To meet the test for certification under Section 5(1)(c) of the Class Proceedings Act, plaintiffs must raise common issues, the answers to which must be necessary to the resolution of each class member's claim.(11) In this instance Strathy concluded that the following issues would significantly advance the claims of each class member:
- whether Scotiabank had a duty to put a system in place to ensure that:
- employees at the branch level were not required or permitted to work overtime without compensation;
- regular hours and overtime hours were properly recorded; and
- any employee who was required or permitted to work overtime hours was paid;
- whether the provision of the policy requiring pre-approval of overtime was a breach of duty owed by Scotiabank to the class; and
- whether the contracts of employment of the class members included an implied term that overtime permitted or required would be compensated.
On appeal, Scotiabank argued that none of the common issues above relating to the systemic failures was necessary to class members' claims because no individual class member needed to demonstrate systemic wrongdoings in order to establish an individual entitlement for unpaid overtime. As such, the common issues raised were not necessary to the resolution of each member's claim that he or she was not paid for overtime work.(12) This argument is consonant with the decision in Fresco, in which the divisional court found that the commonality requirement was not met for this reason, among others.
However, the divisional court concluded that Scotiabank could not reframe the claims asserted by the plaintiff:
"The plaintiff and other members of the class have chosen to frame their claim based on contractual and other wrongs that make it amenable to determination on a class wide basis. She was entitled to do so, and the court must consider those claims as asserted and not as the defendant's counsel would recast them."(13)
The harm alleged was framed not in terms of individual refusals by the bank to compensate for overtime, but in terms of systemic duties and systemic breaches that the plaintiff claimed caused employees to work overtime for which they were not compensated. It did not matter that the claims could have been framed as individual breaches, so long as systemic breaches were in fact alleged and there was some basis in fact to support such allegations.
The divisional court went on to distinguish Fulawka from Fresco on the basis that, unlike in Fresco, where the court found that the reasons for working overtime differed among the various groups, in this case there was evidence that the refusals to pay overtime were caused by Scotiabank's overtime policy and not, as in Fresco, independent of it:
"There is evidence that, if accepted by the trial judge, can justify a finding that Scotiabank systemically breached the Class Members' contracts. The appellant has not established that there is any palpable or overriding error that would justify interfering with the motion judge's conclusion."(14)
The divisional court concluded that the issues relating to the existence and systemic breaches of the duty allegedly owed to class members would advance the litigation. A finding that there was a duty to keep records of time worked and that this was breached would significantly advance the claims because Scotiabank would be unable to rely on its own breach of duty (to keep records) to defeat the claims of class members. The absence of a class-wide system to record hours is a systemic impediment to the ability of every class member to prove that he or she worked overtime.
The divisional court also upheld as common issues those issues relating to the misclassification of employees as management in a way that rendered them ineligible for overtime, unjust enrichment and aggregate damages. The resolution of these issues would significantly advance the litigation.
Finally, the divisional court upheld Strathy's decision that a class proceeding was the preferable procedure - a requirement under Section 5(1)(d) of the Class Proceedings Act. There was evidence on the availability of an aggregate assessment of damages, as well as evidence that the class members lacked the financial resources necessary to bring forward individual claims, and that they were afraid of, as the court phrased it, "biting the hand that feeds them".(15) Notably, Justice Lax in Fresco came to a similar conclusion on the issue of preferable procedure, noting that only a very small percentage of federally regulated employees advance complaints against their employers.(16)
The decision in the Fulawka appeal is a significant development for overtime pay class actions because, as noted, it differs significantly in outcome and, arguably, in approach from Fresco and McCracken.
For example, in Fresco the divisional court refused to certify as a class proceeding similar claims for overtime pay brought by employees of the Canadian Imperial Bank of Commerce. It appears that the primary difference between the two decisions concerned the common issues requirement: in Fulawka the divisional court found that the common issues would advance the individual claims, while the divisional court in Fresco did not. By way of further example of the differences among and between the recent overtime cases, while the McCracken action for overtime pay was certified (as was Fulawka), the Superior Court in McCracken took different approaches from those taken by the divisional court in Fulawka as to how the code should be interpreted and as to whether a cause of action in negligence should be certified. One is left to wonder why these three decisions are so different in many respects, despite the similarity in the claims asserted.
One explanation is the different evidentiary records before the court in each case.(17) In Fulawka the divisional court emphasised that the evidentiary record before it differed from the evidentiary record before the court in Fresco, and that consequently "it is neither possible nor appropriate for this court to attempt to assess the merits of the present appeal in relation to the record before the court in Fresco".(18) Therefore, while the court in Fresco determined that there was an insufficient basis in fact to hold that the common issues raised would significantly advance the litigation, the court in Fulawka held that there was a sufficient basis in fact to conclude that the resolution of the common issues would do so.
A second explanation for the different outcomes in Fulawka and Fresco is the difference in how the two claims were pleaded. It is noteworthy that the plaintiff in Fulawka amended her claim in a manner that reflected the first Fresco decision denying certification. The revised claim included a claim in negligence, alleging that Scotiabank owed the plaintiff a duty of care. As the court in McCracken noted:
"[A] major difference between the two cases was that in Fresco, Justice Lax found that a systemic class wide wrong was neither pleaded nor shown to have some basis in fact… She therefore concluded that there were only individual claims lacking commonality for a class action. In contrast, in Fulawka, Justice Strathy found a pleaded cause of action in negligence and for breach of contract at a systematic level."(19)
Pleading that a duty was owed to class members and that there were systemic breaches of this duty is crucial to the certification of an action as a class proceeding.
However, while there were differences in the respective evidentiary records and pleadings in Fresco and Fulawka, these differences do not fully explain the different outcomes. It appears that the reasoning of the divisional court in each case was also different. For example, the divisional court took different positions on the issue of the duty to keep records. The court in Fulawka held that the common issue with respect to record keeping would significantly advance the litigation by preventing Scotiabank from relying on its own breach of duty to defeat the claims of class members. Conversely, the court in Fresco stated (in obiter) that:
"while a common issues trial judge could decide the legality of the method used for records keeping, the determination would not materially advance the litigation, as there is no independent cause of action asserted for the failure to keep proper records."(20)
However, one wonders why the reasoning from Fulawka would not apply in Fresco. Presumably, in both cases the determination of an unlawful failure to keep proper records would assist the plaintiffs by precluding the defendant from relying on its own breach of duty to keep records to defeat the plaintiffs' claims.
Further, the reasoning in Fulawka also differs from the reasoning in McCracken. As noted, the court in McCracken recognised a civil cause of action for breach of the code (while the court in Fulawka did not), but did not recognise a cause of action in negligence (which the court in Fulawka did). Consequently, the Superior Court distinguished McCracken from Fulawka with respect to the common issues relating to a systemic breach of duty, refusing to certify those issues as common issues on the basis that, unlike in Fulawka, the court did not recognise a cause of action in negligence.
Given these discrepancies among the overtime pay certification decisions, which differ in both outcome and approach, one hopes that the next decision on this subject - most likely, the appeal of either Fresco or McCracken - will clarify the approach that should be taken to certification in the overtime pay context, rather than simply distinguish based on different evidentiary records. This would create clarity for future plaintiffs and defendants wondering how the Ontario courts will interpret their own unique sets of facts.
For further information on this topic please contact Norman J Emblem or Chloe Snider at Fraser Milner Casgrain LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email ([email protected] or [email protected]).
(1) Fulawka v The Bank of Nova Scotia, 2011 ONSC 530 (Div Ct); Fresco v Canadian Imperial Bank of Commerce, 2010 ONSC 4724 (Div Ct); and McCracken v Canadian National Railway Company, 2010 ONSC 4520. The appeal in Fresco has been perfected and will be heard by the Ontario Court of Appeal on September 14 2011.
(2) Section 5(1) of the Class Proceedings Act provides that the court shall certify a class proceeding on a motion if:
- the pleadings or the notice of application discloses a cause of action;
- there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;
- the claims or defence of the class members raise common issues;
- a class proceeding would be the preferable procedure for the resolution of the common issues; and
- there is a representative plaintiff or defendant who:
- would fairly and adequately represent the interests of the class;
- has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding; and
- does not have, on the common issues for the class, an interest in conflict with the interests of other class members.
(3) This decision has been appealed to the court of appeal, which will hear the appeal on September 14 2011.
(4) Fulawka, supra endnote 1 at para 25.
(5) However, in McCracken the court held that if there was no cause of action for breach of statute, the code could not inform other common law duties - an argument made by Scotiabank on appeal. In McCracken the court held that there was a cause of action for breach of the code.
(6) Fulawka, supra endnote 1 at para 35.
(7) See Wallace v United Grain Growers Ltd (cob Public Press),  3 SCR 701.
(8) Fulawka, supra endnote 1 at para 45.
(9) Ibid at para 65.
(10) Ibid at para 72. By contrast, the court in McCracken found that there were policy reasons that negated this duty.
(11) Hollick v Toronto (City),  3 SCR 158.
(12) Fulawka, supra endnote 1 at para 78.
(13) Ibid at para 81.
(14) Ibid at para 96.
(15) Ibid at para 135.
(16) Ibid at para 137.
(17) On a certification motion, the plaintiff must establish that there is some basis in fact to support the claims alleged. There will therefore be significant evidence before the court on such motions.
(18) Fulawka, supra endnote 1 at para 21.
(19) McCracken, supra endnote 1 at para 380.
(20) Fresco, supra endnote 1 at para 110.