I - INTRODUCTION
Historically, a significant difference between Canadian and U.S. employment law has been the proliferation of class action lawsuits south of the border. However, with the recent spate of high profile cases involving claims for overtime in Canada, it appears that this difference is quickly eroding.
Overtime issues are also likely to become more prevalent as a result of factors such as new technologies and the shift from manufacturing to service industries. Certainly, it is easy to see how the presence of a BlackBerry or other remote work access tool begins to blur the lines as to when an employee starts and stops his or her workday. Traditionally, employers often considered employees in service industries on salary or commissions and individuals with pagers, cell phones and BlackBerrys to be exempt from overtime rules, without a second thought. This is simply no longer the case. Canada saw its first class action lawsuit involving professional bank employees at the end of October 2008. The claim is in excess of $360 million against CIBC World Markets and involves individuals who generally receive lucrative base salaries and substantial bonus payments in exchange for working longer hours. The group includes investment bankers, analysts, investment advisers and support staff. This claim signals a shift that overtime claims are not just coming from lowerpaid employees.
As a result, more than ever, employers need to be scrutinizing their own policies and practices to avoid becoming the next headline. This Alert is meant to provide employers and human resources professionals with a snapshot of common issues and misconceptions relating to the interpretation of employment standards and overtime exemption legislation in Ontario and for employers covered by federal legislation.
The U.S. Experience
The law practice of “Wages and Hours” has been accelerating in the United States for at least a decade. Lawyers are busy bringing or defending class actions centred around hours-of-work provisions and, more commonly, the interpretation of the exemptions to overtime provisions. For example, one plaintiff lawyer in California describes the bulk of his practice as involving claims of “misclassification” – i.e. treating individuals as managerial (and thus, exempt from overtime) who, at law, are not.
Similarly, in “Wage Wars: Does Your Boss Owe You Overtime,” Michael Orey of Business Week (Oct. 1, 2007) reports that employers have paid out more than US$1 billion annually over the last few years to resolve overtime claims. In 2003, Starbucks settled a claim with its California managers for US$18 million, whereas Wal-Mart has seen jury awards of US$172 million to workers in California and US$78.5 million in Pennsylvania.
All this raises the question of whether the experience south of the border is gathering steam in Canada? With the highly-publicized class action overtime suits now being filed, the answer would appear to be “yes.” If anything, Canadian employers should take the U.S. experience as “lessons learned” and be sure to pre-emptively audit their overtime policies, managerial exclusions and employee classifications to ensure compliance with employment standards laws.
II - COMMON ISSUES AND MISCONCEPTIONS
Common issues and misconceptions facing employers regularly relate to who is entitled to overtime pay and when. Generally, unless individuals fall within specific exemptions enumerated by the governing legislation, overtime pay will apply to all employees, salaried or otherwise. However, the threshold for overtime entitlement varies depending on whether the employer is federally or provincially regulated, and also varies among provinces.
For example, New Brunswick, Newfoundland, Nova Scotia, Ontario, P.E.I. and Quebec have weekly overtime thresholds, whereas, Federal employment standards, Alberta, British Columbia, Manitoba and Saskatchewan have both daily and weekly overtime thresholds. Moreover, the weekly overtime thresholds for all jurisdictions vary from 40 to 48 hours depending on the governing legislation.
Additionally, it is necessary for employers to cross-reference the entitlements under the applicable employment standards legislation to their own formal policies. In other words, where there is a greater right or benefit, it will apply over the legislative standards. By way of example, if an employer in Ontario has a “regular work week” of 35 hours, its overtime threshold is considered to be 35 hours as opposed to the 44 hours provided by the province’s Employment Standards Act (the “ESA”).
Under section 22(2) of the ESA, an employer and employee can agree to average an employee’s hours of work over a specified period of two or more weeks (the “averaging period”) for the purpose of calculating overtime pay. Under such an averaging agreement, an employee would qualify for overtime pay only if the average hours worked during the averaging period exceeded 44 hours per week.
In order to be valid, an averaging agreement must be in writing and expire within two years of signing, after which a new agreement must be arrived at. The employer must also obtain approval to average hours for overtime purposes from the provincial Director of Employment Standards and such approval must be posted in the workplace until it expires or is revoked. It is important to note that the Director of Employment Standards can unilaterally revoke an approval to average hours of work by providing the employer with reasonable notice.
Similarly, the Canada Labour Code (“CLC”) provides for averaging hours of employment in the limited circumstances where the nature of the work necessitates irregular hours due to business demands, primarily as a result of seasonal or other factors. Employers are required to post the notice of an intention to average hours for 30 days prior to the averaging period to take effect. They must also provide notice to the employees, trade union and the local office of the Human Resources and Skills Development Canada. Ultimately, the averaging period must be for at least two weeks and the actual hours cannot exceed 48 in any week.
Paid Time Off in Lieu of Overtime Pay
Under section 22(7) of the ESA, an employee can agree in writing to receive paid time off instead of overtime pay. Under such an agreement, the employee is entitled to 1.5 hours of paid time off work for each hour of overtime worked. This paid time off, however, must be taken within three months of the week in which it was earned, or, if the employee agrees in writing, within 12 months.
Employers must be aware, however, that if an employee’s job ends before he has taken the paid time off, the employee must receive overtime pay for outstanding hours no later than seven days after the date the employment ended, or, on what would have been the employee's next pay day, whichever is later.
Supervisors and managers are excluded from overtime pay entitlements, but the challenge is in defining properly a supervisor or manager. The ESA defines a manager or supervisor as “a person whose work is supervisory or managerial in character and who may perform non-supervisory or non-managerial tasks on an irregular or exceptional basis.”
Employers, however, must be extremely cautious in characterizing an employee as managerial or supervisory. There is conflicting case law on the scope of this exemption with some decisions adopting a restrictive interpretation of "manager" by focusing on the need for an employee’s duties to be almost exclusively managerial.
In assessing whether a particular employee is a manager or a supervisor for the purposes of the ESA, regard must be had to the character and nature of the employee’s work as a whole to determine if the employee directs and supervises other employees and/or controls material resources.
Similarly, under Part III, Section 167(2) of the CLC, managers or superintendents, or those who exercise management functions, are exempt from the standard hours-of-work provisions. Generally, any employee who exercises managerial or superintendent functions is excluded. However, simply including the word “manager” in an employee’s title may not alleviate the employer from its overtime obligations. In their application of this provision, the Federal Courts have acknowledged that there is no precise meaning of the word “management” that would apply, as a matter of law, in all circumstances. Rather, the words “management functions” are to be interpreted and applied according to the circumstances of each case and the precise ambit of the term is a question of fact or opinion for the Board rather than a question of law.
Investment Bankers, Analysts, Investment Advisers and Support Staff
There are no overtime exemption categories for these positions, nor are they considered to come within the professional exemptions under the ESA. Accordingly, the regular hours of work and overtime provisions of the ESA will apply.
Similarly, the CLC does not include these positions as separate categories of employees who are exempt from overtime, nor are they included in the Canada Labour Standards Regulations under Section 3, Exclusion of Professions, that defines licensed professionals as: architects, dentists, engineers, lawyers and medical professionals.
Information Technology Professionals
Information technology professionals are also exempt from receiving overtime pay. As with managerial and supervisory employees, employers must be cautious in identifying particular employees as information technology professionals. The ESA defines an information technology professional as “an employee who is primarily engaged in the investigation, analysis, design, development, implementation, operation or management of information systems based on computer and related technologies through the objective application of specialized knowledge and professional judgment.”
It is important to note that formal information technology education and the mere fact that an employee works for an information technology business or in an information technology department are not determining factors in assessing whether a given employee falls within the exemption.
Specifically, the following work has been found to not fall within the ambit of the information technology exemption: “trouble-shooting,” repairing home computers and other home products sold by the employer, the sale of information-technology products, mere use of hardware or software products that are developed and maintained by information technology professionals (e.g. computer animators) and support staff and administrators who perform routine, unsophisticated tasks.
Commissioned salespeople who receive remuneration in the form of commissions in respect of offers to purchase, or sales that relate to goods or services that are normally made away from the employers place of business, are exempt from hours of work, overtime, public holiday pay, and vacation pay. This exemption, however, does not apply to “route” salesmen.
In May 2006, the CLC Regulation “Banking Industry Commission-Paid Salespeople Hours of Work” exempted employees in this category from the application of the hours of work, maximum hours of work and overtime pay provisions.
Suffer or Permit Work to be Done
An employer who does not wish to pay overtime must be wary of permitting employees to perform it. Under Regulation 285/01, section 6(1) of the ESA, employers who permit or “suffer” employee overtime may be required to pay those employees overtime pay even where the employer has a formal policy requiring overtime to be approved in advance. A policy requiring prior approval may be helpful, but consistent enforcement of that policy is essential to defending overtime claims.
The CLC is not as specific with respect to this issue, but it is to be noted that it defines “standard hours of work” as 8 hours in a day and 40 hours in a week. Any hours worked in excess of these hours are considered overtime, and overtime pay of one-and-a-half times the normal rate must be paid.
Record-keeping (Overtime Hours)
Section 15 of the ESA governs an employer’s general record-keeping requirements, which provides that although employers are not required to keep records regarding hours worked in each day and week if the employee is paid a salary, they are required to record: (i) any hours worked in excess of 8 hours each day; or (ii) if the regular work-day is greater than 8 hours, the hours worked in excess of the employee’s regular work-day; or (iii) whether the employee is exempt from the hours or work and overtime provisions.
Equally, employers should be cautious of their record-keeping methods in the event there is an overtime dispute. Regulations to the CLC, for example, require employers to accurately record and maintain records of hours worked. Therefore, in an overtime dispute, the onus is on the employer to refute, by its records, any claim that an employee may put forward.
The importance of record-keeping is highlighted by the fact that class actions tend to have massive claims for retroactive pay. Now is the time for employers to implement polices where employees are required to submit overtime claims on a timely basis. This is one way that changes to workplace practices can help protect employers from claims that reach back years in time.
III - PRACTICAL TIPS
Employers should consider taking the following steps in order to reduce the likelihood of overtime litigation:
- Make sure that your policies and employment contracts comply with the law.
- Keep accurate records of hours worked by employees.
- Do not unwittingly create overtime policies that are more generous than the law requires.
- Ensure that a requirement for authorization of overtime is clear and consistently enforced.
- Understand the exemptions and do not apply them overly broadly.
- Review employee’s positions and job descriptions regularly to determine whether or not they are overtime exempt.