Employment by provincially-regulated employees in BC is governed by the common law of contract and by statute. Many employment contracts are verbal and do not expressly deal with routine matters. The Courts will infer into the contract of employment certain terms such as a varying duty of fidelity, the right to terminate for cause and the obligation to give reasonable notice to terminate. Some terms have - until recently – not been inferred – i.e. overtime pay, vacations and vacation pay, holidays and holiday pay.
The Employment Standards Act, (ESA) and the Human Rights Code and Workers Compensation Act are the statutes which primarily set the minimum requirements.
For many years, the ESA was treated as a self-contained regime with its own enforcement mechanism. Its provisions could only be enforced by the mechanism provided in the ESA. Given the six-month limitation period employers were willing to gamble on the potential enforcement of some of its provisions.
All of that changed with the BC Supreme Court in Macareg v. E. Care1 decision. The Court decided that the minimum provisions of the ESA should be incorporated into and deemed to form part of the contract of employment so that the provisions could be enforced in Court in a civil action. The subject example was a claim for overtime pay and statutory holiday pay. In a similar case (Holland2) the claim was for overtime pay and had the same result.
Suddenly, employers in BC were faced with the prospect that a civil action could be used to enforce provisions of the ESA as if they were part of the employment agreement.
Note: The Macareg case is a class action lawsuit to claim these benefits, which made the decision even more noteworthy. These actions are becoming popular in other parts of Canada and we will continue to share these develop-ments with you in future Bulletins.
Further, the Holland decision concluded that the six-month limitation period only applies with respect to the enforcement mechanism under the ESA and not to Court actions where contracts have a six-year limitation period. With Holland, the claim was for overtime that was completed six years before the writ was issued. The prospect of retroactive liability for up to six years of non-compliance with ESA provisions is quite daunting for employers.
Many of the provisions of the ESA are minimal (e.g. hourly wage of $8.00 whereas starting wage for first time employees is $6.00); however, some can be quite onerous (e.g. overtime after eight hours, vacation pay on all wages, not just basic salary and statutory holiday pay). This is especially so where the salary is already designed to provide a reasonable compensation without direct application of such ESA provisions.
Fortunately, for employers in BC, the BC Court of Appeal has now decided the appeal in Macareg3 and concluded that these provisions of the ESA should not be incorporated into the contract of employment. Employees may still use the ESA mechanism to enforce their statutory rights but these statutory rights are not to be enforced by civil action. Further, the six-month limitation period will continue to apply. It is entirely possible that the Plaintiffs in Macareg may try to appeal to the Supreme Court of Canada. Again, we will keep you apprised of further developments.
Importance of addressing issues in the contract of employment
While the Court of Appeal has removed the burden created by importing these ESA provisions, other provisions of the ESA may also lead employers astray. Section 63 of the ESA provides that, on termination, the notice entitlement or pay in lieu required is a week after three months, two weeks after one year and a further week per year after three years to a maximum of eight weeks after eight years. To their horror, many employers have learned that this is, “… only a minimum …” provided by the ESA and that the employee is actually entitled - at common law - to “reasonable notice” or damages based primarily on pay in lieu of the reasonable notice.
A further disconnect between common law and the ESA occurs with “layoff”. Under the ESA, layoff is contemplated. A temporary layoff is permitted without incurring any ESA liability. The layoff becomes permanent and triggers severance pay only after 13 weeks. But under common law – especially for salaried employees – there may be no Right to lay off at all. Unless it is an express term, a custom, or well established practice, there is no Right recognized at common law to lay off an employee without pay. If the employer does lay off the employee, then the employee may claim damages for a wrongful dismissal.
These recent court decisions, while at this time not causing the potential problems described above, demonstrate more clearly the importance of a written contract of employment and how only a superficial understanding of the ESA may lead an employer into serious liability.