When the first overtime class actions broke onto the Canadian legal scene in 2007, observers wondered whether this signalled a move toward the class action culture to which U.S. employers have grown accustomed. With the expanded right to overtime under the new federal Fair Labour Standards Act 1(FLSA) — known as the "FairPay Rules" — adopted in 2004, the incidence of overtime class actions has mushroomed in the U.S. To date, attempts to follow this trend in Canada have been met with a lukewarm reaction from the courts. In those cases where overtime class actions have been certified, appeals are pending on the certification decisions, and we have yet to see a case go to trial on the merits.
But while mass overtime claims have occupied our attention over the past several years, that is not the only use for class action proceedings in employment-related claims. The increasing use of class action proceedings to contest unjust dismissals, workplace discrimination — or changes to pension and benefits that affect large groups of employees — could be a concern for all employers, even those who are not at particular risk of overtime claims.
Although the mere mention of a class action is enough to strike terror in the hearts of employers, there may be cases in which class action proceedings may actually serve as a vehicle for achieving final resolution of employment liabilities.
Status of Pending Overtime Class Actions
In stark contrast to the stream of overtime class action cases that make headlines in the United States, there are only four cases pending in Canada where a decision has been rendered — or is expected to be rendered shortly — on certification.2
- Fresco v. Canadian Imperial Bank of Commerce,3 a $651-million claim on behalf of current and former non-management, non-unionized retail branch employees who were allegedly required or permitted to work overtime without additional pay as required under the Canada Labour Code.
In June 2009, the Ontario Superior Court of Justice refused certification on the basis that the claims of the class members did not raise a common issue that would sufficiently advance litigation proceedings if determined on a class-wide basis. In essence, because there was no evidence of a systemic practice of unpaid overtime, the case would break down into individual inquiries, which was not appropriate for class proceedings. This decision was upheld by the Divisional Court in September 2010 and has now been appealed to the Court of Appeal for Ontario, with a hearing set for September 14-16, 2011.
- Fulawka v. The Bank of Nova Scotia,4 a $350-million claim (including $100 million of punitive damages) on behalf of full-time employees who were allegedly required to work overtime without additional pay due to systemic deficiencies in the application of the Bank’s overtime policies.
The class action was certified by the Ontario Superior Court of Justice on February 19, 2010. The case was distinguished from Fresco on the basis that there was evidence of systemic deficiencies resulting in ongoing unpaid overtime. This decision was appealed to the Divisional Court. The hearing took place on December 1-3, 2010, and the judgment is under reserve.5
- McCracken v. Canadian National Railway Company,6 a $300-million claim (including $50 million of punitive, aggravated and exemplary damages) on behalf of over 1500 "first-line supervisors" who were allegedly misclassified as "managers" and wrongly denied payment of overtime.
The class action was certified by the Ontario Superior Court of Justice on August 17, 2010. As in Fulawka, this case was distinguished from Fresco on the basis that it raised a systemic deficiency in CN’s classification of employees as being exempt from statutory overtime provisions (i.e., a "misclassification" case as opposed to an "off-the-clock" case, where employees allege that they were required to work additional hours). The certification decision has been appealed to the Divisional Court. Written materials have been filed with the court, and a hearing is expected before the end of this year.
- Rosen v. BMO Nesbitt Burns,7 in which compensation is sought on behalf of current and former Investment Advisors and Financial Advisors who were allegedly misclassified as being exempt from overtime pay and were expected to work up to 80 hours per week.
A Statement of Claim was initially filed on February 8, 2010. Certification materials have been filed, but there is no decision yet on certification.
Non-Overtime Employment Class Actions
As noted at the outset, there are many examples of class actions that have been allowed to proceed in Canada in matters involving allegations of unjust dismissal, discrimination, as well as in pension and benefits cases. Of these, the pensions and benefits cases have traditionally been the most fertile ground for class action proceedings, with claims for negligence, breach of contract and/or breach of fiduciary duty, often in cases where benefits are unilaterally changed, reduced or terminated, or where there is a funding shortfall.
The gravitation towards class proceedings in these cases can likely be explained by the requirement that, to be certified, class action claimants must demonstrate that the case raises "common issues" to be determined by the court. Most employment-related claims will come down to an analysis of individual facts and circumstances, and are unlikely to lend themselves to class proceedings. However, in any case where the individual claims rest on a pivotal decision or action of the employer, or where they are based on a systemic fault in the employer’s workplace policies, a class action could be an appropriate vehicle.
Plaintiffs’ counsel seem keen to explore this avenue. Of particular note, business closures and staff reductions following the recent economic downturn have spawned a wave of unjust dismissal class actions.
This trend is of concern to employers, especially when we consider the most recent case hitting headlines in the U.S. — the certification of the largest-ever employment discrimination case against Wal-Mart, which involves an estimated 1.5-million-member class.8
As well, employers can be stuck with a huge bill for court costs if they unsuccessfully defend a certification motion. In the McCracken case, plaintiff’s counsel was awarded the largest cost award in Canadian legal history ($740,000) after winning the certification motion.9
Class Action as an Instrument for Settlement
While being the target of a class action is generally not a happy occurrence, there may be cases where it can serve as a tool for employers in non-unionized environments to achieve an effective settlement of potential employment claims.
In Corless v. KPMG LLP,10 a former employee of KPMG brought a proposed class action on behalf of former employees who were allegedly not paid for overtime hours they had worked. After the action was filed, KPMG undertook a review of its overtime policies and concluded that certain employees had indeed not been properly compensated for overtime.
Before the certification was even argued, the parties negotiated and agreed on a formula for calculating overtime compensation to settle the case, conditional on court approval. At KPMG’s request, they also agreed to amend the class to include current as well as former employees. They then jointly requested that the Ontario Superior Court of Justice (i) certify the class action based on the amended definition of the class, and (ii) approve the settlement negotiated by the parties. After reviewing the facts against the applicable legal analysis, the court concurrently certified the action and approved the settlement.
This is an example of how employers may use class proceedings as a creative tool for crystallizing their liability and achieving an orderly, efficient settlement in cases where they are exposed to multiple related claims.
Tips for Employers
The analysis of these cases serves to provide employers with certain reminders:
- Even though Canadian employers have not been hit as hard as their U.S. counterparts, the threat of class action proceedings in employment-related claim remains. At least two mass overtime cases have been certified and, unless overturned on appeal, will proceed. That said, employers who do not consider themselves at risk of overtime actions are not out of the woods.
- Any employment claims that result from systemic deficiencies or faults in the workplace could be the proper subject of class proceedings.
- Furthermore, employers faced with potential employment liabilities should consider whether class proceedings, or other procedural options, could be used to their advantage.