Class Action Certification Denied

On June 18, 2009, the Ontario Superior Court of Justice declined to certify a class proceeding for a $600-million class action lawsuit brought by Ms. Dara Fresco on behalf of current and former employees in the retail branches of the Canadian Imperial Bank of Commerce (“CIBC”) for allegedly unpaid overtime. Madam Justice Joan Lax applied the test for certification of a class proceeding in the Class Proceedings Act (“Act”) and determined that Ms. Fresco failed to establish that the claims of the class members raised a common issue capable of being determined on a class-wide basis that would sufficiently advance the litigation proceedings.

At its core, the lawsuit claimed breach of contract and unjust enrichment against CIBC for allegedly failing to pay overtime to the class members for hours “required or permitted” to be worked in excess of the standard hours stipulated by the Canada Labour Code (“Code”). CIBC was alleged to have consistently assigned job duties that employees were unable to finish during the “standard work hours” specified by the Code. Ms. Fresco and her colleagues would therefore arrive early or stay late in order to finish their tasks. CIBC, Ms. Fresco claimed, knew that this was happening and permitted it to continue. Rather, it was alleged, “class members were directed to prepare time records that described their hours of work as no more than their regular daily hours and to make no claim for overtime hours worked.”

To meet the “common issue” requirement for certification, Ms. Fresco claimed that there was “a systemic policy, practice or experience of unpaid overtime at CIBC”. Justice Lax found instead that there were a “variety of individual circumstances that gave rise to unrelated bases for unpaid overtime claims” and that the claims could “only be resolved individually by considering the evidence of the affiant advancing the claim, the evidence of various other current and former CIBC employees who managed and/or worked with the affiant, and various records maintained on a non-centralized basis by CIBC.” In other words, based on the evidentiary record before her, Justice Lax was not convinced that there existed a common issue that would sufficiently advance the litigation. Justice Lax further stated that even if there was a systemic failure, certifying a class action proceeding would not avoid duplication of the fact-finding and legal analysis that would still be required here, defeating a key purpose of class action proceedings.

It is important to note that Justice Lax’s conclusion to reject certification of the class proceedings was based largely on what she termed the “insufficiency” of the evidentiary record that she had before her. Not only did there appear to be no support for the allegation of a direction not to claim overtime, Justice Lax notes that some of the affiants ultimately conceded that they had been paid properly for their time, and others were simply mistaken as to what their entitlement to overtime pay had been. Future claims supported by more robust evidentiary records, one takes from the Justice’s reasons therefore, may have a higher chance of being certified as a class proceeding, even if there is the need to make assessments of damages on an individual basis.

Bank’s Overtime Policy Upheld

A further proposed ground of commonality was the alleged illegality of CIBC’s Overtime Policy (“Policy”), which contains a “pre-approval” requirement, and an option for employees to take time off in lieu of wages. The former provides that approval for overtime must be sought in advance and if it is not, “overtime will not be compensated unless there are extenuating circumstances and approval is obtained as soon as possible afterwards.” The time-off-in-lieu-of-wages option allowed employees, at their election, to take time off at the rate of time and a half instead of receiving wages at the rate of time and a half.

Ms. Fresco alleged that the pre-approval requirement is illegal. The Court disagreed. Justice Lax noted that the Code contemplates the right of management to pre-approve overtime, to ensure that such overtime is “required or permitted”. Justice Lax added that “an employee cannot foist services on an employer and expect to be paid wages for them. Where an employer’s overtime policy contains a provision that requires prior authorization, the employee is not entitled to work overtime hours at the employee’s own initiative and then claim entitlement to overtime pay.” When faced with an overtime claim, therefore, employers may be able to raise the defence that the employee who was not authorized and was reasonably and explicitly told not to work overtime should not be compensated for their overtime.

Ms. Fresco also alleged that the time-off-in-lieu-of-wages option is unlawful because the Code, unlike many provincial employment standards acts, does not explicitly allow employers and employees to agree to time off in lieu. The Court disagreed and stated that the time off in lieu is lawful because it is a more favourable benefit to employees due to the choice it gives to the employees. For businesses governed by the Ontario Employment Standards Act (“ESA”), this option is explicitly provided for in section 22(7) which, in addition to requiring consent, has a second requirement that the paid time off be taken within three months of the work week in which the overtime was earned or, with the employee’s agreement, within twelve months of that work week. Other provincial employment standards acts may have differing requirements for a time-off-in-lieu-of-wages option.

Further Cautionary Comments

Overtime cases commonly arise from issues of “misclassification”, whereby employers improperly classify employees as exempt from overtime compensation. Historically, misclassification class proceedings have been relatively easy to certify because the element of commonality arises from the employees’ identical or similar job duties and the employer’s determination that is it not required to pay overtime to employees with those duties. Justice Lax expressly makes the point that the case sought to be certified before her was not a “misclassification” case.

It should also be noted that the decision of Madam Justice Lax to reject the certification application remains subject to appeal. Alternatively, the plaintiffs obviously have the right to pursue their claims separately and individually, although as a practical matter individual employees are less likely to do so at their own expense.

Going Forward

The decision in Fresco v. CIBC highlights the value of employers having carefullycrafted overtime policies, and a clear understanding of who are and are not “exempt” employees under the applicable employment standards legislation. BLG is hosting a late-day Symposium in September, to discuss these and other issues. Please watch for the E-vite, coming to you shortly.