Introduction
A closer look: Ontario Court of Appeal decisions
A look back: motion judges' conflicting decisions
Comment

Introduction

The Supreme Court recently provided clarity in two leading employment class action cases for unpaid overtime. Just over one year ago, the Ontario Court of Appeal handed down two significant decisions where employees claimed for unpaid overtime work. The appeal court had certified class action lawsuits against two of Canada's largest and most prominent banks: the Bank of Nova Scotia ('Scotiabank') and the Canadian Imperial Bank of Commerce (CIBC). In both cases – Fulawka v Scotiabank and Fresco v CIBC – the banks commenced applications to the Supreme Court seeking leave to appeal the decisions. On March 21 2013 the Supreme Court denied the banks leave to appeal. As is customary when the Supreme Court denies leave to appeal, no reasons were given.

As a result, the two class actions will proceed to trial and will be decided on their merits, unless a settlement is reached in the meantime.

A closer look: Ontario Court of Appeal decisions

Robert Frost said, "The world is full of willing people; some willing to work, the rest willing to let them." In the cases at hand the plaintiffs sought redress for what they alleged was the latter sort of willingness: that of the banks to have employees work overtime without being properly compensated.

The two class actions date back more than five years and concern federally regulated companies governed by the Canada Labour Code (RSC 1985, c L-2). At a minimum, the code mandates that employers pay 1.5 times an employee's hourly rate for overtime hours that an employee is "required or permitted" to work. In both cases the plaintiffs claimed that the overtime policies of the banks imposed more onerous conditions than permissible under the code. In particular, it was alleged that the banks' policies required that the employees have received prior approval from a bank manager in order to qualify for overtime pay - a requirement, the plaintiffs alleged, which sought to avoid the banks' obligations under the code. In addition, the plaintiffs alleged that the banks failed to implement proper systems for recording the overtime hours worked by class members.

Fresco v CIBC
In June 2007 Ms Fresco, a head teller at a CIBC branch in Toronto and the representative plaintiff in CIBC, commenced a C$600 million class action on behalf of 31,000 current and former front-line customer service employees across Canada. Fresco alleged that CIBC's system of compensation unlawfully restricted overtime compensation, and that CIBC had been unjustly enriched by failing to make overtime payments.

The motion judge refused to certify the action as a class proceeding, holding that there was no evidence of a systemic policy or practice of unpaid overtime. The Ontario Divisional Court, in a split decision, upheld the motion judge's order refusing to certify the proceeding. The Ontario Court of Appeal granted leave to appeal the divisional court's decision. The appeal court then heard and granted Fresco's appeal, overturning the divisional court's decision.

Fulawka v Scotiabank
Approximately six months after CIBC, in December 2007, Ms Fulawka, a personal banker in Saskatchewan and the representative plaintiff in Scotiabank, commenced a C$350 million class action on behalf of more than 5,000 current and former full-time sales staff across Canada - principally personal banking officers and financial advisers. Fulawka alleged that Scotiabank required the employees to work substantial amounts of overtime while making it nearly impossible to claim overtime pay, and that it failed to keep records of the hours actually worked by employees. In her amended statement of claim, Fulawka alleged that Scotiabank's policies and practices for compensating overtime work constituted a breach of class members' employment contracts and a breach of Scotiabank's duty to act in good faith.

The motion judge certified the action as a class proceeding. The decision was upheld by a unanimous Ontario Divisional Court. The Ontario Court of Appeal granted leave to appeal the divisional court's decision and then heard the appeal, ultimately upholding the divisional court's decision.

A look back: motion judges' conflicting decisions

Many Canadian provinces have statutory criteria limiting the types of claim that may be pursued as class actions. These criteria must be met on what is referred to as the certification motion in order for the class proceeding to be certified.

The criteria for class action certification in Ontario are similar to those in other provinces and include the following, all pursuant to Section 5(1) of the Class Proceedings Act 1992 (SO 1992, c 6):

  • The pleadings or notice of application discloses a proper cause of action;
  • There is an identifiable class of two or more persons which would be represented by the representative plaintiff (or defendant);
  • The claim or claims (or defences) raise common issues;
  • A class proceeding is the preferable procedure to resolve the common issues; and
  • There is an appropriate 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
    • does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

On certification motions, the criterion of whether the claims raise common issues is often the most contentious.

The motion judges in both Scotiabank and CIBC arrived at conflicting conclusions as to whether the criteria for certification set out under Section 5(1) of the act were satisfied.

On the certification motion in CIBC, the principal claim advanced by Fresco was that CIBC's pre-approval requirement in its overtime policy was unlawful. The motion judge concluded that the policy was not unlawful, and that a determination of unlawfulness would not necessarily advance the plaintiffs' claims for unpaid overtime. The motion judge found that although the plaintiffs relied on common issues, these could not be resolved without an examination of the employees' claims for unpaid overtime on an individual basis. However, such an individualised examination of the claims would undermine the very purpose of a class action proceeding. In other words, the motion judge concluded that whether an employee was paid properly was an individual issue and, as a consequence, was not suited to a class action. The motion judge further determined that there was no evidentiary foundation that supported the allegation of a systemic policy or practice of unpaid overtime at CIBC. The motion judge emphasised that there were many individual circumstances that resulted in claims for unpaid overtime which needed to be resolved individually.

As referred to above, the divisional court's decision was split: a majority of the divisional court upheld the motion judge's decision in refusing to certify the action as a class proceeding, while a single divisional court judge gave detailed dissenting reasons in favour of certifying the action.

In spite of the strong similarities between the two cases, the motion judge in Scotiabank concluded that the plaintiffs had met the criteria for certification. The motion judge held that there was an evidentiary basis to support the plaintiffs' claim that Scotiabank's failure to pay overtime was attributable to systemic conditions - namely, the pre-approval requirement to receive overtime pay and the failure to have in place a proper system to record overtime. The motion judge further concluded that a class action was the preferable procedure to resolve the class members' claims.

The Ontario Court of Appeal, recognising the similarities in the two cases and the incongruity of the lower court decisions, concluded that both certification motions should either succeed or fail together. They succeeded. In CIBC the appeal court disagreed with the merits-based approach taken by the lower courts with respect to whether CIBC's overtime policy had breached the code; whether CIBC's overtime policy was unlawful was found to be an issue for trial and not for the certification motion. As in Scotiabank, the appeal court concluded that a trial judge may find an evidentiary basis allowing him or her to determine that all uncompensated hours were "required or permitted" by CIBC. The appeal court would not accept the argument that the case was about thousands of individual claims: there were common issues raised with respect to allegedly unlawful and systemic policies and practices which were not dependent on individual circumstances. Although the appeal court accepted that the claims raised common issues, it rejected the plaintiffs' claims for an aggregate assessment of damages, should the banks be found to be liable at trial. Therefore, proving entitlement to compensation would still have to be done on an individual basis.

All of this was upheld by the Supreme Court in denying the banks leave to appeal.

Comment

With these class actions certified as against two prominent Canadian banks and upheld by the Supreme Court, a rash of similar claims for unpaid overtime might be expected. However, it remains to be seen whether other employees can overcome arguments that being properly paid for overtime is an individual, rather than a class, issue. Further, these decisions were made under the code and are therefore more directly applicable to non-unionised, federally regulated businesses.

It should also be kept in mind that these cases have likely been on the radar of major Canadian employers for the more than five years since their inception. Therefore, employers have had time, and would have been well advised, to review and update overtime policies to ensure that they comply with employment contracts and meet applicable statutory requirements.

Far from being the end of the road for Scotiabank and CIBC, in many respects this is just the beginning. The clarity provided by the Supreme Court's denial of leave to appeal now allows these cases to move to trial. Doubtless employers across Canada will watch with interest as the litigation progresses.

For further information on this topic please contact Norm Emblem or Marina Sampson at Dentons Canada LLP by telephone (+1 416 863 4511), fax (+1 416 863 4592) or email (norm.emblem@dentons.com or marina.sampson@dentons.com).

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