Wage and Hour Class Actions Surface in Canada

Wage and hour class action litigation has existed in the United States for years and has led to many significant settlements and damage awards. However, it took a $650 million class action filed against the Canadian Imperial Bank of Commerce (CIBC) for Canadian employers to take notice of the considerable risk that unpaid overtime may expose them to. Now that similar actions have followed, Canadian employers are scurrying to ascertain what pre-emptive steps they can take to minimize any potential liability.

What is a Class Action?

Class actions start when a large number of potential plaintiffs—usually each with a relatively small claim—form a class to commence proceedings against a common defendant. A representative plaintiff then litigates the claim on behalf of the class.

In Ontario, where most of the Canadian class action cases have originated, class actions are governed by the Rules of Civil Procedure and the Class Proceedings Act (CPA). A class action must be certified in order for it to proceed to trial. Certification requires that:

• The pleadings disclose a cause of action.
• The claims raise issues common to all class members.
• There is an identifiable class of two or more persons.
• A class proceeding is the preferable method to resolve the common issues.
• The representative plaintiff would fairly and adequately represent the interests of the class.

The most contentious criterion in “wage and hour” certification motions is whether a class action is the preferred method for proceeding. In order to defeat the certification of the class, employers must convince the courts that an alternate procedure meets the three major goals of the CPA: access to justice, judicial economy and modification of behavior. Without evidence to the contrary, judges tend to presume class proceedings are the preferable procedure.

Origins of Wage and Hour Class Actions in Canada

In the United States, wage and hour class actions have been around since the mid-1980s. Several large judgments, including one against Wal-Mart for $185 million, have been awarded against employers for unpaid overtime.

In Canada, similar actions have only recently gained national prominence. Since 2007, four major wage and hour class actions have been launched against large national employers—CIBC, KPMG, Scotiabank and CN Rail—with unpaid overtime claims in excess of $1 billion dollars.

Most notably, in Fresco v. CIBC, CIBC is facing Canada’s largest unpaid overtime class action suit. The pending decision on the recently argued certification motion in that case will have an enormous impact on the viability of wage and hour class actions in Canada.

How Can Employers Protect Themselves?

The only foolproof way for an employer to avoid an overtime class action is to comply with the applicable employment standards legislation. As a result, it is imperative that employers fully understand their legal obligations. Common issues that may trigger liability include:

• A misconception that salaried employees are not entitled to statutory overtime pay.
• Misclassifying employees as exempt.
• Poorly enforced overtime policies.
• Poor recordkeeping.
• Treating certain type of work as off-the-clock (i.e., clean-up before and after shifts).

Adopting the following best practices can help avoid overtime class actions:

• Regularly audit your overtime policies.
• Verify who is entitled to overtime and that statutoy exemptions are applied properly.
• Keep accurate, up-to-date records and review them with employees regularly.
• Ensure all working time is considered.
• Clearly communicate the overtime policy to all employees.
• Consistently and regularly enforce overtime policies.

Employers also may wish to address overtime liability by:

• Making alternate arrangements with employees (e.g., time-off-in-lieu-of-pay agreements or compressed workweek “averaging agreements”).
• Seeking a permit allowing nonpayment of overtime.
• Restructuring the employment relationship to fall within an exemption.
• Clearly setting out when overtime pay is triggered (in Ontario, as high as 44 hours worked in a week).

Class actions are enormously expensive to litigate even where the employer is successful. Consequently, Canadian employers are well advised to pay close attention to how their overtime policies are applied and enforced. To the extent that employers are not entirely clear about their legal obligations or how these obligations might apply with respect to particular employees, it is critical to seek proactive legal advice.