Canada: To The Court Of Appeal And Beyond: Enforcing Statutory Duties In Overtime Class Actions

Last Updated: February 1 2011
Article by Ranjan K. Agarwal

Originally published in the ' Volume 13, No. 1 of Work Matters'

In a series of recent high-profile cases, Ontario courts have been grappling with the issue of whether employees can use actions commenced under the Class Proceedings Act, 1992, SO 1992, c 6, to enforce overtime claims under the Canada Labour Code, RSC 1985, c L.2 (Code). The decision in McCracken v Canadian National Railway Company, 2010 ONSC 452, holds that statutory employment obligations are implied terms in an employee's employment contract, and therefore may be the subject of claims asserted in a class action. This decision is in direct contrast to the earlier decision in Fulawka v Bank of Nova Scotia, 2010 ONSC 1148, and, as a result, the law on this issue remains in flux. Clarity will likely only come as appellate courts have an opportunity to consider and rule on several overtime-related class actions that are presently before the courts.

The Canada Labour Code

The Code, which governs federally-regulated employers (e.g., banks, airlines), prescribes minimum employment standards, including hours of work, wages, vacation and overtime pay. Legislation in each of the provinces and territories provides for similar protections for provincially-regulated employees. If an employer fails to comply with the Code, an employee can initiate a complaint, which may result in an inspection by a government inspector. The inspector can direct the employer to pay any underpayment to the employee. If the employer fails to do so, the inspector can issue a written payment order to the employer, requiring it to pay the underpayment. The employer can appeal the inspector's order to a referee appointed under the Code. If an employer fails to abide by a written payment order or a referee's order, the order can be enforced against the employer similar to a civil judgment or by quasi-criminal prosecution. The Code, unlike employment standards legislation in Ontario, does not limit the amount that employees can claim for underpayments. Given the relatively small amounts at issue and the fact that government inspectors take carriage of underpayment complaints (avoiding the need for the employee to hire a lawyer), employees have typically not sought to pursue their Code remedies through the courts.

Overtime Class Actions

In 2009 and 2010, three high-profile overtime class actions have been winding their way through Ontario's courts. In all three cases, employees allege that their employer failed to pay overtime wages in accordance with the Code. In Fresco v. Canadian Imperial Bank of Commerce, 2009 CanLII 31177 (SC), aff'd 2010 ONSC 4724 (Div Ct) and Fulawka, which are "off the clock" cases, the employees allege that though they were eligible for overtime pay, the employer simply failed to pay it. In McCracken, the employees allege that the employer misclassified them as managers, making them ineligible for overtime pay.

The Legal Question

In both Fulawka and McCracken, the employer moved to strike the plaintiff's claim on the basis that allegations of a breach of the Code cannot be the subject of a civil action, including a class action. The certification judges in both cases agreed that the issue in dispute is whether Parliament intended for referees appointed under the Code and the courts to have concurrent jurisdiction over underpayment claims. The Code is silent as to whether its provisions can be enforced in a civil claim, unlike the companion legislation in Ontario, Alberta and Nova Scotia. Those statutes explicitly provide that the legislation's terms are incorporated into every employment contract or can be enforced by civil action.

Difference of Opinion

In Fulawka, Justice Strathy reviewed the Code and concluded that it "establishes an entitlement to overtime pay and establishes a sophisticated regime for the enforcement of this right both through penal prosecutions and through an administrative recovery process" (¶93). This right to overtime pay and the corresponding administrative remedies, combined with the weight of judicial interpretation of the Code and other minimum standards legislation, persuaded Justice Strathy that Parliament did not intend to confer jurisdiction to enforce the Code on the courts. In McCracken, Justice Perell came to the opposite conclusion. In his view, the Code, when read in its entirety, allows for concurrent jurisdiction. For example, section 261 of the Code provides that a written payment order does not suspend or affect a civil remedy for unpaid wages, which would not be necessary if the Code precluded civil enforcement. Similarly, inspectors cannot be compelled to give testimony in civil proceedings, which would seemingly be unnecessary unless Parliament contemplated civil actions to enforce unpaid wage claims. In short, Justice Perell, as he stated himself, placed "greater significance on several sections of the Code" than Justice Strathy did (¶183).

It is important to note that despite this difference of opinion, both class actions were certified. In Fulawka, Justice Strathy held that, notwithstanding his conclusion on the enforcement of the Code, the Code's requirements could be implied terms of the employees' contracts and could inform the employer's duty of good faith. In McCracken, Justice Perell held that the Code was enforceable as a breach of contract claim. These decisions and appeals will have far-ranging effects. In addition to determining whether the Code informs other causes of action or is an implied term an employee's contract, and whether overtime pay claims under the Code can proceed by class action, the decisions will affect other overtime class actions. In jurisdictions without express provision for concurrent proceedings, these decisions may determine whether provincially-regulated employers can be subject to overtime pay class actions. Further, in the U.S., a growing area of the law involves discrimination and wage equity class actions. Though human rights claims in Canada are adjudicated by human rights commissions and tribunals, plaintiffs may be able to argue that human rights statutes, as the Code does, provide for concurrent jurisdiction.

Next Steps

All three cases appear bound for the Court of Appeal. In March 2010, the Divisional Court upheld the certification judge's decision in Fresco denying certification. The plaintiff has sought leave to appeal the Divisional Court's decision to the Court of Appeal. The Divisional Court heard the employer's appeal and the plaintiff's cross-appeal in Fulawka in December 2010; its decision is under reserve. In McCracken, the employer has appealed Justice Perell's decision certifying the class action and costs award to the Divisional Court (leave was granted on consent); the plaintiff has sought leave to appeal Justice Perell's decision striking parts of the claim to the Court of Appeal. The McCracken appeals are likely to be heard together or consolidated (and may eventually be heard together with either or both of the Fulawka and Fresco appeals). Suffice it to say, the Court of Appeal and, perhaps, the Supreme Court will have to have the final word on this issue.

Ranjan K. Agarwal is a lawyer in the Litigation Department at Bennett Jones LLP in Toronto. His practice includes employment, class action and commercial litigation matters.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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