Canada: Ontario Court Denies Certification Of Employees' Class-Action Lawsuit For Constructive Dismissal

We continue to monitor and report on significant developments with respect to employment-related class-action lawsuits. A few years ago, several class actions emerged in Canada, most frequently related to claims for unpaid overtime. There was some thought that this could signal a wave of litigation in Canada similar to that which has developed in the United States. In the intervening years, some of those cases have proceeded to the certification stage, a significant step in the litigation where the Court decides whether to approve the use of the class proceeding mechanism, without digging deeply into the merits of the case itself. The Court of Appeal for Ontario will soon be considering two somewhat divergent decisions from the Divisional Court relating to the certification of two class-action lawsuits for unpaid overtime in the banking sector.

In the case of Fresco v. CIBC, retail branch employees brought a claim alleging that they were required or permitted to work overtime without proper compensation. That case was denied certification on the basis that there were no significant issues common to the individual class members. In other words, each employee's case was so unique that, there were no particular issues that could be determined on a class wide basis that would significantly advance the litigation. The Divisional Court upheld the decision not to certify that action.

In contrast the Fulawka v. Bank of Nova Scotia case was certified as a class action; a decision that the Divisional Court has supported and is now also under appeal to the Court of Appeal of Ontario. In that case, employees allege that they were required to work overtime without receiving proper pay as a result of deficiencies in the bank's overtime policies. The Court felt that there was enough commonality amongst the individual claims as a result of alleged systemic practices and policies.

Another recent decision has re-emphasized the necessity of identifying common issues that would significantly advance any individual claims, thereby making a class action an appropriate mechanism.

Recently in Kafka v. Allstate Insurance Company of Canada, certification was denied to a group of employees who alleged that they had been constructively dismissed. The action was based upon a new business model that was introduced by Allstate to be rolled out over a period of two years. What is interesting about this case is that there were certainly systemic aspects to the change in business model. Allstate was switching from a satellite based model, to a centralized model for its agents. The result of the change was that many of the agents would be required to move to a nearby major city and would be operating in a more structured environment as opposed to running their own satellite business. While the changes were systemic and implemented across the board, the impact of those changes on each individual employee could vary significantly.

The law of constructive dismissal requires a very individual analysis to determine whether the unilateral changes to the employment relationship were so fundamental, that they effectively amounted to a dismissal from the job that the employee had been performing.

The claim was strictly based on termination pay and severance pay under the Ontario Employment Standards Act, 2000 (ESA). The plaintiffs likely made that choice in order to remove the very individual issue of common law notice period from consideration; the notice and severance pay requirements under the ESA could be easily calculated, instead of requiring a full examination of each individual's position, length of service, age and a variety of other personal factors.

The Court determined whether or not the changes to the New Model were substantial and material was not an issue capable of being assessed in common. For example, the impact of the change upon compensation is typically an important factor when considering a claim for constructive dismissal. The Court noted that an agent who had a history of generating new business was better positioned to earn commission income under the New Model than the agent who relied more heavily on renewal or roll-over business. Also, the impact on closing the neighbourhood offices in favour of more centralized locations would not have been the same for all agents.

Further important issues considered by the Court were related to condonation, which is a requirement that an employee reject or object to the proposed change in a timely fashion, and whether each individual had been offered reasonable alternative employment.

It is important to recall that class proceedings are a mechanism by which individuals can collectively pursue a claim where doing so advances the administration of justice. The Court must determine whether it is a preferable procedure to require the plaintiffs to pursue their claims on an individual basis. The Court summed up that analysis as follows:

"The preferable procedure requirement can be met even when there are substantial individual issues. However, a class proceeding will not satisfy the preferable procedure requirement when the common issues are overwhelmed or subsumed by the individual issues, such that the resolution of the common issues will not be the end of the liability inquiry but only the beginning.

In this case, there is no single common issue that will significantly advance the litigation for the class. Instead, an individual inquiry is at the heart of every liability issue. In these circumstances, there can be no doubt that a class action is not the preferable procedure."

The Kafka case marks another decision that employers should be inclined to view favourably. Every case will be determined on specific facts and allegations; however, this case is another example where the overwhelming amount of important individual issues overwhelms the utility of the class proceeding because not enough common issues can be identified to significantly advance the litigation. It should be very interesting to see the comments and approach of the Court of Appeal for Ontario with respect to the overtime class actions that it is set to hear shortly. In the interim, it appears safe to note that there remain serious obstacles to the certification of class proceedings in employment related cases, which typically contain many issues relating to liability.

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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