In previous Snapshots, 2010 and 2011, we discussed the recent explosion in class action lawsuits for unpaid overtime. We also described steps employers can take to reduce the risk of class certification by eliminating the basis for “common issues” within a class of potential plaintiff-employees. These steps included overtime pre-authorization, individualized assessments for approval of overtime, and consistent application of overtime policies.
However, even where the employer is successful in resisting or appealing certification of a class, the legal costs can be devastating. Courts have relied on s. 31(1) of the Class Proceedings Act, and the principle of access to justice, to greatly discount the costs awarded in favour of defendants – even when they succeed.
For example, in McCracken v. C.N., 2012 ONCA 445, the federally-regulated employer successfully appealed the certification of a class on the basis that there were no common issues within the proposed class. (The employees were seeking to recover unpaid overtime on the basis that certain employees were misclassified as management.) In refusing to deprive CN of its costs outright (as some courts have done), the Ontario Court of Appeal held that “it must be recognized that class actions come at a cost to defendants” and that plaintiff counsel must always account for the risk of losing certification: 2012 ONCA 797 (decision on costs). However, despite this acknowledgement, CN was awarded a scant $60,000 in costs, though its actual costs approached $300,000 – and that was just the appeal.
Clearly, the mere attempt by employees to proceed as a class can impose staggering legal expenses on defendant employers. For this reason, employers should extinguish the threat of class liability at its source – that is, ensuring overtime practices do not breach contractual or statutory provisions on an individual, employee-by-employee basis.
Back to Basics
An analysis of overtime obligations begins with the employment contract or collective agreement as well as the employer’s written policies. Ontario’s Employment Standards Act 2000 (the “ESA”) acts as the legal minimum. By law, for every hour worked over 44 hours, the employer must pay 1½ times the regular rate of pay. However, the employment contract, collective agreement, or company policy may provide a greater benefit, such as a lower overtime threshold or a greater rate of overtime, for which the employer may be liable.
Overtime pay calculations vary depending on the type of payment arrangement (hourly, commission, salaried) and employers can consult the Ministry of Labour’s website for examples (www.labour.gov.on.ca). Alternatively, employees may agree to take time off in lieu of overtime pay, in which case the time off must be taken within three months of the week the time was earned, or if the employee agrees, within 12 months.
An employee cannot agree to give up the right to overtime pay. Similarly, the employer cannot reduce the regular wage in a week where overtime is worked to avoid paying true time-and-a-half.
Unless a contract of employment or a collective agreement states otherwise, an employee does not earn overtime pay on a daily basis by working more than a set number of hours a day. Instead, it is calculated weekly, or over a longer period under an “averaging agreement”, discussed below.
Most employers in Ontario are subject to the ESA, excluding of course federally-regulated workplaces such as CN in the case above. However, Regulation 285 to the ESA sets out a number of exemptions with the Ontario Act itself. Notably, some classes of employees are not entitled to overtime, including certain professionals and anyone acting in a managerial or supervisory role. The proper classification for overtime purposes is frequently disputed. The nominal title of the employee is irrelevant: it is the nature of the work that matters. For example, to be exempt, managers must only perform non-managerial tasks on an irregular or exceptional basis.
But what if the employee is required to do more than one kind of work? If at least 50 per cent of the hours the employee works are in a job category that is covered by the ESA obligation to pay overtime, the employee qualifies for overtime pay in respect of the total hours worked in both capacities (that is, for every hour worked past 44 hours).
Under Part VIII of the ESA, employees may enter into agreements by which their hours are averaged over a period of two or more weeks for the purposes of calculating overtime. However, these “averaging agreements” are subject to a number of specific, statutory conditions – most importantly, agreement with the employee and approval from the Ministry. If averaging agreements are deployed, employers should regularly review them for compliance with s. 22 of the ESA to ensure that they are valid.
Another growing concern is the employment of the same individual between two (typically part-time) positions at different sites of the same company, or across related companies. In the first scenario, employers are obviously required to pay overtime for hours above the cumulative threshold. However the latter scenario is less clear: it is possible that, under the s. 4 of the Act, two “legally” distinct corporations will be considered the same employer if they conduct “associated or related” businesses. If an employer’s corporate structure is fragmented, and some employees are shared across entities, it should seek legal advice as to its risks in this regard. Typically adjudicators look to factors such as common ownership, financial control, management, markets, branding or assets, to determine whether two companies are “the same employer” for the purpose of overtime pay or other statutory obligations.
Hours of Work
Finally, just because an employer is properly paying overtime does not mean the employee can work as many hours as he or she, or the employer, desires. Employers are still bound by ESA provisions prohibiting employees from being permitted or required to work over certain thresholds, unless they are exempt under Regulation 285. In general, employees may not work more than 8 hours per day or 48 hours per week. Hours of work may exceed this threshold if the employee has made an informed, revocable written agreement with the employer, and the employer has obtained approval from the Ministry. The employer must provide each employee at issue with a prescribed “Overtime Information Sheet” produced by the Ministry and available on its website.
The employer must also post a copy of the overtime application to the Ministry at a conspicuous location in the workplace. Even if the employer obtains agreement and Ministry approval, s. 18 requires that employers provide (i) a period of 11 consecutive hours free from performing work in each day, and (ii) a period of at least 24 consecutive hours free from performing work in each week or a period of at least 48 consecutive hours in two consecutive work weeks.
If an employer has any doubt as to its liability regarding hours of work or overtime, it should seek legal advice to avoid the costly ordeal of a lawsuit or fine down the road. For federally regulated employers, the road may be long indeed: in a recent decision, Ridke v. Coulson Aircrane Ltd, 2013 FC 1183, the Federal Court held that the Canada Labour Code contains no limitation for a claim of unpaid overtime, allowing an applicant to claim payment for overtime worked at any time from any federally regulated employer.
Finally, employer breaches of overtime or hours-of-work obligations are almost always in respect of a group or category of employees. In addition to the potential for widespread liability, often to an entire “class” of employees, employers also face the threat of regulatory sanction for breach of the ESA. For these reasons, employers should assess their current practices and ensure that they are keeping in line with their obligation to pay overtime.