Ruling may spell death knell for overtime class action suits

A much-anticipated ruling keenly followed by federally-regulated employers and employees could sound the death knell of class action suits seeking compensation for unpaid overtime after an Ontario judge held that overtime claims are individual in nature and lack the essential element of commonality necessary to justify a class action proceeding.

In a ruling that draws distinctions between overtime claims, clarifies the Canada Labour Code (CLC), and provides guidance over evidentiary considerations in certification motions, Justice Joan Lax of the Ontario Superior Court refused to certify a class proceeding that claimed $600-million in compensatory and punitive damages against the Canadian Imperial Bank of Commerce.

“This ruling should give pause to plaintiffs considering overtime claims, no matter what the basis for the claim is,” noted Brett Ledger, a senior partner in the litigation department at Osler, Hoskin & Harcourt LLP in Toronto.

The claim was launched on behalf of CIBC employees by Dara Fresco, a teller with the bank since 1998, who alleged that the financial institution required employees to do more work than could reasonably be completed within standard working hours, that employees regularly worked overtime hours and that they were instructed to make no claim for overtime hours worked. The suit alleged that the CIBC failed to comply with the minimum requirements of the CLC by failing to pay statutory overtime to class members and by failing to keep proper records of its employees’ hours of work in breach of its contractual and statutory duties. Further, the plaintiff alleged that CIBC’s overtime policy was illegal because it required pre-approval by management.

Largely absent from the Canadian legal landscape until recently, Fresco’s claim marks one of the first attempts by employees to target a major company for improper overtime practices. Similar class action bids have been launched by employees at the Bank of Nova Scotia and Canadian National Railway Co. but thanks to the 37-page ruling, Canadian employees seeking to challenge corporate overtime policies will face a tougher fight. “When this decision came down, it sort of made everyone stop and realize that it’s not going to be as easy as people initially thought,” remarked Alix Herber, an employment and labour lawyer at Fasken Martineau.

The Court found that the bank’s overtime policy was not unlawful. Judge Lax determined that the requirement for pre-approval before working overtime was permitted and affirmed in s.169(1) and 174 of the CLC. These sections place the onus of responsibility on the employer to ensure that employees do not work beyond the hours outlined in the CLC and create the corresponding right of the employer to control the hours of work. Requiring employees to seek pre-approval before working overtime did not violate statutory provisions because it is the fundamental right of the employer to control its business, including employees’ schedules, hours of work and overtime hours. “An employee cannot foist services on an employer and expect to be paid wages for them,” said Judge Lax.

The Court held that Fresco’s “real complaint” was not that the bank’s overtime policy was illegal, but that the policy was applied in an illegal manner so as to require or permit class members to work unpaid overtime. It is not the pre-approval requirement that “requires or permits” employees to work overtime without compensation, and it is therefore plain and obvious that the pre-approval requirement is not unlawful on its face, points out Justice Lax.

“At any rate the determination of its legality will not materially advance any class member’s claim for unpaid overtime wages,” held Judge Lax.

That’s because the Court determined that, given the specific facts of the case, a class proceeding was not the preferable procedure for resolving the class members’ alleged overtime claims. “While some of the certification requirements could be satisfied, the action lacks the essential element of commonality,” noted Judge Lax. “In my opinion, there is no asserted common issue capable of being determined on a class wide basis that would sufficiently advance this litigation to justify certification. This lack of commonality cannot be overcome by certifying an issue that asks whether the defendant had a duty to prevent a series of individual wrongs”

Though the case has a “superficial appearance” of commonality, Judge Lax said the case would inevitably break down into individual inquiries. Indeed, the “central flaw” in the plaintiff’s case is that instances of unpaid overtime occur on an individual basis.

That is a “welcome” finding, says Christian Monnin, a lawyer with Heenan Blaikie who has defended clients in multi-jurisdictional and cross-border class actions. He believes that the proposed class action would have been “thoroughly unmanageable,” thereby defeating the efficiency purpose of class certification.

“The courts are moving away from the certify-now and worry later kind of mentality, and are instead looking at the proposed common issues and how they are going to work out in the laboratory of the courts, so to speak,” said Monnin.

The Court, points out Ledger, also rejected the plaintiff’s survey evidence regarding other class members and their experiences working unpaid overtime on the ground that the evidence was inadmissible hearsay. It also rejected the expert evidence led by the plaintiffs because it dealt with the industry in general as opposed to CIBC specifically. “The evidentiary conclusions will provide comfort because the normal rules of evidence have been confirmed in a class action, that there will not be special rules that will be created in the interests of efficiency,” said Ledger.

Yet there still may be a glimmer of hope for employees challenging overtime practices. Judge Lax drew an important distinction between “off-the-clock” cases where it is alleged that the employer failed to compensate employees entitled to overtime pay and “misclassification” cases in which an employer allegedly wrongly treats all members of the proposed class as ineligible for overtime. Justice Lax found that the Fresco suit was an “off-the-clock” case because CIBC did not dispute that the proposed members would be entitled to compensation if overtime work was performed.

Judge Lax appears to indicate that misclassification cases are better suited to a class action because commonality arises from the employees’ identical or similar job duties and the determination by the employer that it is not required to pay overtime.

“A lot of my clients called and asked if there was a clear answer, and my quick reply was no – we have some guidance at this point,” said Dan Palayew, a partner and the practice group leader of the Ottawa Labour and Employment Group with Heenan Blaikie. “There is a misconception that if a person has any supervisory functions, they are exempt from overtime. But in fact federal and provincial legislation as well as jurisprudence and case law have actually very narrowly restricted the type of employee and nature of employment responsibilities that are excluded from overtime.”

The Fresco case is being appealed before the Ontario Divisional Court. Louis Sokolov, one of Fresco’s lawyers, said that “ultimately what the court has to decide is whether non-unionized employees are going to have an effective and available means to hold their employers to account by the law and pay overtime when required.”

This story was originally published in The Lawyers Weekly.

Leave a Reply

Your email address will not be published.