New defense against overtime class actions confirmed

by Donovan Plomp

The British Columbia Court of Appeal just issued an important decision about an employee’s right to make a statute-based overtime claim in a civil action. The decision, Macaraeg v. E Care Contact Centers Ltd., should make BC employers very happy. And it may provide a new defense to overtime pay class actions in other Canadian jurisdictions as well.

Avoiding a dangerous trap
The BC Employment Standards Act applies to most employees in British Columbia with some limited exceptions. It requires employers to pay overtime pay to employees if they are required or “directly or indirectly” allowed to work more than eight hours a day or 40 hours a week.

This is a dangerous trap for employers. What if an employer lets employees leave early some days if they work an extra half hour other days? Or expects employees to stay an extra 15 minutes or half hour during busy times without paying overtime?

This unpaid overtime can add up quickly. Overtime rates are 1.5 times an employee’s regular wage for time worked over eight hours a day or 40 hours a week. And the rate is double the employee’s regular wage for time worked over 12 hours a day.

In Macaraeg, Cori Macaraeg was dismissed and received the minimum severance required under the Employment Standards Act. She sued her employer, E Care, claiming the company regularly required her to work overtime without paying overtime pay pursuant to the Act. She applied to make the decision a class action. If certified as a class action, the claim would be on behalf of all of E Care’s approximately 100 employees in BC.

Unusual trip to court
Claiming overtime pay in court was unusual because the Act contains its own administrative process for claiming unpaid overtime. Employees must file a complaint with the Employment Standards Branch, which investigates the complaint. That process has significant limitations in favor of employers that a civil action does not, including:

• a limit on the amount of wages that the employer may be required to pay;
• a six-month time limit on bringing a complaint after termination of employment; and,
• no ability to bring a “class action” on behalf of other employees.

At trial, the employer claimed that Macaraeg must follow the administrative process under the Act, and therefore couldn’t bring her claim in court. This was the generally accepted view in British Columbia to that date.

The trial judge disagreed with the employer, and held that:

• the overtime requirements of the Act are implied terms of every contract of employment, including Macaraeg’s, so she could bring a civil action for breach of her contract in court; and
• the Act doesn’t prevent a court action for overtime pay, even though it provides its own administrative mechanism for bringing such claims.

The trial decision was bad news for employers. Employees can bring a civil action up to six years after their employment has been terminated, and there is no “cap” on the damages a court can award.

Class actions in court also make it profitable for employees’ lawyers to bring actions for small amounts on behalf of many employees. These actions would be unprofitable if brought only on behalf of individuals. Thus, the trial decision significantly increased potential liability for BC employers and contradicted the law to date.

The Court of Appeal unanimously disagreed with the trial judge’s conclusion that overtime rights under the Employment Standards Act are implied by law into employment contracts.

The Court of Appeal said the law is clear: The general rule is that one cannot bring a civil action in court to enforce a right conferred by a statute, such as a right to overtime pay under the Act. An exception to this general rule arises if the court finds legislators intended the statutory rights to be enforced by civil action.

Court of Appeal rules
The Court of Appeal ruled that the Act provided an effective mechanism outside of a civil action for enforcing the right to overtime. That mechanism is the “comprehensive administrative scheme” provided under the Act for the granting and enforcement of employee rights. In other words, the employee can bring a complaint to the Employment Standards Branch, and that branch will deal with it. A civil action isn’t necessary.

Although BC employers escaped expanded liability this time, employers should always make sure that an effective system for monitoring and controlling overtime is in place.

Perhaps more importantly, this BC decision could have significant ramifications for class actions in relation to overtime pay in other Canadian jurisdictions. As in the United States, we have recently seen a flurry of such multimillion-dollar class actions in Ontario and in relation to federally regulated employers.

Since the statutes covering overtime pay are somewhat different in other jurisdictions, it remains to be seen if the Macaraeg decision will be followed elsewhere in Canada. But it certainly does provide helpful judicial authority for a possible line of defense against such class actions.

Be prepared if an inspector knocks at your door

by Karen M. Sargeant and Daniel M. Pugen

In most Canadian provinces, occupational health and safety legislation provides for government inspections.

Besides random or regular audits, workplace accidents often will prompt inspections, and especially where an accident has taken place, prosecution of the employer and managers is a potential outcome. Inspectors generally have broad powers to enter a workplace, operate or test machinery, interview employees, and seize records, samples, or equipment.

Regulatory climate
The climate is chilly to say the least. In recent years, Ontario’s Ministry of Labour (MOL) has hired hundreds of new inspectors and has put renewed focus on enforcing compliance with occupational health and safety legislation. An example of this can be seen in the MOL’s efforts to curb workplace violence.

As discussed in our blog entry Workplace Violence: Health and safety legislative and regulatory responses, the MOL has devised a workplace violence prevention initiative and has instructed inspectors to make orders and issue directives to employers in certain industries lacking workplace violence prevention programs.

In addition, health and safety legislation has been amended in recent years to institute severe penalties for legislative noncompliance. As an example, in Ontario, the Occupational Health and Safety Act now imposes a maximum fine of $500,000 for corporations and, for individuals, a maximum fine of $25,000 and/or imprisonment for 12 months. Individuals are now being charged with offenses more often than before, both with and without their employer being charged.

Finally, in response to an explosion at a mine in Nova Scotia that killed 26 miners, the Criminal Code of Canada was amended to impose a legal duty on organizations and individuals who direct how others work and to expand the kind of individuals who can be seen as acting for an organization. As a result, it’s now easier for the courts to impose criminal liability for health and safety accidents. (See articles on Bill C-45 amendments and exposure to criminal liability.)

Given this climate, it’s imperative for organizations to have sound and diligent health and safety practices. You also should have procedures in place to deal with health and safety inspectors when they arrive in your reception area.

Tips for responding to health and safety inspectors
The tips below will assist your organization in ensuring that a health and safety inspection in your Canadian operation is conducted in an orderly and reasonable fashion with minimal disruption. Following the tips will provide procedural safeguards against overzealous inspectors and also will decrease the risk that your organization will be charged under health and safety legislation.

Before an inspector arrives

• Designate a contact person (and backup) at each location.
• Develop procedures for dealing with inspectors and train staff in those procedures.
• Maintain a separate file for privileged material (e.g. communications with your attorney).
• Keep in-house or outside legal counsel informed of any situations that may increase the likelihood of an inspection (e.g. a workplace accident, an employee injury on the job, a “near miss,” defective machinery, etc.)

When an inspector arrives

• Immediately contact the designated contact person.
• Check the inspector’s identification.
• Ask the inspector what the purpose of his or her visit is. Is it a general audit or a more specific investigation in aid of a possible prosecution? The inspector’s powers, and your procedural rights, may differ based on the inspector’s answer.
• Consider immediately contacting legal counsel.
• Have someone (hopefully the designated contact person) accompany the inspector at all times. Never leave the inspector alone.
• Be careful not to obstruct the investigation (which could be considered an offense). However, you may be able to make alternate arrangements for the time and date of the inspection.
• Keep notes of everything the inspector does and says in his or her visit. The notes will be invaluable to your counsel if the inspector’s actions need to be challenged in court.
• Remember that anything you say, even if you think it’s “off the record” may be recorded by the inspector and used against the employer or you later.
• Keep a record of all documents and other items taken by the inspector. Object if the inspector requests privileged documents.
• Cooperate in any interviews, but consider asking the inspector to return later to conduct the interviews. This will give legal counsel an opportunity to meet with any persons to be interviewed to help them be prepared. It also will give you a chance to conduct any further internal investigations.
• Request that legal counsel or another employer representative be present in any interviews. If the interviews may lead to prosecution, the individuals have a right to have counsel present.
• Ensure that everyone answers all interview questions honestly. “I don’t know” is an acceptable answer.
• Inspectors may create a “witness statement” and ask the interviewee to sign the document. There is no obligation to sign the statement. However, if forced, the interviewee should sign the statement but note his or her objection in order to avoid obstruction charges.
• If the inspector has a search warrant, immediately contact legal counsel and ask the inspector to wait until your legal counsel arrives. Although inspectors have no obligation to wait, most will. Ensure that the inspector’s activities don’t extend beyond the parameters of the search warrant.
• If you have any objections to anything the inspector is doing, note your objections on paper but don’t attempt to obstruct the search.
• Don’t underestimate the importance of an inspector’s visit. Information gathered by an inspector could form the basis for a prosecution down the road.
• Everything you say or do during an investigation is therefore very important.