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.

Maternity benefits – no legal right for adoptive mothers

By Kate McNeill

Across Canada, employment standards laws provide for job-protected maternity leave for pregnant employees and parental leave for parents generally. In addition, the federal government provides financial benefits during these leaves through its Employment Insurance Act (EIA).

The Supreme Court of Canada recently declined to review an appeal of a decision of the Federal Court of Appeal that stated that the right to maternity leave and employment insurance benefits is restricted to biological mothers and excludes adoptive mothers.

Maternity and parental benefits
In the Canadian context, there are two key forms of statutory benefits available to new parents – leaves of absence and employment insurance benefits.

While the two forms of statutory benefits serve different purposes (income replacement versus job protection) and arise out of separate pieces of legislation (the EIA versus employment standards laws), both forms of statutory benefits aim to support individuals who take time off work to fulfill their parenting obligations.

Maternity benefits under the EIA and maternity leave provide income replacement and job protection, respectively, for pregnant employees to support them during the time that they’re unable to work as a result of pregnancy and childbirth.

Parental benefits under the EIA and parental leave, on the other hand, provide income replacement and job protection, respectively, for parents during the time that they’re off work as a result of their child-care obligations immediately after the birth or adoption of a child.

The key distinction between maternity protection and parental protection is that while parental benefits and leave are available to any parent – male or female, adoptive or biological – maternity benefits and leave have in the past been available only to biological mothers.

Case before the court: Tomasson v. Attorney General of Canada
In 1999 and again in 2003, Patti Tomasson and her husband adopted a newborn infant. After the adoption of each child, Tomasson applied to the Employment Insurance Commission for maternity and parental benefits. In both cases, she was granted parental benefits but was denied maternity benefits.

The Commission’s rulings were guided mainly by a decision of the Ontario Court of Appeal in Schafer v. Canada (Attorney General) where the court held that pregnancy and childbirth “constituted an inescapable biological reality” and that compensating biological mothers for not being able to work as a result of the physical condition of pregnancy didn’t constitute discrimination against any other person, including adoptive parents.

Tomasson challenged the Commission’s decision to deny her request for maternity benefits on the basis that the statutory maternity benefits provisions in question had a dual purpose: (1) recovery from the physical elements of pregnancy and (2) bonding/attachment between parent and child.

Tomasson argued that the Commission’s application of the statutory maternity benefits provisions resulted in differential treatment between adoptive and biological mothers, allowing biological mothers to spend more time bonding with their child and providing child care than adoptive mothers.

She further claimed that not allowing adoptive mothers the opportunity to bond with their children was an affront to the dignity of adoptive parents and was unconstitutional and contrary to the Canadian Charter of Rights and Freedoms.

Decision of the Federal Court of Appeal
In lengthy reasons, the Federal Court of Appeal ruled that adoptive mothers aren’t entitled to maternity benefits, for the following reasons.

First, the fact that the EIA contained separate provisions for maternity benefits and parental benefits showed a clear legislative intention to distinguish between the two purposes of physical recovery and child care. Had the maternity benefits provisions been intended to cover familial bonding as argued by Tomasson, there would have been no need to include birth mothers in the scope of the parental benefits provisions.

Further, while the court acknowledged that there is a statutory distinction between biological and adoptive mothers, that distinction was legitimate as it seeks to accommodate the needs of pregnant women as a disadvantaged group in the workforce.

The court stated that if adoptive mothers were entitled to maternity benefits, that would “implicitly constitute a finding that birth mothers deserved no more time off work than adoptive mothers, even if they must go through the burden of pregnancy and childbirth.”

Finally, the court noted that “by reason of the physiological and psychological experience resulting from pregnancy and childbirth, biological mothers are deserving of special benefits so as to accommodate their particular needs.” As a result, the court held that no reasonable adoptive mother would feel “demeaned by the granting of maternity benefits to biological mothers.”

Decision of the Supreme Court of Canada
On January 24, 2008, Tomasson’s legal battle for maternity benefits came to an end when the Supreme Court of Canada refused to hear her appeal of the Federal Court of Appeal’s decision. As a result, the state of the law in Canada remains the same – only biological mothers are entitled to maternity benefits coverage.

Law protects workers’ wages when employer is insolvent

by Kate McNeill and Brian P. Smeenk

Canada’s federal parliament has passed a law to protect workers when their employers become insolvent

A key component of Bill C-12, passed December 14, 2007, is the creation of the Wage Earner Protection Program (WEPP). The WEPP provides statutory wage protection for workers when their employer becomes bankrupt or subject to a receivership and their employment is terminated as a result.

Prior to the WEPP, such workers were at risk of losing wages earned in the weeks before the declaration of bankruptcy or receivership because they were unsecured creditors.

Industry Canada asserts that previously only 21% of the workers affected by a corporate bankruptcy or receivership received payment of their wage claims and that those employees received, on average, a recovery of only 13 cents on the dollar. Others have questioned these statistics since secured lenders often voluntarily agree to the payment of many wage claims.

The WEPP provides those workers with government assurance that upon application to the federal government, they will receive unpaid wages and earned vacation pay for a maximum period equal to four weeks of insurable earnings under the Employment Insurance Act (approximately $3,000).

The federal government, which is the payer under the WEPP, then assumes the worker’s position as a preferred unsecured creditor and continues with the bankruptcy or receivership proceedings in the worker’s stead, leaving the worker free to pursue new employment without the burden of a fight for earned, unpaid wages.

From the perspective of an employer, the WEPP provides the comfort of having its employees taken care of, but it also adds an additional dynamic to the bankruptcy or receivership proceedings in that the federal government becomes a substitute unsecured creditor.

Who qualifies for the WEPP?
The WEPP aims to provide increased protection to employees who are rendered unemployed by the bankruptcy or receivership of their employer and who have unpaid wages and compensation at the time the bankruptcy or receivership is declared.

Not all individuals will qualify for payment through the WEPP. The following groups are not eligible to receive payment through the WEPP:

• individuals who were officers or directors of the insolvent employer;
• individuals who had a controlling interest in the business of the insolvent employer;
• individuals who occupied a managerial position with the insolvent employer; or
• individuals who were not dealing at arm’s length with the individuals listed above.

It would also appear that the WEPP doesn’t assist employees where a company is insolvent but there is no appointment of a receiver or trustee in bankruptcy. Two common examples where this would appear to be the case would be (1) where a business simply shuts down in the absence of such appointment, and (2) where there are wage claims in the course of proceedings under the Companies’ Creditors Arrangement Act.

When will the WEPP begin?
The WEPP only applies to bankruptcies or receiverships on or after the date on which the WEPP comes into force. It’s likely that the WEPP will not be in force for several months in order to allow the Federal Ministry of Human Resources and Social Development adequate time to set it up.

How does the WEPP work?
Prior to the WEPP, many secured creditors voluntarily agreed to allow the debtor employer to satisfy outstanding wage claims ahead of their superior priority claims.
In other instances, however, employees who found themselves out of pocket in the wake of a corporate bankruptcy or receivership were on their own to determine how much they were owed and how they should go about recouping their losses.

There was no positive obligation on the employer, the trustee in bankruptcy, receiver, or any other involved insolvency professional to assist employees in that regard. The WEPP has addressed these practical concerns in the following ways.

Under the WEPP, the employee may apply to the federal government for arrears of wages and compensation earned within the six-month period immediately prior to the bankruptcy or receivership. The employee assigns his or her claim to the federal government to pursue with the insolvent employer.

The WEPP also requires that the trustee in bankruptcy or the receiver proactively assist employees by attempting to determine the value of their wage and/or compensation entitlements and by informing them of their rights and entitlements under the WEPP. Specifically, the legislation requires that the trustee in bankruptcy or the receiver exercise due diligence to:

• identify all employees who are owed wages and compensation within six months of the declaration of bankruptcy or receivership;
• determine the amount of wages and compensation owed to each individual in respect to those six months;
• inform each affected employee about the WEPP and the conditions under which payments may be made;
• provide the federal government with information about what is owed to each employee; and
• inform the government once the trustee or receiver has been discharged from its duties.

Impact of the WEPP
The substantial shift in the amount and kind of information provided to employees, paired with the relative speed with which employees should be able to obtain reimbursement through the WEPP, could have a significant impact on the number of wage- and/or compensation-based claims facing a bankruptcy trustee or receiver.

However, the WEPP may compel many participants in the insolvency process to avoid bankruptcy or receivership proceedings because of the new administrative obligations imposed on bankruptcy trustees and receivers.

For further advice concerning insolvency issues, contact Kevin McElcheran of our Bankruptcy & Restructuring Group and/or Brian Smeenk or Kate McNeill of our Labour & Employment Group.

Compassionate care benefits for Canadian employees

by Donovan Plomp

In Canada, employees are entitled to certain government-provided benefits under the federal Employment Insurance Act, including “compassionate care benefits.”

The introduction of these benefits in January 2004 prompted almost all provinces and territories to introduce job-protected compassionate care leave in their respective minimum employment standards laws.

Employers in Canada must grant this leave in accordance with applicable provincial or federal law. In this Q&A, we provide answers to some of the more commonly asked questions about compassionate care leave and benefits.

Q. What are “compassionate care benefits”?

A. Money paid under the Employment Insurance Act to qualifying employees. Employees may qualify if absent from work to provide care or support to a gravely ill family member who is at risk of dying within 26 weeks. Unemployed persons receiving other employment insurance benefits can also ask for these types of benefits.

Q. When are compassionate care benefits available? (more…)