'It's certainly a warning to employers that this can lead to expensive, protracted litigation'
Employers and HR professionals should take great care in paying employees just what they legally deserve when it comes to vacation and holiday pay.
Otherwise, a class-action suit might be in your future, warns two Ontario lawyers.
This issue was recently in the spotlight after a divisional court ruling, Curtis v. Medcan Health Management, in which a class action was certified for employees alleging the Employment Standards Act (ESA) was violated by Medcan when it didn’t compensate workers correctly.
“It’s certainly just a good reminder of employers that pay variable compensation to their employees to make sure that they are paying vacation pay according to the ESA. It’s quite a common mistake that employers forget to add vacation pay on top of commissions or non-discretionary bonuses,” says Guy-Étienne Richard, associate employment and labour group at Cassels in Toronto.
“But it is a warning to employers, that this could potentially have an impact in the future and it certainly can lead to expensive litigation, and protracted litigation.”
RBC is facing an $800-million class-action lawsuit on similar grounds.
Facts around Medcan
In the Medcan case, one employee was paid according to base salary alone in 2019, instead of the percentage being calculated on variable compensation, that included bonuses and commission.
Medcan then attempted to fix this error by adjusting total compensation for the previous two-year period, believing that was when the ESA standards covered it. However, the employees rejected this, and alleged the employer owed them vacation and holiday pay back to 2003.
The court relied on class action as a “preferable procedure” for remedy. But how big of a deal might this become for employers in the future?
“I wouldn’t say this is a cataclysmic decision that’s going to change the face of the law but it is a bit of a cautionary tale to the extent that employers are dealing with employment issues,” says Craig Lockwood, partner, litigation at Osler in Toronto.
“This just edifies the fact that there is a likelihood that if there’s a large group of employees who are aggrieved, they can avail themselves into the class-proceedings regime, which obviously changes the dynamic because as soon as you get aggregate claims, it becomes far more of a concern for an employer than if they’re dealing with individual clients.”
Rise in cases
While the Medcan case is a fairly standard ruling, it’s another sign that more of these types of proceedings are occurring, says Richard.
“Absolutely it’s become a lot more common in the last decade and they have become more frequent and common, mostly because the courts have said that in some cases, it’s better for employees to bring it to a class action than on an individual basis; most of those claims would be in small claims court.”
More plaintiffs may consider the class-action route in the future, according to Lockwood.
“I do think courts, particularly in the context of employee class actions, will use this case as evidence that the class actions’ regime is the right forum to deal with these issues because historically there were fights about whether employees should use the court, especially if the ESA is applicable, and other remedies. And the courts have moved away from that and they basically embrace the fact that where the claim is valid, that this is the appropriate forum.”
The ruling also shows that courts might be placing more emphasis on fairness for employees, he says.
“The divisional court felt like the lower court certification judge didn’t adequately assess the barriers to access to justice, the economic and psychological barriers, and said that it was too dismissive of the fact that because of the low amount of recovery, it would have been difficult for individuals to go off and get their own lawyers and sue individually and so access to justice was a concern.”
As well, by certifying this as a class action, the court is signalling to employers that this type of conduct is unacceptable.
“They basically said, ‘Look, we want to put employers on notice that if the extent they don’t comply with their statutory obligations, they’re going to be subject to aggregate action.’ So both of those things, access to justice and behaviour modification were the two pillars that ground the divisional court’s ruling,” says Lockwood.
Misclassification of employment can also be quite costly for employers, as the results of another legal case showed.
What are the rules?
In order to ensure compliance, it’s key for HR professionals to remember exactly how vacation and holiday pay is calculated in Ontario, says Richard.
“There’s vacation time and vacation paid. Vacation time is you’re going to get two or three weeks, depending on the amount of years you’ve been with the company, but vacation pay, and this is where lot of people will get confused, it’s actually a calculation based on wages. It’s a percentage of wages: either four per cent if you’re under five years, or six per cent if you are over five years and the definition of wages includes commission and non-discretionary bonuses.”
“HR individuals, review the policy to avoid the worst-case scenario, which is clearly what Medcan is going through right now,” he says.
