Employers’ common employment standards mistakes

Assumptions can be costly and lead to liability if employers aren’t familiar with the rules in their jurisdiction

Ignorance is not bliss

Employment standards can be a tricky business. They are there to protect employees from being exploited and treated unfairly, but every province and territory has its own version with different limits and rules. They are also not always obvious, and employers who make assumptions without fully knowing the legislation may find themselves in trouble.

Vancouver employment lawyer Peter Eastwood sums up the most common mistakes he has seen employers make that can lead to costly liability, and the root of the problem is usually incorrect assumptions. As with any legal area, ignorance of the law is usually not acceptable as an excuse, so employers would be wise to take heed and bone up on their responsibilities under employment standards legislation.

Employment standards are often wrongly considered a relatively simple area of law. However, as many employers are quickly discovering, applying employment standards legislation to the modern workplace is far from easy. Part of the problem lies in the fact that many of these standards were developed for very different workplaces than those that confront HR professionals today. Drafters of hours of work and overtime provisions likely never contemplated a world where the traditional boundaries between work and personal life would become blurred — and arguably eradicated — because of technology such as email and BlackBerrys.

The past several years have emphasized the importance of understanding current employment standards legislation in Canada. The previously neglected issue of overtime has become the new face of class action lawsuits because of several high-profile claims brought against the Canadian Imperial Bank of Commerce, Bank of Montreal, Scotiabank and KPMG, all of which are still winding their way through the courts. This follows earlier cases in the United States, where many large companies, including Wal-Mart, Starbucks, Taco Bell and RadioShack, have reportedly been forced to pay enormous overtime awards to employees.

These cases demonstrate that employment standards mistakes have the potential to be costly. Many employment standards claims stem from ignorance, often from employers not properly understanding their statutory obligations in the first place, or adopting uniform, “one size fits all” policies across the country without recognizing the significant differences between each province’s legislation. However, given the increased awareness of these statutory rights, and the relative ease in which employees can bring complaints through employee-friendly regulatory regimes, employers neglect employment standards issues today at their peril.

The following will outline some of the most common mistakes made by employers concerning employment standards.

Mischaracterization of exempt employees

Many overtime claims originate in the mistaken belief that employees are exempt from overtime payments when they are actually entitled to overtime. This mischaracterization can create an enormous liability for an organization, particularly when overtime is not managed at all.

Generally, very few employees fall into the relatively narrow categories of exempt employees, and these categories vary from province to province. The most commonly misunderstood category is managers. As with their counterparts in the United States, many Canadian employers have often blindly assumed all employees paid a salary or given the title “manager” are exempt from overtime on this basis alone. The reality, as many employers have discovered the hard way, is that many “managers” are not in fact managers for the purposes of employment standards legislation. Usually, employment standards regulators consider managers as senior executives or employees whose primary job duties are to direct or supervise company resources or people. Relatively few employees in any given company meet this high threshold.

A further, and related, mistake is the failure to keep any records of hours worked by managers or other exempt employees. In most jurisdictions, employers are required to keep specified records of all hours worked for all employees, regardless of whether they are entitled to be paid overtime. If the employer has failed to do this, an employee's documentation, however informal, may be accepted by a regulator or court at face value.

Finally, it is worth noting the weekly overtime "threshold" varies from province to province — from between 40 and 48 hours. Many employers operating in more than province make the mistake of only paying overtime at the higher threshold, therefore accruing a further liability to many employees.

Insufficient vacation pay

Most employment standards legislation in Canada distinguishes between an employee’s entitlement to unpaid vacation time and vacation pay. The reality is that many employers provide "paid vacation time" to salaried employees, rather than granting unpaid vacation and paying out accrued vacation pay at the time of the vacation.

Often this practice will nonetheless comply, provided the employee does not earn any additional compensation, such as overtime, commissions, or incentive compensation. In these circumstances, and depending on the employer’s particular vacation policy and the applicable legislation, the employer may not have provided sufficient vacation pay on all "wages."

The most common problem is employees who do not receive the required vacation pay on significant incentive compensation. In an age where employees are often provided with the equivalent of eight or 10 per cent vacation pay in excess of the legislated minimums and large bonuses, these liabilities can be significant. As with overtime, this is often an unknown liability that only becomes an issue on termination.

As with overtime, many Canadian employers are following in the footsteps of their American counterparts, who in many cases have had to enter into large settlements with groups of employees who have not been provided with sufficient vacation pay. It is essential for employers to develop clear policies concerning the accrual, use and any permissible carryover of vacation to prevent employees from developing enormous "banks" of unpaid vacation, and to keep proper records on vacations to protect themselves against claims.

Unauthorized deductions from wages

One of the most important principles in employment standards legislation is protecting the rights of employees to get paid for their work. However, one of the most common mistakes made by employers is the unauthorized deduction from such wages.

Most provinces prohibit employers from making deductions from an employee's wages unless these deductions have been specifically authorized and are for the employee's benefit. In essence, such prohibitions prevent employers from passing on their business costs to employees.

Understandably, many employers prefer to take self-help measures when employees have been overpaid, stolen funds or caused damage to company property. However, many decisions from courts and arbitrators have emphasized that employment standards legislation prevents employers from making deductions from wages for any reason. In these instances, the employer’s only recourse is to pursue the claim against the employee in court or through other means.

Tips for employers

As with most mistakes, these potential problems can be easily avoided. Employers should ensure they regularly perform audits on their employment standards compliance in each jurisdiction and address:

•Overtime practices, including the characterization of exempt employees, record keeping, and employer expectations.
•Vacation policies, including details on how vacation is earned or accrued, when it can be taken, and whether it can be carried over.
•Any blanket authorizations concerning deductions from wages, including any repayment plans or other agreements.

The reality is that complying with all applicable employment standards legislation is arguably one of the more complicated tasks for any modern employer. These issues are increasingly occupying a disproportionate amount of HR professionals' time, and for good reason. Prudent employers pay attention to employment standards legislation and ensure that they do not make these costly mistakes.

Peter Eastwood is a partner at Borden Ladner Gervais LLP in Vancouver, practicing all aspects of labour and employment law. He can be reached at (604) 640-4046 or peastwood@blgcanada.com.

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