Proactive compliance to reduce risk of class actions

With the pandemic, it's critical for businesses to understand potential liabilities

Proactive compliance to reduce risk of class actions

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In the last decade, Canada has seen a growing number of class-action lawsuits. As businesses face sweeping and unprecedented challenges in the wake of the COVID-19 pandemic, a further increase is expected.

For Canadian employers, class-action lawsuits have largely been related to unpaid overtime; however, the scope of claims is expanding. Now, more than ever, in the wake of the COVID-19 pandemic, it is critical for businesses to understand potential liabilities and to take proactive steps toward reducing the risk of such potential lawsuits.

Unpaid overtime
Recent years have seen a proliferation of class-action lawsuits for unpaid overtime that can come with significant liability. For example, there was the 2016 Fulawka v. Bank of Nova Scotia in Ontario Superior Court, a revised settlement of approximately $39.3 million that was approved where the representative plaintiff claimed $250 million in general damages and a further $100 million in punitive damages.

And there was the 2020 Fresco v. Canadian Imperial Bank of Commerce in the Ontario Superior Court of Justice where CIBC was found liable for breaching its overtime obligations to approximately 31,000 current and former employees across Canada. While damages have yet to be determined, the claim seeks $600 million in damages.

Due to the COVID-19 pandemic, more employees are working from home and are largely unsupervised, so the frequency of unpaid overtime class-action lawsuits is likely to continue. A key challenge is effectively monitoring employees remotely. At-home employees may work more hours than their regular schedules, which, with the lack of supervision, gives rise to the perfect storm for class-action lawsuits of this nature.

To avoid claims and payments for unpaid overtime, businesses must ensure their work-from-home policies recognize and reduce this risk. Employers should implement methods to control overtime costs, including written overtime policies, training and enforcement. Averaging agreements and overtime agreements, if permitted by applicable legislation, can also limit the amount of overtime claimed.

Finally, in most jurisdictions, employers are required to maintain accurate records of hours worked, including regular and overtime hours. Accurate records are key to defending against overtime claims.

Class actions alleging the misclassification of employees as independent contractors also come with potentially significant liability as workers claim that they have been denied certain employment standards rights, including overtime, vacation, holiday, termination and severance. In addition, misclassification claims may carry further consequences including claims for unremitted taxes and workers’ compensation insurance premiums.

Recent years have given rise to an array of misclassification class-action lawsuits. These include, but are not limited to, misclassification of door-to-door sales agents (see the 2016 Omarali v. Just Energy in Ontario Superior Court), lawyers within a workplace (see the 2017 Sondhi v. Deloitte in Ontario’s Superior Court) and gig economy workers.

Moreover, as working from home becomes more widespread, it is possible that supervising employees in some workplaces has become more centralized. This may lead to ancillary classification issues regarding managers and supervisors who are no longer engaging in the managerial and supervisory functions of their roles.

Even if such changes to their roles are only temporary, it may result in disputes about their proper classification.

To avoid misclassification claims, employers must consider the actual relationship between the worker and the employer. The determination is one of substance over form as courts and tribunals will consider the functional relationship between the parties, rather than how the parties define their relationship.

Discrimination and harassment
With fewer in-person interactions in the workplace, we have seen a decrease in the number of sexual or physical harassment claims within workplaces during the COVID-19 pandemic. However, as protests around the world continue to shed light on systemic issues of discrimination, Canadian businesses may see a rise in discrimination and harassment claims in the workplace.

In 2019, a class action against the Royal Canadian Mounted Police for discrimination and harassment related to gender and sexual orientation was settled for approximately $100 million (see the 2020 Tiller v. Canada, 2020 in Federal Court). In addition, late last year, the same court approved a $900-million Canadian Armed Forces sexual misconduct class-action settlement (see the 2019 Heyder v. Canada (Attorney General) in Federal Court).

Occupational health and safety legislation generally requires employers to develop and implement workplace violence and harassment prevention policies. At a minimum, to limit potential liability, employers should develop, implement and appropriately train workers and managers on such policies.

Reducing the risk
Proactive compliance with employment regulations is key when it comes to mitigating against the risk of class-action lawsuits. Businesses should regularly be reviewing and assessing their practices and policies for compliance.

To assist businesses with this, we have developed the HR Compliance Diagnostic tool. Functioning like a car safety check, this tool identifies gaps in compliance and offers workable solutions to bridge these gaps. Recognizing that there is a myriad of considerations for every business, solutions are tailored to address the unique needs of each workplace.

All at McCarthy, Tim Lawson is national practice group leader in the labour and employment group in Toronto; Lauren Soubolsky is an associate in the labour and employment group in Vancouver; Danielle Douglas is an associate in the labour and employment group in Calgary; Caroline-Ariane Bernier is an associate in the labour and employment group in Montreal; and Marco Fimiani is an associate in the labour and employment group in Toronto.

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