Lawyer says ‘no surprises culture’ necessary to avoid big risks and employee morale disasters while transitioning legacy systems
When a long-serving federal manager is told to repay thousands tied to a ‘ghost paycheque’, payroll modernisation stops being an IT story and becomes a warning for employers planning major system overhauls.
The federal pilot Phoenix to Dayforce transition at Public Services and Procurement Canada (PSPC) shows how a technical fix under a tight deadline can quickly become a big optics issue. CBC reported this week that PSPC manager Kristen Ouellette feels like “collateral damage” of the transition, as she’s seeing hundreds of dollars clawed back from her paycheques over a historical Phoenix error that was only revealed long after the fact.
Labour and employment lawyer Dante Manna, a partner at Stewart McKelvey in Halifax, says employers should work to resist the urge to use transitions as opportunities to “clean up” past mistakes.
“Resolve those issues in a timely fashion. Complete an audit of outstanding payroll discrepancies before the migration process happens,” Manna says.
“And make sure all the discrepancies are resolved before the changeover, rather than treating the migration as an opportunity to clean up the files under some sort of time pressure.”
Not only will that audit prevent employees from repaying mistakes or chasing tax authorities for money they never actually saw, but for HR leaders, it also creates a defensible record if unions, regulators or courts later review how the transformation was handled.
Duty of good faith in handling errors and clawbacks
In Ottawa, PSPC is working through thousands of older Phoenix transactions so it can be one of the first departments to pilot Dayforce, even as employees continue to dispute errors that go back years. The Auditor General warned that those problems risk being carried into the new system if they are not properly resolved, but the new system can’t be launched until “about 19,900 ‘priority and backlog cases’ involving PSPC employees” is cleared, according to CBC.
Ouellette’s experience also raises questions about how employers recover overpayments when they flow from system errors rather than employee conduct. In her case, the department is clawing back thousands of dollars linked to a Phoenix-generated “ghost” paycheque and directing her to seek relief from the Canada Revenue Agency.
Manna says legal obligations and basic fairness should point in the same direction when mistakes emerge during a transformation – he calls the employer’s core responsibilities “pretty common sense” and stresses that “goodwill or employee relations” have to be part of the response when errors happen.
“Beyond the nuts and the bolts of those relationships and the general obligation to pay accurately, employers do owe a broader duty of good faith and fair dealing in the employment relationship, that's been recognized by the Supreme Court of Canada,” Manna says.
“When you're clawing back an amount from an employee's paycheck for an error the employee didn't cause and then directing them to seek recovery from a third party, there's some questions about consistency, with that duty.”
Change management and no-surprises culture
Beyond fixing the past and managing legal risk, Manna says large HR and payroll transformations succeed or fail by the strength of their communication and also the pacing. These projects typically involve months of parallel testing between old and new systems, he explains, which in theory should give organisations room to find and fix problems before employees are impacted.
Employers should acknowledge the fact that employees are often wary of change, Manna says, and that human factor should be built into communication strategy and timing.
“We're human beings, so we're creatures of habit, and change can be uncomfortable,” he says.
“You can, as an individual in management who is masterminding a transition, work that human aversion to change into your communication strategy and into the timing of your rollout.”
For Manna, that translates into dedicated transition teams, clear messaging and fast, meaningful remedies when issues arise. He also points to a cultural shift he now sees inside many large organisations, where leaders are informed of risks early so they can be corrected with as little fallout as necessary.
“It's important to promote a ‘no surprises culture’ in which project teams are expected to escalate risks and issues promptly, without fear of blame,” he says, adding that the equation goes both ways.
“Also… to be open and transparent with the affected employees about what has occurred, again without fear of blame and with a sense that everyone is working together on this project, and that they're going to have support from the highest levels of the organization if needed, to correct any inequity arising from mistakes that that may occur through a transition.”
