March 30, 2010

The HR Space is edited by: Dominique Launay, Karen M. Sargeant, and Brian P. Smeenk.

As was noted in an earlier article, the Ontario Superior Court of Justice recently certified a class action against the Bank of Nova Scotia ("BNS"). That law suit claims $300 million in unpaid overtime involving approximately 5,300 BNS sales staff: Fulawka v. Bank of Nova Scotia ("Fulawka") . Certification means the claims meet the requirements to use the class action process. What does this decision mean for other similar claims?

A similar previous case, brought against another large bank, CIBC, had not met the certification requirements. It was ruled that that claim lacked the essential element of "commonality" in the situations of the employees in the proposed class: Fresco v. CIBC ("CIBC").  The breaches alleged in CIBC lacked the "systemic" nature required to justify certification.

The Fulawka plaintiffs took note of this result. They amended their claim to allege that there were systemic defects in BNS' company-wide overtime policies and procedures. They also alleged that BNS owed a duty to its employees to put policies and procedures in place to prevent overtime from being worked without compensation, and to properly record all hours of overtime worked, whether pre-approved or not.

BNS' overtime policy is alleged to provide that employees could only receive compensation for overtime if it was approved in advance. The plaintiffs claimed this was manifestly unfair. Employees often ended up working overtime hours assisting customers without the pre-approval required, they said, because the need for overtime was often unanticipated. Approval could not be obtained after the fact, and strict application of the policy left many employees deprived of overtime compensation.

The facts as alleged clearly struck a chord with the certification judge. He quoted Joseph Heller's description of the "Catch-22" that ensnared the airmen of the fictional "Fighting 256th" and observed:

"Simply put, overtime hours could only be pre-approved by management when there was a pressing need to work overtime. However, when there was a pressing need to work overtime, there was frequently no opportunity to seek pre-approval."

The judge found that there was an evidentiary basis to support a common claim against BNS.

The judge accepted the existing case authorities which indicated that employees could not bring a claim for breach of the overtime provisions of the Canada Labour Code, as the Code contains its own enforcement mechanisms. These aspects of the plaintiffs' claim were struck out. However, the judge refused to strike out the plaintiffs' claim that the requirements of the Code had been adopted as implied terms of the employees' contracts.

The judge noted that labour arbitrators applying the Canada Labour Code have accepted the obligation of the employer to take active measures to prevent uncompensated overtime being worked. He also noted that there has been a recent trend to accept a duty of good faith in the performance and enforcement of contacts. He ruled that the duty of good faith and fair dealing exists throughout the employment relationship and is a feature of the contractual relationship, not an independent cause of action.

In the judge's opinion, this duty of good faith could require the employer to take measures to ensure that the overtime work of class members was properly recorded and properly compensated. Such requirements are included in the Canada Labour Code. He was of the view that the Code may well inform the content of the duty of good faith and fair dealing owed by the employer.

This decision raises interesting questions. If the breach of the duty of good faith resulted in a breach of contract, would the employee not be required to take the position that the contract had been repudiated and ended? Should the employee then seek damages for breach of contract, rather than for a failure to receive overtime pay? If there is a duty of good faith and fair dealing throughout the entire employment relationship, how far does the duty extend? Is the use of the overtime provisions of the Code to "inform" an employer's contractual duty of good faith appropriate, in light of the exclusive enforcement mechanisms contained in the Code?

These and other issues will, however, have to be dealt with at a later time, when and if this law suit goes to trial. At this stage, the certification judge was looking for commonality in the claims sufficient to certify the class action. Moreover, the defendant, BNS, is seeking to appeal the certification decision. This means that we may have a long time to wait for answers to these interesting questions.