Jan 30, 2020

The CHL Players’ Class Action – Players’ Victory or CHL Shutout?

Walter v Western Hockey League, 2018 ABCA 188 (CanLII)

The CHL Players’ Class Action –

Players’ Victory or CHL Shutout?


© 2020 Kenneth Wm. Thornicroft, LL.B./J.D., Ph.D., Barrister & Solicitor

Professor of Law & Employment Relations

Gustavson School of Business, University of Victoria

Victoria, British Columbia CANADA V8W 2Y2

I. Introduction

Are “major junior” hockey players amateur athletes honing their skills with a view to playing professional hockey, or employees working in for-profit businesses? This question lies at the heart of the ongoing class actions involving the Canadian Hockey League (“CHL”) and its member leagues and teams (the “CHL Litigation”).

The CHL is an unincorporated association consisting of the Western Hockey League (“WHL”), the Ontario Hockey League (“OHL”) and the Quebec Major Junior Hockey League (“QMJHL”). The league currently has 60 franchises, all but eight of which are in Canada.[1] The three league champions (as well as a host city club) compete annually for the Memorial Cup, first awarded in 1919. The CHL maintains that it is an “amateur” hockey league but nonetheless the CHL and its member teams operate as for-profit businesses.

The CHL is the foremost development league for players, aged sixteen to twenty years, hoping to pursue a career in professional hockey.[2] Although the CHL’s general managers, coaches, trainers and other team personnel are all paid, the players receive only very modest compensation. CHL players receive small weekly stipends during the season (ranging from about $50 for first year players to $150 for players in their final year of CHL eligibility). Although, historically, these stipends were paid (and taxed) as ordinary income, the CHL now characterizes these stipends as expense allowances. Some CHL players aged 18 to 20 years old – particularly those who have been drafted into the National Hockey League (“NHL”) – will have signed NHL entry-level contracts, and while they are not paid salaries under those contracts (unless they played some NHL games before being reassigned back to their major junior team), they usually will have been paid a (sometimes quite significant) signing bonus. The NCAA considers the CHL to be a professional league, and thus former CHL players are ineligible to play NCAA hockey.

Payment for services lies at the heart of the CHL class actions now proceeding in the Alberta, Ontario and, most recently, the Québec courts. The players maintain that they are “employees” under various provincial employment standards statutes and thus entitled to statutory benefits such as payment of the minimum wage for all hours worked, overtime pay, vacation pay, statutory holiday pay and termination pay. The CHL’s response is that the players are not employees but, rather, “student athletes” akin to men’s scholarship athletes attending NCAA Division I universities.

II. The Class Actions

Three class actions have now been certified, one in relation to each of the three leagues comprising the CHL: in Alberta (Walter v. Western Hockey League), in Ontario (Berg et al. v. Canadian Hockey League et al.), and in Québec (Walter c. Quebec Major Junior Hockey League Inc.). These actions are fundamentally similar being predicated on a common legal footing, namely, CHL players are “employees” for purposes of provincial employment standards legislation and, as such, are entitled to the statutory benefits provided under employment standards statutes (although other claims have also been raised including breach of the duty of fair dealing, conspiracy, negligence, misrepresentation, unjust enrichment, and waiver of tort). The players seek recovery of unpaid wages due under provincial employment standards legislation, disgorgement of the leagues’ and teams’ profits, injunctive relief, and punitive damages.

The CHL maintains that it is an amateur developmental hockey league and that its purpose is to provide guidance, supervision, development, and education for its players. The CHL also maintains that if the players’ action succeeds, there will be severe adverse financial ramifications and some teams will be unable to continue operating. The alleged serious adverse financial consequences of a successful claim does not constitute a valid defence to the players’ action. Nevertheless, this argument has swayed provincial governments in jurisdictions where the CHL operates to grant statutory exemptions to CHL teams from provincial employment standards laws (discussed in greater detail, below).

III. Are CHL players “employees” or “student-athletes”?

The principal defence raised in the CHL Litigation is that the players are amateur athletes, not employees. This argument echoes the position the National Collegiate Athletic Association (“NCCA”) has consistently taken in several cases involving student athletes. In a case involving Northwestern University scholarship football players, the U.S. National Labor Relations Board ruled that the players were not entitled to unionize, although the Board side-stepped the question of whether the players were employees, preferring to decide the matter on various labour relations policy grounds. In other cases, the U.S. courts have consistently held that students participating in college athletic programs (whether as scholarship students or otherwise) are not employees under U.S. state or federal employment standards statutes (see, e.g., Berger v. NCAA and Dawson v. NCAA).

All CHL high-school aged players are enrolled in a local secondary school but players 18 years of age and older are frequently not enrolled in any post-secondary program, or are only enrolled on a part-time basis. Further, the CHL and its member leagues and franchises are not educational institutions directly providing the players with an education. This latter fact constitutes a critical distinction between the CHL Litigation and the U.S. cases dealing with NCAA student athletes. For NCAA scholarship athletes, the essential quid pro quo is the exchange of university tuition and related expenses for the student’s agreement to play on one of the university’s sports teams (for example, the football or basketball team). Nevertheless, the CHL maintains that its players are amateur student athletes. This raises the key question in CHL Litigation – are CHL players primarily students who play hockey, or are they primarily employees (as hockey players) who may also be students?

There is caselaw supporting the players’ position that they are, as a matter of law, employees while under contract with their major junior clubs. Toronto Marlboro Major Junior A Hockey Club et al. v. Tonelli et al. arose in the mid-1970s when the World Hockey Association (“WHA”), a newly-formed (and short-lived) professional league that competed directly with the NHL, allowed its teams to sign players who were under contract to major junior clubs. John Tonelli, while still a minor, signed a Standard Player’s Agreement (“SPA”) to play for the OHL’s Toronto Marlboros. He later repudiated that contract and signed a 3-year contract to play for the Houston franchise in the WHA. The Marlboros unsuccessfully sued Tonelli for breach of contract. Tonelli principally held that his Marlboros contract was invalid at common law because it was an infant’s contract not in his best interests, However, the court also characterized the relationship between Tonelli and the Marlboros as a “contract of service” (that is, an employment contract).

Similarly, in McCrimmon Holdings Ltd. v. M.N.R., the Tax Court of Canada ruled that major junior hockey players were employees for purposes of federal employment insurance and pension legislation. The court observed: “…the business of the Wheat Kings [a WHL franchise] is simply the business of hockey. It is a commercial organization…carrying on business for profit. The players are employees who receive remuneration – defined as cash – pursuant to the appropriate regulations governing insurable earnings.” (my italics; para. 22)

The fundamental relationship between major junior hockey players and their respective teams has not materially changed since Tonelli and McCrimmon were decided. Although the CHL’s SPA once referred to “salary” and “remuneration,” SPAs currently used expressly state that there is no employment relationship between the parties. The WHL SPA, for example, states “[t]he parties agree that this Agreement is not a contract of employment between the Club and the Player.” Nevertheless, the form of the agreement is not determinative of whether the parties have an employment relationship because, in law, courts and employment tribunals must examine the substance of the parties’ actual relationship (see 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.).

CHL players play a 68-game regular season plus additional pre-season and (for some teams) post-season playoff games. The season commences with late-August training camps and extends to as late as May for teams competing in the Memorial Cup. During the season, the players’ time commitment is significant between games, practices, off-ice sessions and travel (exclusively by chartered bus).[3] CHL teams direct their players to undertake extensive off-season strength and conditioning programs. The measure of control exercised by CHL clubs over the players is significant (see McCrimmon at para. 3). All requisite equipment is owned by the clubs; the teams play in arenas directly or indirectly controlled by the clubs; the clubs maintain disciplinary authority over the players; the players have little, if any, opportunity to profit from their service to the clubs; and the clubs are commercial organizations carrying on, as was noted in McCrimmon, “the business of hockey”. CHL players seemingly meet all of the relevant legal criteria to be characterized as employees under the common law.

Other than the age of the players — and, of course, the lack of meaningful compensation — there is little to differentiate the life of a professional hockey player (and particularly a professional minor league player) from a CHL player. In terms of league schedule, travel, practices, individual and team meetings, off-ice training, and control over the player’s life (during and even outside the playing season), the CHL closely resembles – and, indeed, models itself after – professional hockey. CHL players, just like their professional colleagues, can be and frequently are traded during or outside the playing season. In any given CHL game, several players on the ice will have already signed NHL contracts (and received signing bonuses) and will be paid pursuant to the provisions of the NHL-NHLPA collective bargaining agreement while playing in the CHL.[4] Some of these players may have already played several NHL games (for which they were paid their NHL-level salaries) before being reassigned to their major junior club. In this latter scenario, the major junior club essentially operates as a developmental “farm” team for the NHL team that holds the player’s rights. How is such a player an “employee” while playing in the NHL, but merely an “amateur” athlete while playing in the CHL? Indeed, the NCAA considers the CHL to be a professional league and thus players who play even a single game in the CHL, or sign a CHL SPA, become ineligible to play NCAA college hockey.

While the CHL does provide a range of high school and post-secondary educational benefits to the players, the CHL and its member leagues and teams are not educational institutions. The majority of CHL players are of high school age and, of course, both they and (critically) their parents, depend on the clubs to ensure that high school aged players continue their education while playing major junior hockey (during the season, players are billeted with host families and attend a local secondary school). The CHL’s business model hinges on ensuring that a player’s education will not be compromised. The CHL’s post-secondary scholarship program allows the CHL to more effectively compete with NCAA schools for players who view hockey as a route to a university education, but it does not make CHL franchises functionally equivalent to NCAA Division I schools. As noted in McCrimmon (at para. 19): “While there is an educational component attached to the contract between [the WHL team] and the players – and that is commendable – the players are paid to play hockey for the team in the WHL. They are entitled to one year’s books and tuition at a post-secondary educational institution for each year they have played for a WHL team…However, the requirement to play hockey is not inextricably bound to a condition of scholarship as may be the case with a university since attendance at a post-secondary educational institution was not mandatory for remaining on the roster.”

IV. EMPLOYMENT STANDARDS LEGISLATION AND STATUTORY EXEMPTIONS

The CHL players do not claim wages under a contract of employment but rather pursuant to employment standards legislation. Thus, the players must meet the statutory definition of “employee” found in the various provinces’ employment standards laws. These definitions are at least as broad, and arguably broader, than the common law test for employment. However, employment standards statutes only govern employment relationships and, even then, certain classes of employees are wholly or partially exempted from these laws. And there’s the rub.

Every Canadian province where the CHL operates, as well as the states of Washington and Michigan have now exempted CHL players from their employment standards statutes (Alberta being the last to do so, effective January 1, 2020). These exclusions followed lobbying by the CHL and its member teams. While the specific exemption language varies by jurisdiction, the effect in each jurisdiction is to exclude major junior hockey players from the province’s employment standards statute. Since the unpaid wage claims of CHL players are now presumptively barred, the players will either have to challenge the exemptions directly, or restrict their claims to wages that were earned or became payable in the pre-exemption period, although such claims are likely time-barred in any event.

It should be noted that these exemptions only apply to the provinces’ employment standards statutes. Presumably, the players could seek to organize (as did the Northwestern University football players) under collective bargaining legislation, but this option seems unlikely. Prior to the CHL Litigation, several attempts were made to organize CHL players, but these efforts were singularly unsuccessful.

V. Victory or Shutout?

In my view, there is a reasonable likelihood that the CHL Litigation – assuming it ever proceeds to trial – will, at best, give the players only a pyrrhic victory in light of the statutory exclusions in effect in all provinces where the CHL operates. In light of these statutory exclusions, the monetary potential of the CHL Litigation for former players is relatively modest and, of course, current players are wholly without recourse unless the statutory exclusions are struck down by the courts, or voluntarily rescinded by the various provincial legislatures. I will briefly address each possibility in turn.

A. The Courts

Two Supreme Court of Canada Charter decisions, each addressing statutory exclusions in the collective bargaining context, might be relevant. In both Dunmore v. Ontario (Attorney General) and Mounted Police Association of Ontario v. Canada (Attorney General) statutory prohibitions regarding access to any form of collective bargaining were successfully challenged as infringing the workers’ subsection 2(d) freedom of association rights. I question whether the Charter’s freedom of association guarantee protects individual employees who are excluded from employment standards legislation. Nevertheless, if the courts concluded that CHL players are a vulnerable group — a position that is at least arguable in light of the significant power imbalance between CHL teams and individual players — the various employment standards exclusions for CHL players might be challenged under the subsection 15(1) equality rights provision of the Charter (see, e.g., Ontario Nurses’ Association v. Mount Sinai Hospital and Fleetwood Canada Ltd. v. Burchall). It is also possible that subsection 6(2) (pursuit of livelihood) or subsection 7 (life, liberty and security of the person) could form the basis of a successful Charter challenge to the statutory exclusions.

B. Governmental Retraction

The current employment standards exclusions are the product of political, rather than judicial, processes. It is perhaps not a coincidence that in Alberta, which until April 16, 2019 had a center-left government, the legislature refused to exempt major junior hockey players from their employment standards laws. The current exclusion was one of the first orders of business of the new centre-right government. Similarly, the Ontario exemption was only promulgated when that province shifted from a center-left to a center-right government. It remains an open question whether British Columbia’s current center-left New Democratic/Green Party coalition government will rescind the existing statutory exemption that was put into effect by the former center-right government. But certainly, to date, it has not signalled its willingness to do so, despite its position while in opposition.

C. The Court of Public Opinion

As previously discussed, the current legislative exclusions were the product of a political process. The CHL and its member leagues and teams, seeking to obtain statutory exclusions, strenuously argued that extending employment standards protections to CHL players would be financially ruinous. Employers in other sectors (for example, agriculture and hospitality) have similarly successfully lobbied governments for either wholesale exclusions, or partial exemptions, from employment standards laws based on cost concerns. If the CHL and its member leagues and teams ultimately lose the “employee” argument, it becomes harder to justify the continuance of statutory exemptions unless the CHL can credibly demonstrate that the exemptions are necessary to prevent serious financial hardship.

To the extent that the CHL’s arguments on this latter score cannot be empirically validated, it could prove politically problematic for governments to maintain that CHL players are not entitled to be paid at least the minimum wage for their labour. As I have argued elsewhere, the CHL’s claim that financial Armageddon will follow if the league were subject employment standards statutes, does not appear to be entirely credible. The NCAA is now considering relaxing its stringent rules regarding student-athlete compensation in the wake of continuing public pressure. This pressure largely flows from the fact that while the NCCA, which currently has annual revenues exceeding $1.1 billion USD, is getting richer each year (as are many of their member schools’ athletic departments), the student athletes must get by on subsistence allowances. Some state legislatures, notably California, are now forcing the NCAA’s hand.

D. So…Victory or Shutout?

The players appear to have a very arguable case on the status question. The direction and control exercised by the teams over the players, the players’ subordinate position relative to the teams in virtually all hockey- (and some non-hockey) related matters, their integral role in the teams’ core business, as well as existing precedent, all strongly augur in favour of a verdict for the players on the status question.

The persisting problem is that CHL players are now wholly excluded from the employment standards legislation in every jurisdiction where the CHL operates. The players are not unique in having been excluded. Many employees are not entitled to some or all of the protections contained in employment standards statutes because they are either fully excluded, or are partially exempted. For example, in British Columbia, most licensed professionals are excluded from the statute, and many other employees are exempted from the hours of work and overtime provisions.

Given the current statutory exclusions for all CHL players, the only claims that might have presumptive validity are those concerning players who played before the exclusions took effect. Most, if not all, of these claims are now likely statute-barred. The situation regarding WHL players who played for a British Columbia team is even more problematic given the B.C. Court of Appeal’s decision in Macaraeg v. E Care Contact Centers Ltd. The appeal court held that statutory wage claims under the Employment Standards Act (such as a claim for overtime pay) must be pursued through the statute’s dispute resolution procedure, and cannot be pursued in the civil courts (the Supreme Court of Canada refused to grant leave to appeal). If the players could establish a contractual claim for wages, then perhaps Macaraeg would not apply, but the only contractual entitlement that seemingly could be established concerns the players’ weekly stipends – amounts the teams have already paid.

While the various statutory exclusions could be challenged on Charter grounds, none of the currently certified class actions raises any sort of Charter challenge. Thus, separate constitutional challenges would have to be filed. Constitutional challenges are notoriously expensive and, in this instance, substantial costs must be weighed against a rather uncertain outcome.

Perhaps the best outcome, from the players’ perspective, would a judicial declaration that the players are employees and such a declaration, in turn, could lead to further public policy debate regarding the appropriateness of the existing exclusions. And in that regard, at least in my view, there is much to be said on the players’ side in favour of rescinding the existing exclusions.

ENDNOTES

[1] The WHL has a five-team U.S. Division consisting of four teams in Washington and one in Oregon. The OHL has two teams in Michigan and one in Pennsylvania. There are currently no U.S. teams in the QMJHL.

[2] In the 2017 National Hockey League entry draft, 89 players were CHL players (41% of the 217 players selected in the 7-round draft); 14 of the 31 players selected in the first round were drafted from the CHL and 48% of the first and second round draftees were from the CHL. In the 2018 draft, 78 CHL players were selected, including 13 players in the first round and 12 in the second round (40% of the players selected in the first two rounds). In the most recent 2019 draft, 71 (or 32%) of all players drafted were from the CHL including 45% of the players drafted in the first two rounds.

[3] The evidence gathered in a Washington State child labor investigation relating to that state’s WHL teams was that the players’ time commitment (including practices, games, team and individual player meetings, off-ice training and travel) likely averaged 50 hours per week.

[4] In addition, CHL SPAs provide that a player otherwise eligible to play in the CHL is not released to play professional hockey until the professional club pays the CHL team the sum of $500,000. In the Washington State investigation, ibid, the state Attorney General reported, likely referring to this contractual obligation: “The NHL has an agreement with the CHL where the NHL ‘grants’ the CHL approximately $10 million per season, which may indicate a subsidy for player development….” Apart from each team’s ticket sales, corporate sponsorships and related concession and jersey memorabilia sales, the CHL has a lucrative television contract with the Canadian broadcaster TSN.

The CHL Litigation – Post-Script

The Settlement Agreement

By an agreement made of February 11, 2020, and effective March 31, 2020, all three class actions filed against the Canadian Hockey League (“CHL”) and its member leagues – the Western Hockey League, the Ontario Hockey League, and the Quebec Major Junior Hockey League – were resolved through a global settlement agreement. This agreement was reached following two days of intensive mediation. Under the settlement agreement, the mediator’s fees shall be paid by the defendants.

The material provisions of the settlement agreement, which is made without any admission of liability by the various defendants, and is subject to court approval, are as follows:

• the total settlement amount is $30,000,000 CAD (thirty million dollars);

• a Claims Administrator will be appointed to distribute the funds;

• the sum of $10,000 will be paid to each of the representative plaintiffs, save Samuel Berg (who will be paid $20,000);

• payments to individual players that did not otherwise opt-out of the litigation will be based on the number of seasons played in the CHL for a Canadian-based team; and

• counsel for the plaintiffs shall be paid fees and disbursements out of the settlement funds in an amount to be approved by the court.

The settlement represents a contribution of less than $600,000 from each of the 52 Canadian CHL teams. The settlement was concluded in a legal environment where all the provincial governments where the CHL operates have amended their employment standards legislation to exclude coverage for CHL players. The settlement, of course, leaves unresolved the question of whether major junior hockey players are “employees” under the various provincial employment standards statutes. The settlement agreement concludes the ongoing employment standards claims and, at least for now, there is no future risk for the CHL regarding such claims in light of the existing regulatory exclusions.

One Chapter Ends; Two More Begin…

However, at least two other class actions against the CHL are now looming. First, a claim is pending before the B.C. Supreme Court (McEwan v. CHL, Vancouver Registry No. S190264) regarding traumatic head injuries suffered by CHL players. Among other things, the claim asserts that the CHL “failed to properly monitor and adequately adjust rules over time in order to reduce the incidence of fighting and violence in the CHL and to otherwise reduce the risk of unnecessary injury to Class Members” (see https://www.callkleinlawyers.com/class-actions/canadian-hockey-league/do-you-qualify/). Second, a claim has been filed in the Ontario Superior Court of Justice (see Carcillo v. CHL et al., Court File No. CV-20-00642705-00CP) regarding systemic physical and sexual abuse suffered by former CHL players (see https://kmlaw.ca/cases/chl-hockey-abuse-class-action/). The Statement of Claim asserts that the defendants “owed a duty of care to the plaintiffs…to create and maintain an environment that was free from sexual and physical assault , harassment and the Abuse.” Thus, it appears that the settlement of the three “employment standards” class actions will not be the end of litigation brought by former players against the CHL. Indeed, the scope of the two recently filed class actions has the potential to bring far more significant systemic changes to the CHL than the employment standards claim might have brought, had the latter claim succeeded in court.