Jun 12, 2020

CIBC liable for breach of federal employment standards on overtime pay and record-keeping, court rules in class action

Fresco v. Canadian Imperial Bank of Commerce, 2020 ONSC 75 (CanLII)

On March 30, 2020, in a class action seeking $600 million in damages, the Ontario Superior Court held that the Canadian Imperial Bank of Commerce (CIBC) was liable for breach of federal employment standards when frontline customer service employees worked overtime but did not receive overtime pay as required under the Canada Labour Code. Under the Code, entitlement to overtime pay arises where an employee is required to work in excess of standard hours, or where the employer permits employees to do so. According to the Court, CIBC's overtime policies, which provided for overtime pay only where work in excess of standard hours was approved by management, fell short of the Code's requirements by denying overtime to employees whose overtime was permitted, but not explicitly approved, by management. The bank was aware of widespread uncompensated overtime among the 31,000 class members but took no steps to prevent it. It also failed to ensure that it kept records of hours actually worked. Accordingly, CIBC was liable for breach of employment standards on overtime pay and record-keeping, which were incorporated into class members' employment contracts. The Court deferred consideration of the appropriate remedies to a further hearing.

The Facts:

A bank teller brought a class action on behalf of 31,000 customer service employees, alleging that the CIBC had violated federal employment standards on hours of work and overtime.

Under s.169 of the Canada Labour Code, which sets employment standards for federally regulated businesses, standard hours of work are eight hours per day and 40 hours per week. Section 174 provides:

When an employee is required or permitted to work in excess of the standard hours of work, the employee shall, subject to any regulations made pursuant to section 75, be paid for the overtime at a rate of wages not less than one and one-half times [the employee's] regular rate of wages.

Under s.24 of the Canada Labour Standards Regulations, employers are also required to keep records of hours worked and pay, including overtime pay, for each employee, going back at least three years. Section 168 of the Code provides that the employment standards provisions in the Code "apply notwithstanding … any custom, contract or arrangement."

The standard hours of work for frontline, non-managerial employees of the Canadian Imperial Bank of Commerce (CIBC) were 7.5 hours per day and 37.5 hours per week. Under an overtime policy adopted by CIBC in 1993, employees working more than eight hours daily or 37.5 hours weekly were entitled to overtime pay at a rate of 1.5 times their salary. The 1993 policy also provided that "[e]mployees MUST obtain prior authorization from management before incurring any overtime." An accompanying question and answer document stated that "It is against the law not to pay overtime." A revised policy that took effect in April 2006 reiterated the need for pre-approval of overtime work, but permitted managers to approve overtime retroactively if there were "extenuating circumstances."

Although some managers approved overtime after the fact, in annual surveys of CIBC employees, a number reported that because of high workloads, they routinely worked well in excess of their standard hours and were not paid overtime. Some employees also complained of the difficulty of obtaining pre-approval for overtime, with one condemning CIBC's practice of "getting free labour out of a vast majority of their employees." Further, although some branch managers kept records of hours actually worked, as required under s.24 of the Code, in most branches only regular hours and approved overtime were recorded.

In June 2007, Dara Fresco, the head teller at a CIBC branch in Toronto, Ontario, acting as lead plaintiff, initiated a class action on behalf of 31,000 current and former non-management and non-unionized frontline customer service employees working at more than 1,000 retail bank branches across Canada after February 1, 1993. The action alleged that CIBC had failed to comply with the minimum requirements in ss.24 and 174 of the Code, and had unjustly enriched itself by failing to pay the members of the class the overtime to which they were entitled. It claimed $500 million in general damages and $100 million in aggravated, exemplary, and punitive damages.

In a decision dated June 18, 2009, 2009 CanLII 31177 (ON SC), reported in Lancaster's Headlines, June 24, 2009, Ontario Superior Court Judge Joan Lax dismissed the application to certify the class action on the basis that the claims lacked commonality, a required element of a class action under the Ontario Class Proceedings Act. A central argument in the class action was that CIBC's unlawful overtime policies constituted an element that was common to all the class members. However, Lax concluded that it was plain and obvious that the policies were not illegal. Rather, they complied with the Code by prohibiting employees from working overtime without management approval. In a September 10, 2010 decision, 2010 ONSC 4724 (CanLII), reported in Lancaster's Employment Standards Law, February 4, 2011, eAlert No. 40, a majority of the Ontario Divisional Court upheld Lax's ruling.

Fresco appealed the Divisional Court's judgment to the Ontario Court of Appeal. On June 26, 2012, 2012 ONCA 444 (CanLII), reported in Lancaster's Wrongful Dismissal and Employment Law, August 15, 2012, eAlert No. 311, a unanimous three-member panel of the Court of Appeal allowed the appeal and certified the class action. Chief Justice Warren Winkler, joined by Justices Susan Lang and David Watt, rejected the reasoning of the courts below, taking the view that it was not plain and obvious that, in providing for overtime pay only where overtime work had been pre-approved, CIBC's policies complied with the Code requirement for overtime pay where work in excess of standard hours was "required or permitted":

The motion judge and the majority viewed the pre-approval requirement as allowing CIBC to ensure that class members do not exceed the maximum hours of work thresholds imposed by the Code. This benign view of the purpose served by the pre-approval requirement ignores the factual assertions in the pleadings about the alleged reality of the workplace in CIBC retail branches.

If class members have routinely been required or permitted to perform overtime work for which they were not compensated due to the lack of management pre-approval, or because class members have been instructed by management not to record overtime hours, then it is not plain and obvious that the breach of contract and unjust enrichment claims will fail.

Winkler also noted that the class action claims for breach of contract and unjust enrichment were not based solely on the illegality of the policy. Fresco also alleged that in assigning tasks that could not be completed without undertaking overtime work, CIBC breached its obligation to perform its contractual obligations in good faith.

The matter returned to the Ontario Superior Court, where Fresco brought a motion seeking summary judgment in respect of the following certified common issues:

  • Did CIBC have a duty to prevent class members from working overtime for which they would not receive overtime pay, or not to permit or encourage them to do so? If so, was that duty breached?

  • Was CIBC under a duty to record hours worked by class members, and if so, did it breach that duty?

  • Did CIBC require or permit all uncompensated hours of the class members?

  • What are the relevant terms of class members' contracts regarding regular and overtime hours of work, recording of hours worked, paid breaks, and payment for hours worked?

  • Did CIBC breach those contractual terms?

CIBC brought a cross-motion seeking dismissal of the class action.

The Arguments:

Fresco argued that the Court should grant summary judgment in favour of the class members on all five certified issues. She submitted that, in light of the remedial purpose of the employment standards provisions of the Code, it was to be interpreted in a large and liberal manner. Accordingly, the entitlement to overtime pay in s.174, which was triggered where overtime work was required or permitted, applied not only where the employer pre-authorized or required overtime work, but also where the employer knew overtime work was taking place and took no action to stop it. A more restrictive interpretation would encourage employers to turn a blind eye to unauthorized and uncompensated overtime work. Fresco also maintained that, because the standards in the Code were incorporated into class members' contracts, failure to pay overtime constituted a breach of contract. Further, in requiring class members to carry out tasks that could not be completed within standard working hours, with no promise of overtime pay, CIBC conducted itself in bad faith.

CIBC argued that the class action should be dismissed. The word "permitted" in s.74 should be interpreted as requiring overtime only where the employer had "impliedly required" an employee to work beyond standard hours. The bank accepted that it had both a statutory and contractual duty to prevent class members from working overtime for which they would not receive overtime pay. However, to the extent that the 1993 policy incorporated any terms that could be interpreted as failing to comply with the Code, any such deficiency was remedied by the inclusion in that policy of the proviso that failure to pay statutory overtime was illegal. Further, the employee survey evidence relied on by Fresco to support the allegation that class members were effectively required to work unpaid overtime was anonymous hearsay evidence, which was unreliable and should not be given any weight.

The Decision:

Ontario Superior Court Judge Edward Belobaba ruled in favour of Fresco on all five issues, holding that CIBC violated its contractual and statutory obligations by permitting class members to work uncompensated overtime.

A central issue between the parties was whether s.174, in providing for overtime pay where work in excess of standard hours was "required or permitted," should be interpreted narrowly, with the result that an employer must pay overtime only where such work is required or implicitly required; or whether that entitlement arises in a broader range of cases, including when an employer allows work in excess of standard hours or does not prevent such work. Belobaba noted that in Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), the Supreme Court commented that employment standards legislation is designed to remedy the power imbalance in the employment relationship, which invariably favours the employer. Accordingly, an interpretation of such legislation that extends its protection of employees is to be preferred over one that restricts those protections.

Belobaba surveyed the caselaw on overtime obligations under the Code and noted that most cases interpreted s.174 as conferring a right to overtime pay where employees were allowed to work overtime hours, or where the employer failed to prevent them from doing so. For example, in T-Line Services Ltd. and Morin, [1997] C.L.A.D. No. 422 (QL), an employer was liable for breach of s.174 where it "took no steps to prevent [the employee from] working beyond the end of his shift" or to direct him not to do so. CIBC's restrictive interpretation of s.174 had been adopted in only one case, Matson v. Great Northern Grain Terminals Ltd., [2005] C.L.A.D. No. 401 (QL), in which an arbitrator held that an employer was not liable for overtime pay where it was aware of, and took no steps to prevent, overtime being worked. Belobaba concluded that the interpretation of s.174 in Matson "does not accord with the realities of the modern workplace and undermines the remedial purpose of the Code by incentivizing employers to look the other way when overtime work is being done." Accordingly, Belobaba held that, under s.174, entitlement to overtime pay arises where "an employee is required or allowed to work or is not prevented from working in excess of the standard hours of work."

Regarding the first issue, Belobaba considered whether CIBC had breached its contractual and statutory duties to prevent class members working overtime for which they would not be paid. In Kindersley Transport Ltd v. Semchyshen, 2002 CanLII 61317 (CA LA), an arbitrator rejected an employer's argument that it was not liable for overtime pay under s.174 because its policy required pre-approval for overtime work, concluding that a workplace policy must not be interpreted so as to "circumvent the clear provisions of the Code." Applying that proposition to the case under review, Belobaba concluded that the 1993 policy violated s.174 and was not saved by the inclusion of wording providing that failure to pay overtime was illegal:

The defendant points to the sentence at the end of the 1993 Policy: "It is against the law to not pay overtime." I agree with the plaintiff that this sentence alone cannot remedy the deficiencies in the 1993 Policy which explicitly precluded compensation for any overtime that was worked without pre-authorization, even overtime that was permitted (not prevented). Section 174 requires that overtime work be compensated if required or permitted even where pre-approval is stated as the company norm. The imposition of a pre-approval requirement as a precondition for overtime compensation is more restrictive than the "required or permitted" language in s. 174 of the Code.

Although the 2006 policy provided for post-approval of overtime in exceptional circumstances, that policy also fell short of the requirements of s.174:

There is nothing wrong with an overtime policy that proposes pre-authorization as the preferred corporate norm provided that the policy ... also makes clear that neither pre-approval nor "post-approval in extenuating circumstances" are preconditions for payment — that overtime must and will be paid whenever overtime hours were required or permitted, full stop. [emphasis in original]

Similarly, on the second issue, Belobaba concluded that CIBC had breached its record-keeping obligations under s.24 of the Regulation. Although actual hours worked had been recorded correctly "for some employees at some branches on some occasions, there was no system to ensure this was done consistently across all branches." This "system-wide, indeed systemic deficiency, ... contravened the Code."

Turning to the third common issue, Belobaba took the view that in order to succeed, Fresco was required to prove that: (1) at least some class members worked uncompensated overtime hours; and (2) working those hours was permitted or not prevented by CIBC. Belobaba held that Fresco had met this burden. There was "an abundance" of survey evidence establishing that at least some employees worked unpaid overtime. Because those surveys had been conducted by CIBC itself, the bank's argument that it was unreliable hearsay evidence was "misguided." On the second aspect, there was evidence on which to conclude that CIBC had permitted all the uncompensated overtime hours worked by the class members, notably because the 1993 and 2006 policies contravened the bank's obligations under the Code, and the bank had provided no additional guidance to its more than 1,000 branch managers directing them to comply with those obligations. Further, by failing to record employees' actual hours worked, CIBC had made it impossible for correct compensation to be paid. As well, in light of the bank's own survey evidence, which put it on notice that employees were working uncompensated overtime hours, the bank exhibited wilful blindness to the potential Code breach:

The evidence shows that year after year, hundreds of class members complained that they were working unpaid overtime. The defendant bank had repeated notice that its "delegation" model [leaving responsibility for overtime with branch managers] was not working and did nothing in response. If an employer is told of the existence of numerous complaints about unpaid overtime, does nothing in response, and simply "looks the other way," the employer is effectively permitting the employees to work overtime. A failure to pay attention to complaints about unpaid overtime "effectively permits" employees to work overtime pursuant to the Code.

In such circumstances, it was reasonable to conclude that CIBC permitted all the uncompensated overtime hours to be worked, or did not prevent employees from working those hours. The bank breached the relevant provisions of the Code, which were incorporated into class members' contracts of employment. The fourth and fifth common issues were therefore answered in Fresco's favour. Accordingly, Fresco had established liability for breach of class members' contracts.

Fresco had not, however, established that CIBC had not acted in good faith. As the Supreme Court held in Bhasin v. Hrynew, 2014 SCC 71 (CanLII), reported in Lancaster's Wrongful Dismissal and Employment Law, February 4, 2015, eAlert No. 384, breach of the duty of good faith occurs where parties "lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract." CIBC's conduct did not rise to that level:

I can find on the evidence that CIBC was careless and indifferent, indeed negligent, about its obligation to comply with the requirements of the Code. I can also find that the bank should have known better. It is a multi-billion-dollar financial institution with an able legal staff that can easily advise on the requirements of federal labour law. For some reason this didn't happen. The bank dropped the ball, to be sure. But I cannot find on the evidence before me that the defendant bank lied or knowingly misled its employees about the legality of its overtime policies. The "breach of good faith" allegation does not succeed.

At the parties' request, Belobaba deferred the question of the appropriate remedy for a further hearing.

Comment:

The decision under review held that CIBC was liable for breach of its obligations to record hours worked by class members, and to compensate class members for overtime hours it did not prevent them from working. Unless the matter is settled, the case will proceed to the remedies stage where the Court will consider the following further common issues:

  • Was CIBC unjustly enriched by failing to pay class members for overtime work?

  • What compensatory remedies are the class members entitled to?

  • Are the class members entitled to aggravated, exemplary, or punitive damages?

As Belobaba noted in his judgment, these issues will pose "significant challenges" for Fresco. Notably, the Court will be required to consider whether damages, including aggravated or punitive damages, may be determined on an aggregate basis.