little known employment standards act liabilities (and how to avoid them)

Little Known Employment Standards Act Liabilities

(and How to Avoid Them)

J. Geoffrey Howard and Christopher J. Munroe

CLE BC Employment Law

May 8, 2014

Overview

• Little-known employer liabilities under the Employment Standards Act (the “ESA”):

• Not usually large in value, but every so often they can be substantial;

• For employers’ counsel: “things you ought to know”;

• For plaintiffs’ counsel: a shopping list of potential additional wage claims;

• Suggestions for employers on how to avoid or minimize their exposure.

Vacation Pay on Non-Base Pay

• Most employers track vacation based on weeks or days.

• For employees who only earn base salary or consistent daily base wages, this system works.

• For the majority who earn “non-base pay”, such as commissions, overtime or bonuses, this leaves a potential shortfall in vacation pay.

• ESA s.58 requires employers to pay vacation pay calculated at 4% or 6% of “total wages” (depending on length of employment).

• “Wages” is broadly defined as including:“salaries, commissions or money, paid or payable byan employer to an employee for work, [and] money thatis paid or payable by an employer as an incentive and relates to hours of work, production or efficiency”

• “Money that is paid at the discretion of the employer and is not related to hours of work, production or efficiency” is expressly excluded.

• While most employers are accruing vacation pay on overtime, commissions, etc., only a minority are doing so on incentive pay schemes.

• Very few forms of bonus or incentive pay are not considered wages.

• Even if entitlement to bonus is discretionary, awards related to an employee’s performance have been held to be “wages”.

Scope of Vacation Pay Liability on Non-Base Wages

•The basic limitation period for wage claims under the ESA is 6 months.

•The ESA allows employers to defer giving vacation (and thus paying vacation pay) for up to 12 months after the end of any 12-month vacation pay accrual period.

•The ESA allows a further 6 months to make a claim for unpaid wages.

•As a result, employees are able to collect somewhere between 18 and 30 months of vacation pay.

•Many employers provide more than the ESA minimum number of vacation weeks.

•Employers might reasonably expect that the “extra” week of base vacation pay would count towards any liability for the statutory 4% on any non-base pay.

• Kenpo case says no.

• Held: “extra” base vacation pay did not satisfy or reduce liability for vacation pay on incentives.

Solutions

• Not a solution: stating that an incentive or commission is “inclusive of vacation pay”

• Define incentive amounts as comprised of “base” amount plus 6% vacation pay, resulting in a “total incentive pay” equal to intended total cost.

• This approach upheld in Re National Signcorp Investments Ltd., BC EST #D163/98.

Solutions (cont’d)

• An alternative solution for employers that always provide more than ESA minimum amounts of base vacation pay:

• Vacation policy states that amount of vacation pay earned each year will be the greater of: (a) total number of weeks of vacation base pay under employer policy, or (b) statutory percentage on all “total wages”.

• This solution requires employers to do end-of-year reconciliation to ensure all employees receive at least statutory minimum %.

Prohibition on Employee Paying Employer’s Costs

• Section 21(2) of the ESA –

“an employer must not require an employee to pay any of the employer’s business costs except as permitted by the regulation”.

Home Office

• Working from home, or “telecommuting”, has become increasingly common.

• Who should pay for equipment such as computer, printer, ink, toner and Internet connection, or even a pro rata contribution to home office rent or ownership costs?

• In Re Bennett, EST rejected claim for pro-rated rent for home office.

• EST found employee chose to work out of home and incurred no new rent costs as a result.

• An employee may incur additional out-of-pocket costs for home office expenses such as ink, toner, software and Internet costs, which likely are “employer business costs”.

• For exclusively home-based jobs(i.e. where employer expects and requires employee to work from home), if employee must acquire equipment for the job, these expenses are arguably “employer business costs”.

Training

• The cost of any training found to be compensable “work” time would also be an “employer business cost”.

• In two EST decisions, costs paid by employees to obtain first aid certifications required by employer were held to be “employer business costs”.

Liability for Non-Core Working Time

• Modern phenomena of many employees being available to work and working outside their core hours of work on a regular basis.

• For non-exempt employees, such “non-core working time” can trigger potentially significant wage obligations.

• The EST has affirmed that the employer does not need to specifically require or authorize the time worked, even outside regular business hours, as long as the employee is “getting the job done”.

• What we will cover:

• Weekend and evening emails and calls;

• Travel time;

• Training time; and

• “Donning and doffing” time.

Weekend and Evening Emails and Calls

• Often employee performs tasks outside core working hours in addition to regular work, so time must be compensated at overtime rates.

• How much time needs to be paid as overtime?

• Employee is entitled to payment of a minimum of 2 hours of work, potentially at overtime rates, if they start work on a non-regular work day, e.g. Sunday.

• Unable to find an EST case imposing this as liability, but risk is clear.

• One final risk: Continuous work may result in breach of the minimum break between shift and weekly minimum hours free of work requirements of section 36.

Solutions

• No silver bullets, but a few helpful hints:

• Ensure policies and practice with OT-exempt employees are clear that no overtime or other compensation is payable;

• Have clear policies and procedures for requiring prior approval of such work and require employees to promptly record the time so it can be reorganized;

• Consider monitoring email and telephone traffic outside regular hours;

• Consider instituting lower wage rates for “stand-by” or occasional emails/calls.

Travel Time

• Time spent travelling “under the direction and control” of the employer is considered time worked and must be paid.

• Obvious example: Employee is required to travel from primary workplace to client or other work sites during the workday.

Travel Time (cont’d)

• Other examples of paid travel time:

• Time spent travelling to a remote work site when employer-arranged transportation is only means of access; and

• Time spent travelling, including to and from work, where employee, at employer’s request, is transporting other employees or employer equipment.

• The most common situation in the white collar world is time spent travelling to out-of-town conferences, work or training.

Travel Time (cont’d)

• On a typical out-of-town plane trip, the following is compensable working time:

• Time travelling to airport;

• Time spent checking in and waiting for flight;

• Time in the air, as well as time waiting for connections;

• Time from arrival at destination airport until checked in at hotel and at liberty to do what employee likes.

Solutions

• There are no magic bullets. Simple steps to minimize exposure include:

• Being more selective about which non-exempt employees are sent on such trips;

• Where practical, ensuring travel is done wholly or partially on what would otherwise be regular working hours;

• Considering instituting lower “travel time” rates.

Training Time

• Definition of “employee” in ESA specifically includes “a person being trained by an employer for the employer’s business”.

• Even training taken before employee formally starts regular work as an employee can be compensable.

• Arguments that training really benefits employee by conferring a valuable designation or skill and thus should not be paid have been rejected.

Training Time (cont’d)

• By contrast, the Employment Standards Branch’s (“ESB”) Interpretation Guidelines Manual states training time does not encompass time spent acquiring or maintaining professional qualifications, even if used in employment.

Donning and Doffing Time

• Donning and doffing time refers to time it takes employee to put on and take off work-related clothing, such as a uniform or protective gear.

• Donning and doffing claims are a regular feature of the large volume of “wage and hour” class actions in the U.S.

• Like that a similar line of reasoning could be persuasive with the ESB and EST here.

Donning and Doffing Time (cont’d)

• Employers should consider offering a reasonable allowance of paid time for employees to don and doff necessary safety clothing.

• Employers who do not allow employees to travel to and from work in their uniform are required to treat a reasonable amount of time to dress and undress at work as working time.

Unexpected Termination Pay Liabilities

• The most common scenario: Purchaser agrees to offer ongoing employment to all or most existing employees on either the same or comparable terms and with recognition of seniority.

• Vendors and purchasers have two options on an asset sale:

1. If vendor terminates prior to closing, then all employees are entitled to notice of termination or pay in lieu required under ESA from vendor;

2. If pre-closing notice of termination not given, purchaser will assume liability for all employees of the business, including liability for pre-closing wages and recognizing past service.

• Asset Purchase Agreements commonly require vendors to “terminate employment of all Employees in writing prior to Closing” or similar, even when Purchaser is offering comparable employment to all employees and recognizing their service.

• Result: potentially huge termination pay liabilities – including for mass lay-off notice for large groups.

Solution

• Ensure that the transaction lawyers on an asset sale work with an employment lawyer to carefully plan out whether or not to terminate continuing employees pre-closing.

Overtime Claims by Highly-Paid Professionals

• Many employees mistakenly believe in one or more of the following myths of overtime:

• Employees paid by salary, paid on straight commission, or a combination of the two are exempt;

• Employees who set their own schedule and are responsible for organizing their own work are exempt;

• Employees with “manager” in their title are exempt; and

• Highly-paid employees earning hefty bonuses are exempt.

• The result is that most employers consider their highly-paid professionals to be exempt from overtime pay.

• We recommend that employers start from the assumption that all employees are entitled to overtime unless they fit within a prescribed exempt class.

• Professionals

• The Regulations to the ESA do exempt some specific regulated professionals from the application of all of the ESA. These include:

• Registered architects;

• Lawyers;

• Chartered accountants (but not CMAs or CGAs, at least for the moment);

• Registered professional engineers.

• High Tech Professionals34

• Managers

• Employers often rely on the “manager” overtime exemption. A “manager” is so defined in the Regulations as:

“(a) a person whose principal employment duties consist of supervising or directing, or both supervising and directing, human or other resources; or

(b) a person employed in an executive capacity.”

Managers (cont’d)

a) Supervising or directing

Factors considered by ESB include whether person has responsibility for such things as: hiring, firing, disciplining and scheduling staff, directing what, where and how work is to be completed, authorizing the use of company resources, and developing and monitoring budgets and financing plans or setting policies.

b) Executive capacity

Solutions

• No easy protection from this liability. Steps to reduce this risk include:

• Doing proper assessment of which employees are exempt;

• Where a practical solution, seeking employee’s agreement (in writing) to time banking in lieu of overtime pay;

• Considering structuring highly-paid professional employee’s total compensation as composed of base salary plus a regular “overtime allowance”.

Conclusion

• We hope this presentation will get both employer and employee counsel thinking about liabilities under the ESA they may have been overlooking.

• For employers’ counsel, this may provide an opportunity to reduce or remove the risk of such liabilities.

Thank You

montréal ottawa toronto hamilton waterloo region calgary vancouver beijing moscow london

J. Geoffrey HowardTel: 604-891-2279Email: geoffrey.howard@gowlings.com

Christopher J. Munroe

Tel: 604-443-7671

Email: christopher.munroe@gowlings.com

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