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

2
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.
3

• 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 by
an employer to an employee for work, [and] money that
is 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.
4

• 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”.
5

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.
6

Scope of Vacation Pay Liability on Non-Base Wages
•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.
7

•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.
8

• Kenpo case says no.
• Held: “extra” base vacation pay did not satisfy or
reduce liability for vacation pay on incentives.
9

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.
10

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 %.
11

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?
12

• 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”.
13

• 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”.
14

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”.
15

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”.
16

• What we will cover:
• Weekend and evening emails and calls;
• Travel time;
• Training time; and
• “Donning and doffing” time.
17

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.
18

• 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.
19

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.
20

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.
21

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.
22

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.
23

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.
24

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.
25

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.
26

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.
27

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.
28

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.
29

• 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.
30

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.
31

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.
32

• 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.
33

• 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 Professionals
34

• 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.”
35

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
36

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”.
37

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.
38

Thank You
J. Geoffrey Howard
Tel: 604-891-2279
Email: geoffrey.howard@gowlings.com
Christopher J. Munroe
Tel: 604-443-7671
Email: christopher.munroe@gowlings.com
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Little Known Employment Standards Act Liabilities (and How to Avoid Them)

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