Unpaid vacation and overtime pay class actions on the rise

by Michelle McKinnon, associate at McMillan

Employers continue to be exposed to significant financial and reputational risk for failing to comply with minimum employment standards legislation relating to vacation and overtime pay.

This article is of particular interest to the following employers:

• You are an employer in the financial, insurance or related sectors.
• You regularly pay bonuses, commission or other incentive based payments to employees for worked performed, as a component of their overall compensation.
• You regularly require or permit employees to work hours in excess of their regular hours of work, and those employees are entitled to overtime pay.

Proposed class action against RBC for unpaid vacation worth $800 million

A former investment advisor of RBC has commenced a representative class action law suit against RBC, alleging that it failed to properly calculate the vacation pay entitlement for thousands of current and former investment advisors in accordance with applicable employment standards legislation. The class action spans a period of 16 years and involves a claim of $800 million in unpaid vacation. This is one of several class actions that have been commenced against large financial institutions and insurance companies in recent years, involving a total of $1.2 billion in unpaid vacation and overtime pay. 

The central issue in the proposed RBC class action is the calculation of vacation pay and whether vacation pay is calculated based on an employee’s base salary or overall compensation (inclusive of variable pay such a bonuses and commission). It is alleged that, when RBC calculated and paid vacation pay to the investment advisors, it failed to include bonuses and commission that had been paid to the investment advisors as part of their regular compensation. This significantly reduced the vacation pay that was paid to the investment advisors, since a large portion of their overall compensation consisted of variable pay.

Although employment standards legislation differs across Canada, vacation pay is typically calculated as a percentage of an employee’s “wages”. “Wages” can include bonuses, commission and other variable incentive payments. For example, in British Columbia, “wages” for purposes of calculating vacation pay includes commission and incentive payments. It would be unlawful to exclude commission and similar incentive payments when calculating vacation pay, when such payments form part of an employee’s regular wages and compensation.

CIBC found liable for unpaid overtime in class action

Employers have also in recent years come under fire for failing to properly record hours actually worked by employees, and as a result for failing to pay overtime as required by minimum employment standards legislation.

For example, in December 2020, the Ontario Superior Court of Justice found that CIBC had contravened minimum federal employment standards legislation in respect overtime hours and overtime pay. The Court found that CIBC had no policy or system in place to properly track actual hours worked by employees. While there was a system in place to record regular hours of work and authorized overtime, there was no system in place to record how many hours employees were actually working. Many of the class members had in fact regularly worked hours in excess of their regular hours of work (which could not always be pre-authorized), and no record was kept of those hours. Without proper records, there was no way for CIBC to determine its obligation in respect of overtime pay.

CIBC has been found liable to the class members for failing to properly record and pay overtime, and the amount of damages is likely to be significant (which is yet to be determined).

Conclusion

If you are unsure about whether your organization is currently compliant with minimum employment standards legislation in terms of vacation and overtime pay, please seek legal advice as early as possible. These issues can be appropriately addressed and mitigated, but if left unchecked can ultimately expose your organization to significant financial and reputational risk.

Content provided with permission from McMillan LLP.  Further information is available at https://mcmillan.ca/ © 2021 McMillan LLP