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Employment - Employment Standards Act

. Oz Optics Limited v. Summers

In Oz Optics Limited v. Summers (Div Court, 2023) the Divisional Court reviews several aspects of the Employment Standards Act (ESA) relevant to 'wages in lieu' termination notice:
The Statutory Framework

[9] Section 5(1) of the ESA contains a “no contracting out” provision whereby “[s]ubject to subsection (2), no employer or agent of an employer and no employee or agent of an employee shall contract out of or waive an employment standard and any such contracting out or waiver is void.”

[10] Section 54 of the ESA provides that “No employer shall terminate the employment of an employee who has been continuously employed for three months or more unless the employer, (a) has given to the employee written notice of termination in accordance with section 57 or 58 and the notice has expired; or (b) has complied with section 61 [pay in lieu of notice].”

[11] The notice provision of the ESA under s. 61(1) provides that “During a notice period under section 57 or 58, the employer, (a) shall not reduce the employee’s wage rate or alter any other term or condition of employment; (b) shall in each week pay the employee the wages the employee is entitled to receive, which in no case shall be less than his or her regular wages for a regular work week; and (c) shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.”

[12] Under O. Reg. 288/01 of the ESA (“the regulation”), employees are entitled to notice of termination or termination pay as well as severance pay unless one of the enumerated subsections exempts them from such entitlements. Subsection 2(1)(3) of the regulation provides that the following employees are exempt from receiving notice of termination or termination pay under the ESA:
2(1)(3) An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
. Director of Employment Standards v Sleep Country Canada

In Director of Employment Standards v Sleep Country Canada (Div Court, 2023) the Divisional Court considered on a JR whether an employer was entitled to deduct overtime overpayments from overtime underpayments ('reconciliation'):
Did the Board err in allowing Sleep Country to reconcile overpayments and underpayments in calculating overtime pay?

[31] I do not find the Board’s decision to be reasonable on the second issue. In my view, the Board erred in permitting Sleep Country to reconcile weeks where it underpaid overtime with those where it paid more than the overtime calculated under the Act.

[32] The Director submits that the requirement to pay overtime in the Act is a minimum standard. It does not prescribe the total amount that an employer is required to pay employees for overtime hours, but instead the minimum amount an employer must pay for overtime calculated on a weekly basis. In the Director’s submission, Sleep Country was not entitled to offset amounts from weeks where it paid the employee more than the minimum overtime with the weeks where it underpaid overtime.

[33] Sleep Country justified the Board’s approach on the basis that the Board was ordering a global figure retroactively in response to a complaint.

[34] The Board’s reasons on this point are somewhat difficult to follow. In its second decision, the Board stated the following about its order requiring Sleep Country to recalculate the overtime wages:
What in fact has transpired is the Board made an order that required the employer to recalculate the overtime wages that were due and owing to the two claimants, as the Board disagreed with the calculations made by the Employment Standards Officer (“ESO”). That results in some situations in the employer having overpaid a claimant. Expressed alternatively, the employee never earned the wages as calculated by the [Employment Standards Officer] in the first place. Further, the recalculation ordered by the Board has resulted in the overpayment.
[35] The reference to the wages as calculated by the ESOs is unclear, as I do not understand the Director to be suggesting now (nor to have suggested before the Board) that the overpayment related to the ESOs’ orders. The Director’s submissions were focused instead on how Sleep Country reconciled the calculations arising from the Board’s first decision.

[36] If what the Board meant was that the employees never earned the amount calculated in accordance with the Board’s approach, I do not find that the statement follows rationally. Sleep Country had a compensation plan in which employees received commissions when sales were completed, including for hours which constituted overtime hours. It was entitled to have that compensation plan in place, and employees were entitled to rely on it, so long as on any given week it did not pay employees less for overtime hours than the minimum as calculated under the Act.

[37] The Board’s statement that the “recalculation ordered by the Board has resulted in the overpayment” only makes sense if the starting point is that Sleep Country was only required to pay at most overtime as calculated in the Act each week. However, the Board’s reasons do not explain why this would be the case, either under the Act or under Sleep Country’s compensation plan. There is no suggestion in the Board’s reasons that there was an agreement between Sleep Country and its employees to pay them no more than the minimum required for overtime as calculated under the Act.
. Director of Employment Standards v Sleep Country Canada

In Director of Employment Standards v Sleep Country Canada (Div Court, 2023) the Divisional Court considered a JR brought by the Director of Employment Standards relating to the calculation of the hourly 'regular rate' that applied to commissioned sales people:
[1] The Director of Employment Standards brings this application for judicial review to challenge three decisions of the Ontario Labour Relations Board. The decisions turn on the meaning of “regular rate” in the overtime pay provisions of the Employment Standards Act, 2000, S.O. 2000, c. 41 (the “Act”) as they apply to commissioned salespersons working for the respondent Sleep Country Canada Inc. The central question is whether the Board reasonably interpreted “regular rate” to include only non-overtime hours worked in a given week as opposed to all hours, including overtime hours, worked in a given week. There is a secondary issue relating to Sleep Country’s calculation of amounts owed using the approach endorsed by the Board.

[2] The Act defines “regular rate” to mean:
(a) For an employee who is paid by the hour, the amount earned for an hour of work in the employee’s usual work week, not counting overtime hours,

(b) Otherwise, the amount earned in a given work week divided by the number of non-overtime hours actually worked in that week.
....

Did the Board err in interpreting “regular rate” to mean commissions earned before overtime hours worked?

[15] The Director submits that the words used in the statute are precise and unequivocal such that the Board’s interpretation results in an impermissible rewriting of the statute. Specifically, in the Director’s submission, the Board effectively rewrote “amount earned in a given week” such that it should be read as: “amount earned in a given week prior to working overtime hours.” The Director submits that this interpretation of the statute was unreasonable.

[16] I disagree. The Board engaged in a transparent and intelligible analysis to arrive at a reasonable interpretation of regular rate (b).

[17] As both parties submitted, the “modern principle” of statutory interpretation requires that the words of a statute be read “in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Vavilov, at para. 117, citing Re Rizzo & Rizzo Shoes Ltd., 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21.

[18] Here, the Board started its analysis by looking at s. 22 of the Act, which is the core provision requiring the payment of overtime. This provision is important because it differentiates overtime pay from an employee’s regular rate, which will become relevant in interpreting the meaning of “regular rate.” It provides:
22(1) Subject to subsection (1.1), an employer shall pay an employee overtime pay of at least one and one-half times his or her regular rate for each hour of work in excess of 44 hours in each work week, or, if another threshold is prescribed, that prescribed threshold.
[19] Subsection 22(1) differentiates overtime pay from an employee’s regular rate in two ways. First, the employee earns the “regular rate” during the first 44 hours of a week and overtime pay thereafter. Second, overtime pay is different from the employee’s “regular rate” in that it amounts to 1.5 times the regular rate.

[20] The Board then turned to the definition of “regular rate.” At this point in the analysis, the Vice-Chair quoted directly from RBC. The RBC analysis interpreted regular rate (b) in the context of the entire definition of “regular rate,” so that (b) would be consistent with regular rate (a). The passage from RBC noted that using only the variable compensation earned during the first 44 hours of work is consistent with regular rate (a), where it is clear that the regular rate uses only the amount earned for work in the usual work week, not counting overtime. For convenience, I reproduce the entire definition of “regular rate.” It means:
(a) For an employee who is paid by the hour, the amount earned for an hour of work in the employee’s usual work week, not counting overtime hours,

(b) Otherwise, the amount earned in a given work week divided by the number of non-overtime hours actually worked in that week.
[21] As stated in the passage from RBC, at para. 104: “Just as with an hourly rate of pay, one’s ‘regular rate’ should be based on what one has earned during the first 44 hours of work.”

[22] While this is not the only possible interpretation of regular rate (b), it is a rational interpretation that ensures hourly employees and variable compensation employees are treated in the same manner. As the Board stated at para. 31: “the Board was able to establish a formula that closely parallels the calculation of overtime for an employee paid on an hourly basis, as required by section 1(1)(a).” The Director’s proposed interpretation would require variable compensation employees to be treated differently from hourly employees, an outcome that is not easily justified.

[23] The Board’s interpretation also gives meaning to the notion that “regular rate” is “regular” and different from overtime, as suggested in s. 22(1), by preserving the distinction between compensation earned during regular hours from compensation earned during overtime hours. To find otherwise would mean incorporating overtime earnings into the calculation of the “regular rate.” As stated in the RBC passage, “the calculation would have to include everything they earned after working overtime, thereby enhancing the overtime rate in a way that stretches the term “regular rate” beyond what, in my view, was intended by statute.”

[24] The Director submits that the Board’s interpretation leads to an absurd result. In some situations, it would require a calculation where the more overtime hours an employee worked, the lower the “regular rate” would become. This would arise where the employee received a total amount of compensation that could not be divided into amounts received for particular hours or days worked. In that case, the regular rate would need to be calculated based on the percentage of non-overtime hours in the week compared to total hours so as to allocate a proportionate share of earnings to the non-overtime hours. As the total hours in the week increased, the percentage of those hours that are non-overtime hours would decrease.

[25] There are two responses to this concern. The first is that this problem does not arise on the facts of this case. Under Sleep Country’s payment structure, sales associates earn commissions on a sale when the sale is completed. A sale is considered completed when the customer receives the merchandise. Sleep Country is able to track the specific commissions earned to a specific day, including identifying which commissions are earned during overtime hours. This means that Sleep Country has been able to calculate the actual commissions Ms. Molodkova and Mr. Pane earned during non-overtime hours, as well as during overtime hours. There has been no requirement to calculate percentages.

[26] Related to this, overtime hours at Sleep Country are purely voluntary. There is no requirement for employees to work overtime. This obviates the policy concern of an employer benefiting from requiring employees to work additional hours.

[27] Second, different policy problems would arise if the Director’s interpretation were to be adopted. In situations where employees already receive enhanced pay during overtime hours, the enhanced pay might be calculated into the regular rate (b) to create a circular problem. Regular rate (b) could increase each week as a result of the enhanced overtime pay from the prior calculation (for example in the prior week). This is not an issue that has arisen on the facts of this case but demonstrates that the Director’s proposed interpretation raises other potential problems.

[28] The Director also submits that the legislature amended the definition of regular rate (b) to address the policy ill it has identified of the regular rate (b) decreasing as overtime hours increase. The evidence before the court does not demonstrate that the legislature was intending to address this issue. The only justification the Director has provided for this claim are (1) two decisions of employment standards adjudicators issued in 1993 and 1996 raising the concern under the prior version of the definition; and (2) the fact that the legislature amended the definition as part of the amendments to the Act in 2000.

[29] The amendment to the statute does not on its own tell us anything. Subsection 56(2) of the Legislation Act, 2006, S.O. 2006, c. 21, Sched. F, provides that “the amendment of an Act or regulation does not imply that the previous state of the law was different.” Here, there is no evidence from Hansard or otherwise demonstrating the legislature changed the definition for the reason identified by the Director. In my view, comparing the previous version of the definition to the current version, the change does not clearly address the issue the Director has identified. This submission therefore does not provide a basis to find the Board’s interpretation unreasonable.

[30] Overall, commissioned earnings do not fit easily within the “regular rate” calculation under the Act. The Board, in its expertise, has arrived at an interpretation of regular rate (b) that fits within the scheme of the Act and which it has explained in its decision in a manner that is transparent, intelligible and justified. It is not the only interpretation of the definition, but it is a possible, acceptable outcome that is defensible in respect of the facts and the law.
. Pham v. Qualified Metal Fabricators Ltd.

In Pham v. Qualified Metal Fabricators Ltd. (Ont CA, 2023) the Court of Appeal considers the relation between contractual and ESA employment law:
[33] The ESA does not displace greater contractual or common law rights and protections: Machtinger v. HOJ Industries Ltd., 1992 CanLII 102 (SCC), [1992] 1 S.C.R. 986, [1992] S.C.J. No. 41, at para. 25; Miranda v. Respiratory Services Limited, 2022 ONSC 6094, at para. 60, citing ESA, ss. 5(2) and 8(1). The fact that a layoff was conducted in accordance with the ESA “is irrelevant to the question of whether it is a constructive dismissal”: Bevilacqua v. Gracious Living Corporation, 2016 ONSC 4127, at para. 9.
. Rahman v. Cannon Design Architecture Inc.

In Rahman v. Cannon Design Architecture Inc. (Ont CA, 2022) the Court of Appeal considered when an employment contract contravenes the ESA's termination provisions:
[24] In my view, the motion judge erred in law when he allowed considerations of Ms. Rahman’s sophistication and access to independent legal advice, coupled with the parties’ subjective intention to not contravene the ESA, to override the plain language in the termination provisions in the Employment Contracts. By allowing subjective considerations to distort and override the wording of those provisions, the motion judge committed an extricable error of law reviewable on a correctness standard: Amberber v. IBM Canada Ltd., 2018 ONCA 571, 424 D.L.R. (4th) 169, at para. 65. It is the wording of a termination provision which determines whether it contravenes the ESA – even compliance with ESA obligations on termination does not have the effect of saving a termination provision that violates the ESA: Wood v. Fred Deeley Imports Ltd., 2017 ONCA 158, 134 O.R. (3d) 481, at paras. 43-44.

....

[27] However, ESA notice and termination pay must be given for all terminations, even those for just cause, except for “prescribed employees”: ESA, s. 55. The disentitlement provision is found in the ESA regulation Termination and Severance of Employment, O. Reg. 288/01. Section 2(1) of the regulation provides:
2. (1) The following employees are prescribed for the purposes of section 55 of the Act as employees who are not entitled to notice of termination or termination pay under Part XV of the Act:

....

3. An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
[28] The wilful misconduct standard requires evidence that the employee was “being bad on purpose”: Render v. ThyssenKrupp Elevator (Canada) Limited, 2022 ONCA 310, at para. 79, citing Plester v. Polyone Canada Inc., 2011 ONSC 6068, 2012 C.L.L.C. 210-022, aff’d 2013 ONCA 47, 2013 C.L.L.C. 210-015. For example, in Oosterbosch v. FAG Aerospace Inc., 2011 ONSC 1538, 2011 C.L.L.C. 210-019, the court awarded damages for ESA notice and severance after holding that the employer had just cause to terminate the employee for persistent carelessness that did not meet the wilful misconduct standard.

[29] There is nothing in the Operative Just Cause Provision that limits its scope to just cause terminations for wilful misconduct. On its plain wording, the Operative Just Cause Provision gives CannonDesign the right to terminate Ms. Rahman’s employment without notice or payment, for conduct that constitutes just cause alone. That means the Operative Just Clause Provision contravenes the ESA and s. 5 renders it void. Section 5 provides that no employer shall contract out of an employment standard and any such contracting out is void.

[30] This court has repeatedly held that if a termination provision in an employment contract violates the ESA – such as a “no notice if just cause” provision – all the termination provisions in the contract are invalid. See, for example, Waksdale v. Swegon North America Inc., 2020 ONCA 391, 446 D.L.R. (4th) 725, at para. 10, leave to appeal refused, [2020] S.C.C.A. No. 292; Rossman v. Canadian Solar Inc., 2019 ONCA 992, 444 D.L.R. (4th) 131, at para. 18. In Waksdale, as in the present appeal, the employer had not purported to terminate the employee for just cause. However, the just cause provision in the employment contract violated the ESA. The invalidity of the just cause provision rendered the other termination provisions unenforceable: Waksdale, at para. 10.
. Render v. ThyssenKrupp Elevator (Canada) Limited

In Render v. ThyssenKrupp Elevator (Canada) Limited (Ont CA, 2022) the Court of Appeal distinguished between the test for common law wrongful dismissal and that for denying ESA termination and severance pay:
(3) Did the trial judge err by failing to award the appellant his entitlements under the ESA?

[71] The appellant submits that he should have been awarded his statutory ESA entitlements and that the trial judge erred by failing to do so.

[72] Under the ESA, employees who have been employed for eight years or more are entitled to eight weeks of termination pay, unless they are disentitled to such pay under the statute:
55 Prescribed employees are not entitled to notice of termination or termination pay under this Part.

57 The notice of termination under s. 54 shall be given,



(h) at least eight weeks before the termination, if the employee’s period of employment is eight years or more.

61 (1) An employer may terminate the employment of an employee without notice or with less notice than is required under section 57 or 58 if the employer,

(a) pays to the employee termination pay in a lump sum equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section; and

(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.
[73] The ESA also provides for severance pay under the following provisions:
64 (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and …

(b) the employer has a payroll of $2.5 million or more.

(3) Prescribed employees are not entitled to severance pay under this section.

65 (1) Severance pay under this section shall be calculated by multiplying the employee’s regular wages for a regular work week by the sum of,

(a) the number of years of employment the employee has completed; and

(b) the number of months of employment not included in clause (a) that the employee has completed, divided by 12.

(5) An employee’s severance pay entitlement under this section shall not exceed an amount equal to the employee’s regular wages for a regular work week for 26 weeks.
[74] However, as stated in ss. 55 and 64(3) of the ESA, certain prescribed employees are disentitled to termination and severance pay. The disentitlement provisions are found in the Termination and Severance of Employment, O. Reg. 288/01 (the “Regulation”), a regulation to the ESA, which provides in relevant part:
2. (1) The following employees are prescribed for the purposes of section 55 of the Act as employees who are not entitled to notice of termination or termination pay under Part XV of the Act:



3. An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.

9. (1) The following employees are prescribed for the purposes of subsection 64 (3) of the Act as employees who are not entitled to severance pay under section 64 of the Act:



6. An employee who has been guilty of wilful misconduct, disobedience or wilful neglect of duty that is not trivial and has not been condoned by the employer.
[75] The respondent says that the appellant did not ask for these benefits either in his pleadings or at trial, and therefore cannot ask for them now. It also argues that having been dismissed for cause, he is not entitled to any benefits in accordance with ss. 2(1)3 and 9(1)6 of the Regulation.

[76] The respondent is correct that the appellant’s pleadings do not contain a reference to the ESA or the Regulation, nor did counsel make any submission about it in his closing. However, counsel for the appellant did refer to the ESA in his opening statement at trial in the following passage:
Why this employer entirely and utterly rushed to judgment, summarily terminated the employee without any offer of compensation, even compensation under the minimums of the Employment Standards Act, suggesting that the act, the incident that we’re talking about, was both serious in nature, in compliance with their own policies and procedures and wilful.
[77] The evidentiary basis for the ESA entitlement claim was also established at trial, where the appellant testified that he received no compensation or severance when his employment was terminated.

[78] In my view, the appellant is entitled to receive his proved statutory benefits unless that entitlement is precluded by the wording of ss. 2(1)3 and 9(1)6. ESA entitlements are statutory and disentitlement cannot be achieved by agreement, unless to provide for a greater benefit to the employee: ESA, s. 5(1). In this case, the issue was raised, at least indirectly, at the trial. I acknowledge that the better approach would have been to raise the entitlement issue directly so that the trial judge could decide at first instance whether the impugned conduct fell within the statutory disentitlement sections. However, in the circumstances of this case, where non-compliance with the statute was raised in the opening statement and the relevant evidence is in the record, I would not prevent the appellant from asserting the claim on appeal.

[79] The law on the interpretation of the prohibition sections has been consistently stated to require more than what is required for just cause for dismissal at common law. In Plester v. Polyone Canada Inc., 2011 ONSC 6068, 2012 C.L.L.C. 210-022, aff’d 2013 ONCA 47, 2013 C.L.L.C. 210-015 (the reasons on appeal found it unnecessary to address this point), Wein J. explained that in order to be disentitled from the ESA entitlements under the “wilful misconduct” standard in the Regulation, the employee must do something deliberately, knowing they are doing something wrong. In the case before Wein J., the conduct was not preplanned and not “wilful” in the sense required under the test, which she described as follows at paras. 55-57:
The test is higher than the test for “just cause”.
“In addition to providing that the misconduct is serious, the employer must demonstrate, and this is the aspect of the standard which distinguishes it from ‘just cause’, that the conduct complained of is ‘wilful’. Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the standard. Rather, the employer must show that the misconduct was intentional or deliberate. The employer must show that the employee purposefully engaged in conduct that he or she knew to be serious misconduct. It is, to put it colloquially, being bad on purpose”.
Both counsel seemed to be slightly bemused by the recent authorities that distinguish between the definition of just cause and wilful misconduct. In my view, however, the distinction is quite obvious: Just cause involves a more objective test, albeit one that takes into account a contextual analysis and therefore has subjective elements. Wilful misconduct involves an assessment of subjective intent, almost akin to a special intent in criminal law. It will be found in a narrower cadre of cases: cases of wilful misconduct will almost inevitably meet the test for just cause but the reverse is not the case.

The conduct of Mr. Plester was serious, and his failure to report deliberate. However, it did not rise to the very high test set for disentitlement to the statutory notice benefit. It was not preplanned and not wilful in the sense required under this test. There was an element of spontaneity in the act itself and at most a “deer in the headlights” freezing of intellect in the delay in reporting. On these facts willful misconduct should not be found. [Emphasis added.]
[80] The differing standards at common law and under the ESA are further discussed in a number of cases, as well as in the Ministry of Labour’s Employment Standards Act Policy and Interpretation Manual (2020). The Manual states: “this exemption is narrower than the just cause concept applied in the common law and in collective agreement disputes. In other words, an arbitrator or a judge may find that there was just cause to dismiss an employee, but this does not necessarily mean that the exemption in paragraph 3 of s. 2(1) applies.” This principle has also been followed in a number of other authorities: see, e.g., Lamontagne v. J.L. Richards & Associates Limited, 2021 ONSC 8049, 75 C.C.E.L. (4th) 86, at paras. 16, 19, leave to appeal to Ont. C.A. requested, M53078; Cummings v. Quantum Automotive Group Inc., 2017 ONSC 1785, at para. 73; Ojo v. Crystal Claire Cosmetics Inc., 2021 ONSC 1428, 60 C.C.P.B. (2nd) 200, at para. 14; and Khashaba v. Procom Consultants Group Ltd., 2018 ONSC 7617, 52 C.C.E.L. (4th) 89, at para. 53.

[81] In my view, the appellant’s conduct does not rise to the level of wilful misconduct required under the Regulation. While the trial judge found that the touching was not accidental, he made no finding that the conduct was preplanned. Indeed, his findings with respect to the circumstances of the touching are consistent with the fact that the appellant’s conduct was done in the heat of the moment in reaction to a slight. Although his conduct warranted dismissal for cause, it was not the type of conduct in the circumstances in which it occurred that was intended by the legislature to deprive an employee of his statutory benefits.

[82] The appellant proved his entitlement to eight weeks of termination pay. However, as we were not directed to anywhere in the record of evidence that the respondent has a $2.5 million payroll, as required under s. 64(1)(b), the court is not in a position to award the requested 26 weeks of severance pay.


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Last modified: 24-10-23
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