Sunday, 19 August 2012

Zellers Class Action

Should dismissed Zellers employees consider a class action lawsuit for wrongful dismissal? Earlier this week The Toronto Star ran a story titled “Zellers employees walk away empty-handed in $1.825-billion deal.

The headline was not entirely accurate insofar as the story explains how long-term employees of the Canadian retailer were expecting to receive no more than their statutory termination pay following their termination.

Two questions thus emerge: (1) might the employees be entitled to more than statutory minimums? and (2) might it be prudent to consider a class action lawsuit against Zellers?

Is Statutory Termination Pay Enough?

As readers of this blog will know, often the payment of statutory termination pay alone is not sufficient to satisfy the common-law requirement to provide dismissed employees with reasonable notice of the termination of their employment. For more information about this topic, readers are directed to my post titled What is Wrongful Dismissal? 

I know nothing about the circumstances of any of the dismissed Zellers’ employees. A reading of The Star article indicates that at least some of the employees were represented by the United Food and Commercial Workers (UFCW), and as such must have been governed by a collective agreement that provided certain guarantees on termination. What those guarantees were, I do not know.

In cases where there was not a collective agreement, my sense is that most of the dismissed employees, including the article’s subject, a 13-year employee who worked as a pharmacy technician, may have been entitled to more than minimum requirements of the Ontario Employment Standards Act, 2000.

Is a Class Action Appropriate?

According to The Star article, over 27,000 Zellers employees will lose their jobs when the chain closes its doors. Incoming retailer Target is not expected to necessarily absorb all of those positions, and there are no guarantees that it will honour the wages or benefits that Zellers provided. (Target will have to be smart in hiring former Zellers employees for the reasons considered in some of my earlier posts about successor companies. See, for example, my post concerning Successor Company Severance Policies.)   

Class actions in the Ontario employment context have garnered a lot of attention recently. At the end of June of this year, the Court of Appeal for Ontario released its decisions in three proposed overtime class action lawsuits: Fulawka v. Bank of Nova Scotia, 2012 ONCA 443 (CanLII); Fresco v. Canadian Imperial Bank of Commerce, 2012 ONCA 444 (CanLII); and McCracken v. Canadian National Railway Company, 2012 ONCA 445 (CanLII).

The cases against the banks, Fulawka and Fresco were certified as class actions, while the claim against the railroad was not. The difference between the claims against the banks and the claim against the railroad was that:

The claim for unpaid overtime in McCracken rests on a theory of liability that CNR misclassified employees as managers and, by doing so, unlawfully avoided its obligation to pay them overtime. In contrast, in the class actions against Scotiabank and CIBC, the crux of the representative plaintiffs’ claims is that the overtime policies adopted by their respective employers imposed more restrictive conditions for receiving overtime compensation than those set forth in the [Canada Labour] Code [“Code”]. (Fulawka at para. 8)

This post will focus primarily upon the court’s decision in Fulawka and Fresco. As Ontario Chief Justice Winkler explained in the Court’s reasons for decision in Fulawka:

In Fulawka and Fresco, the plaintiffs allege that the overtime policies of the defendant banks conflict with private law duties owed by the banks to the employees who comprise the proposed classes. The overtime policies required class members to obtain prior approval from a manager in order to be compensated for overtime work that they were required or permitted to perform. Such a pre-approval requirement, the plaintiffs assert, is contrary to the dictates of s. 174 of the Code, which, they submit, informs the private law duties owed to the class members. Section 174 of the Code stipulates that:

When an employee is required or permitted to work in excess of the standard hours of work, the employee shall … be paid for the overtime at a rate of wages not less than one and one-half times his regular rate of wages. [Emphasis added by Court of Appeal.]

The plaintiffs allege that Scotiabank and CIBC used the pre-approval requirement in their overtime polices to avoid their obligation under the Code to pay for overtime work that was “required or permitted” by the employer. In addition, the plaintiffs allege that Scotiabank and CIBC failed to implement proper record-keeping systems for recording the overtime hours worked by class members. (Fulawka at paras. 9 and 10)

In resolving that the Fulawka and Fresco claims were appropriate for certification as a class action, Chief Justice Winkler made two important rulings: (1) that the cases were appropriate for resolution by class action; and (2) that an aggregate assessment of damages, pursuant to section 24(1) of the Ontario Class Proceedings Act was not possible. (See Fulawka at para. 18.)

Section 24(1) of the Ontario Class Proceedings Act

Section 24(1) of the Ontario Class Proceedings Act [“CPA”] provides that:

The court may determine the aggregate or a part of a defendant’s liability to class members and give judgment accordingly where,

(a) monetary relief is claimed on behalf of some or all class members;
 (b) no questions of fact or law other than those relating to the assessment of monetary relief remain to be determined in order to establish the amount of the defendant’s monetary liability; and
 (c) the aggregate or a part of the defendant’s liability to some or all class members can reasonably be determined without proof by individual class members.

The problem in Fulawka, and indeed I would suggest any potential Zellers class action, is criterion (c) of section 24(1) of the CPA.

In Fulawka Chief Justice Winkler observed that:

This provision is directed at those situations where the monetary liability to some or all of the class is ascertainable on a global basis, and is not contingent on proof from individual class members as to the quantum of monetary relief owed to them. In other words, it is a figure arrived at through an aggregate assessment of global damages, as opposed to through an aggregation of individual claims requiring proof from individual class members. I would describe the latter calculation as a “bottom-up” approach whereas the statute envisages that the assessment under s. 24(1) be “top down”. (Fulawka at para. 126.)

In Fulawka the court declined to proceed by way of aggregate assessment of damages because, as Chief Justice Winkler noted, “in this case not all class members may have actually worked overtime or have worked overtime that went uncompensated” (para. 133.) In short, everyone’s situation when it came to overtime was different, and as such the purposes of section 24(1) could not be satisfied.

Application to Zellers

Returning to my initial question, about whether or not a class action for dismissed Zellers employee may be appropriate, the answer is perhaps, but so what? As one observed noted of the decision in the bank class actions:

One critical part of the CIBC and BNS decisions has the potential to turn both into Pyrrhic victories for the plaintiffs in those cases.
In both CIBC and BNS, the Court of Appeal refused to allow damages to be determined on an aggregate basis, and instead decided that they be determined individually. The lower court decision in BNS was specifically overturned on this issue. Originally, that decision allowed damages to be assessed using a statistical sample of the class members to determine the quantum of damages owed to the larger class as a whole. The Court of Appeal ruled that doing so would be inappropriate, and ordered that each employee’s entitlement to overtime pay must be assessed individually.
Given this history, refusing aggregate evidence in CIBC and BNS becomes particularly significant. Many of the class members are current employees. This means that these employees will need to testify in the case in order to prove any claim and receive any payment. Some (or many) may decide it is better not to become actively involved in litigation against their employer, particularly if their potential overtime entitlement is small. Had the Court of Appeal allowed the use of aggregate damages, then many of these employees could have remained completely passive, and still received an award of damages based on the statistical evidence (albeit not one that necessarily reflected the amount of overtime that they actually worked). Moreover, the prospect of holding thousands of mini trials is unlikely to be attractive to the plaintiffs given the failed history of that procedure in earlier employment class actions.

My sense is that a similar result would be reached in a Zellers class action. Although a finding may be reached that employees are entitled to more than statutory termination pay, the court would likely agree that the quantum of notice to which any particular employee would be entitled would be a function of the usual factors.


Some have commented upon Target’s approach to the Canadian market and how the failure to absorb Zellers employees is not endearing them to this market; I have my doubts about such comments.

Second, Zellers failure to provide reasonable compensation is not Target’s fault. Target purchased some of the failing retailer’s assets, it is not the dismissing company here; it’s the new kid in town.

For what it’s worth, I think some Zellers employees may be entitled to more of a severance package and if those employees wish to discuss why and how much, then I would be happy to speak to them. To see a full range of employment law services that I provide to employees please click here.

As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer. He tweets from @SeanBawden.

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