An Ontario class action suit could put an employer on the hook for extra pay to managers. It’s one of a growing number of cases questioning when a manager is really nothing more than an employee.
Having a job title that makes you look important may seem like a good thing to many employees, but not to James Cotton or to Suzette Kennedy.
Now Cotton, a resident of Burlington, Ont., and Kennedy, who lives in nearby Hamilton, are engaged in a class action suit against the U.S.-based chain and its Canadian subsidiary Michaels of Canada Inc., which has 35 stores across the country.
They maintain that their managerial titles were largely for show — “to leave customers with the impression that the plaintiffs had greater authority than they in fact did.” And they are claiming that the retailer is in breach of contract and has violated employment standards in Ontario and other provinces and territories by routinely failing to pay overtime to employees who are managers only in name.
The retailer is vigorously defending the case and the first task for the Ontario Superior Court of Justice will be to decide whether the suit should be certified as a class action.
Meanwhile, other employers and their lawyers are watching anxiously, in all regions of Canada, since the case opens up the possibility that thousands of store managers, as well as other salaried employees, such as computer programmers, will all be entitled to huge amounts of overtime pay.
“There’s a lot of concern about this and a lot of potential problems,” says Jeffrey Palamar, a partner at Taylor McCaffrey LLP in Winnipeg, where lawyers and employers have already become acutely aware of the potential risk, as a result of a Manitoba Labour Board decision ordering the clothing manufacturer Nygard International to pay a former supervisor more than $11,000 in unpaid overtime and wages in lieu of notice.
Employment standards laws governing overtime vary from province to province and usually include clauses that make certain classes of employees, such as professionals and managerial staff, exempt from overtime provisions. The problem is that the definition of managerial staff differs from province to province and is often at odds with the everyday assumptions that employers make about who is and who is not a manager or supervisor.
“In Ontario, employers often get the definition of manager simply wrong and proceed on the assumption that someone is not entitled to overtime pay,” says David Côté, a partner at the Toronto-based human resource law firm Côté Bernardi Baichoo. A manager in Ontario employment law, he notes, is someone who supervises other employees and has real power over them, someone whose judgment the company relies on in matters such as discipline, hiring and firing, scheduling work, and approving vacations. Under this definition, a manager can perform some non-managerial tasks, but only in irregular or exceptional circumstances, such as a store manager helping sales staff out by serving customers during the Christmas rush.
The problem is that in the retail industry, particularly, store managers often end up routinely serving customers, stocking shelves, and various other tasks that are not directly involved with supervising others. And the hours are often long, particularly during peak periods.
“It is much more likely than not that the owners won’t appreciate that if they have managers or supervisors engaged in customer service, they are not managers for the purpose of overtime,” says Côté.
In the class action against Michaels Stores, the plaintiffs’ lawyer David Thompson, a partner at Scarfone Hawkins LLP in Hamilton, alleges that Cotton and Kennedy routinely worked more than 44 hours a week, thus making them eligible for overtime pay in Ontario, frequently being required to work 50 hours and as many as 60 hours at peak holiday periods. Even though they were classified as salaried managerial staff, most of their work was non-supervisory, their lawsuit claims.
In Manitoba, employers are re-evaluating how they deal with overtime for managerial staff in the light of the ruling in the Nygard case, now under appeal, that former retail merchandise supervisor Sharon Michalowski was entitled to overtime pay, in spite of the fact that she had signed a contract agreeing to a salary of $42,000 a year.
“There’s a great potential liability,” says Palamar. “There’s a big problem in retail and in manufacturing operations. It’s widespread where there are different layers of management.”
Palamar says his firm is now advising clients to examine their workplaces to see if there are potential areas of concern, then try to create employment contracts that clarify what they are doing. “It’s not easy sometimes writing that contract,” he adds, since it involves defining exactly what the person does and how many hours he or she works. “And a lot of jobs fluctuate — that’s the nature of being a manager — and change throughout the course of the year.”
Côté suggests entering into overtime averaging agreements — permissible under employment standards legislation in some provinces, but not in others — whereby employees agree to average weekly hours of work over several weeks.
Stewart Saxe, a Toronto-based partner with Baker & McKenzie LLP, says you can also incorporate an overtime assumption into your salary scale, so that, for example, an employer may specify in the contract that the employee is being paid a salary comprised of 44 hours at $10 an hour, plus six hours at $15 an hour.
Saxe, who is not able to comment on the Michaels Stores class action suit since his firm represents the defendants, notes that problems with overtime may also occur in the high-tech industry, where programmers may work as many as 70 hours a week for a few weeks when they are busy on a project.
“We’ve been advising retail clients and clients in other industries to address this issue. If they put their minds to it, preventative steps can be taken,” says Saxe.