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Class Action Certified in Ontario After Mass Termination of Employees

(the abbreviated version of this article originally appeared in the The Employment Bulletin, April 2014)

On January 2, 2014, the Ontario Superior Court of Justice certified a class proceeding, Brigaitis v. IQT Ltd., 2014 CarswellOnt 504, 2014 ONSC 7 (Ont. S.C.J.), commenced on behalf of 521 wrongfully dismissed employees against their former employer, IQT, Ltd. (”IQT”), among others.

On July 15, 2011, IQT dismissed all its employees, effective immediately, amidst insolvency proceedings. At the time, the displaced employees were not even afforded their minimum guaranteed statutory entitlements to termination pay, severance pay and benefits under Ontario’s Employment Standards Act, 2000, S.O. 2000, c. 41 (”ESA”).

The claims of the employees/class, including claims for wrongful dismissal and breach of fiduciary duty, are summarized best at paragraph 34 of the certification motion decision:

In the proposed class action, the Plaintiffs allege that the call centre’s closure and non-payment of monies owed to employees was caused by the Defendants’ diverting monies for personal purposes before the closure. The negligence claim is that the Defendants breached a duty of care to ensure that if IQT, Ltd. ceased operations, it could pay termination entitlements to the employees. The conspiracy claim is that the Defendants conspired to wrongfully dismiss the employees and conspired to divert assets away from IQT, Ltd. that should have been available to the employees. The inducing breach of contract claim is that the Defendants stripped IQT, Ltd. of assets disabling it from paying the employees upon termination. The oppression claim is that the employees had a reasonable expectation of receiving termination compensation and the Defendants breached the duty of ensuring funds were available.

This decision follows a trend by the Ontario Superior Court of Justice of not shying away from certifying employment-based class proceedings, and serves as a warning to employers operating in Canada that may be contemplating mass restructuring.

One of the central issues of this motion for certification involved the handling of duplicate proceedings for those who had already sought redress through the specialized statutory regime provided by the ESA, rather than first turning to the courts.

When individuals are dismissed in Ontario they can generally pursue common law wrongful dismissal claims in a civil court of law, which generally provides a more expansive and generous regime to pursue various remedies. There also exists a statutory regime under which an individual can seek limited redress through the Ministry of Labour and the Ontario Labour Relations Board pursuant to the ESA.

Notably, when one seeks redress for such entitlements as termination and severance pay through the Ministry of Labour and then pursues similar claims before a civil court, s. 97 of the ESA provides for the following:

97(1) An employee who files a complaint under this Act with respect to an alleged failure to pay wages or comply with Part XIII (Benefit Plans) may not commence a civil proceeding with respect to the same matter. 2000, c. 41, s. 97(1).

Same, wrongful dismissal

(2) An employee who files a complaint under this Act alleging an entitlement to termination pay or severance pay may not commence a civil proceeding for wrongful dismissal if the complaint and the proceeding would relate to the same termination or severance of employment. 2000, c. 41, s. 97(2).

Some of the employees who are captured by this proceeding have already pursued redress with the Ministry of Labour and received awards relating to their dismissal. Another set of employees did not formally file complaints pursuant to the ESA, but its order applies to them. Therefore, the court addressed three potential groups of employees that made up the class, each of whom could seek varying relief based on their initial course of action [at paras. 5-7]:

The first group is the “Section 97 Group”, which is made up of the 236 former employees who made claims under the Employment Standards Act, 2000 and who have reviews pending before the Ontario Labour Relations Board (”OLRB”) of the orders made by the Ministry of Labour. The Ministry ordered that the Directors of IQT, Ltd. pay to the employees outstanding wages, vacation pay, termination pay, and severance pay. These orders are called “Director’s Order to Pay” or “DOTP,” and the Defendants submit, in effect, that the Section 97 Group of employees, who are the beneficiary of the DOTPs, should be excluded from the class action.

The second group is the “Assessed Group”, which is made up of 136 former employees who are also parties to the pending OLRB review proceeding, although they did not file claims under the Employment Standards Act, 2000. Although they did not file claims, they were, nevertheless, assessed by the Ministry of Labour as being owed unpaid wages and vacation pay. Pursuant to a DOTP, the directors of IQT, Ltd. were ordered to pay the unpaid wages and vacation pay of the Assessed Group. The Defendants submit, in effect, that the Assessed Group employees should be excluded from the class action.

The third group is the “No DOTP Group”, which is made up of the 149 former employees who are not listed in any Ministry of Labour order to pay made against the directors. This third group have not made a claim under the Employment Standards Act, 2000, and this group of former employees is not a party to the OLRB review proceedings that are still pending. [Emphasis added.]

All of the former employees of IQT are permitted to pursue claims against the defendants for negligence, conspiracy, inducing breach of contract, and for an oppression remedy, and are not precluded by any provision in the ESA. The aforementioned claims that were not part of the ESA proceeding were held to be within the substantive jurisdiction of the Ontario Superior Court of Justice.

This decision has ultimately reaffirmed that a civil cause of action relating to a dismissal may still be sustained, even in the midst of an ESA-related order, so long as it goes beyond the restrictions contemplated by s. 97 regarding duplicate proceedings. Moreover, those to whom an order involuntarily applies may not be precluded from seeking overlapping relief in another forum. This class proceeding is unique because it is not simply a garden-variety wrongful dismissal claim. It goes beyond the recovery of wages and ultimately beyond the types of claims contemplated by s. 97 of the ESA.

Class members of the NO DOTP Group and of the Assessed Group will require individual issue trials to quantify their wrongful dismissal losses despite this being a class proceeding, and in those individual issues trials, the Assessed Group will have to give credit for what they recover in the proceedings before the OLRB for unpaid wages and vacation pay. The Assessed Group are not caught by s. 97 of the ESA from advancing a wrongful dismissal claim because they did not voluntarily commence a proceeding pursuant to the ESA.

The Section 97 Group will not have individual issues trials because their wrongful dismissal claims are precluded by s. 97 of the ESA, and they will be left with the quantum awarded in the OLRB proceeding.

With respect to the oppression remedy under ss. 245 and 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, Perell J. reiterated that an employee has only been granted status as a complainant when the employee is dismissed and the oppressive conduct is then initiated to disappoint the reasonable expectations of the employee who has become or will become a creditor of the corporation. Perell J. determined that it was not plain and obvious that a former employee of IQT did not have a reasonable expectation that his or her employer’s assets would not be removed in anticipation of dismissing the employees.

The plaintiffs also sought to certify breach of fiduciary duty claims, but they were struck. Under Ontario law, directors and owners of corporate employers do not have a fiduciary relationship with employees.

This certification motion decision is significant because it demonstrates the increasing willingness of courts in this country to utilize class proceedings to address employment-based claims, especially in scenarios involving mass restructuring/dismissals.

The case is also a strong reminder that the manner in which a corporation closes up shop will be subject to intense scrutiny, especially when it fails to afford its employees their minimum guaranteed entitlements under the law. The outcome of this proceeding remains to be seen.

If you have a workplace issue relating to workplace discrimination, human rights, harassment, bullying and/or general mistreatment, call a Toronto employment lawyer, Toronto labour lawyer and Toronto Human Rights lawyer at Stitz Litigation. Michael Stitz is an employment and labour lawyer in Toronto with over half a decade of winning experience. Call for a free case assessment.

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