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Archived - Discussion Paper on the Review of Labour Standards in the Canada Labour Code

III. Smart Compliance

6. Inspectors’ Access to Records

Commission Recommendations:

• Part III should be amended to provide inspectors with the authority to obtain records in the hands of third parties where such records are relevant to determining any matter arising under the Code.
• Part III should be amended to give inspectors the ability to obtain a court subpoena ordering production of employment records or other documents relevant to proceedings under Part III.
• Failure to keep records or to produce records on request should give rise to a presumption that the employee’s claim is valid. (R. T.9.1, T.9.2)

On a technical level, inspectors could be granted increased powers to order the production of certain documents that are in the hands of third parties. Inspectors could also have the ability to obtain a court order for the production of employment records or other documents relevant to proceedings under Part III. Investigators operating under other regulatory statutes, such as the Canadian Transportation Accident Investigation and Safety Board Act, already have this ability. Granting these powers to Labour Program inspectors may allow for more efficient investigations of labour standards complaints.

One of the Commission’s recommendations was that an employer’s failure to keep records or to produce records on request should give rise to a presumption that the employee’s claim is valid. This is an important reverse onus of proof. Record-keeping is crucial for all employers and should be repeatedly emphasized as imperative. This type of presumption could serve to penalize employers who fail to keep adequate records, or deliberately try to obfuscate proceedings by refusing to produce them. However, it is a significant change from the current system, where the only consequence for violating record-keeping rules is prosecution under the Code.

For discussion:

• Should inspectors have the ability to order the production of documents relevant to investigations? Or to obtain a court order for the production of employment-related documents?
• Should an employer’s failure to keep or produce records give rise to the presumption that the employee’s case is valid?

7. Reporting Work-Related Violations

Commission Recommendation:

Part III should be amended to provide that inspectors who have reasonable grounds to believe that an employer is violating the Canadian Human Rights Act or other work-related federal legislation be given discretion to notify the relevant authorities. (R. 6.9)

Under the current provisions of Part III, inspectors have the discretion to report violations of the pay equity provisions of the Canadian Human Rights Act (CHRA) to the Canadian Human Rights Commission (CHRC). This recommendation would give inspectors the discretion to report to the CHRC any other violations of the CHRA (e.g., in cases of discrimination in employment on the grounds of disability). Inspectors could also report violations of other work-related legislation to the appropriate agency.

There is some question as to how broad the scope of an inspector’s discretion to notify other government authorities should be. What should be considered “work-related” legislation? That is, should inspectors have the right to report violations to any government agency with an interest in the employer? In Ontario, there is a broad sharing of information amongst regulatory agencies which has resulted in reciprocal benefits in some areas.

One of the possible consequences of the adoption of this recommendation is that some parties may be reluctant to report matters or to co-operate for fear of repercussions. A potential complainant may refuse to come forward with a labour standards matter if his or her tax or immigration status could be scrutinized in the process. This may be addressed by statutory or policy language that emphasizes the key role of inspectors as protecting the labour standards of vulnerable workers. In the United States, the Department of Labor abandoned their policy of reporting illegal or undocumented immigrant workers in 1998, announcing that its duty was to protect vulnerable workers over all other considerations.

There may be some administrative challenges related to this recommendation as well. Inspectors would require training to be able to recognize potential violations under other statutes. Even with training, it is possible that inspectors will find it difficult to determine whether sufficient “reasonable grounds” exist that require the notification of another government agency. The time needed to make this determination could also prove to be a drain on resources.

For discussion:

• Should inspectors have the discretion to notify other government agencies if they have reasonable grounds to believe that an employer has violated work-related legislation?
• What federal legislation should be considered “work-related”?
• What safeguards should be taken in order to ensure that employees continue to report labour standards infractions without fearing that their tax or immigration status (or other, similar matters) will be investigated as a result?

8. Collection and Recovery Measures

Commission Recommendations:

• The Labour Program should accept responsibility for securing recovery of wages found owing. This might involve arrangements with either a public or a private collection agency, or establishing a new wage collection unit within the Labour Program itself. The costs of proceedings to effect such recovery should be offset, so far as possible, by a surcharge added to the wages and costs in the original order, to be paid by the delinquent employer.
• Part III should be amended to give inspectors the power to order production of an agreement of sale or transfer so as to determine which party to the agreement is liable to employees for wages or other entitlements under Part III.
• Inspectors, Referees (or Hearing Officers) and Regional Directors should be given the power to require employers to testify under oath as to the identity of persons indebted to them and the whereabouts of all their assets.
• Regional Directors should be given the power to attach not only debts owing to the employer but any other unregistered assets of the employer with a fixed or ascertainable value, such as stocks and bonds. They should also be empowered to place a “notice of wages owing” against any registered real or personal property owned by the employer. However, where recovery of unpaid wages requires the seizure and sale of real or personal property that does not have a fixed or ascertainable value, this should continue to be undertaken by and under the order of the Federal Court.
• Any shares, licences, contracts or assets held by the director(s) of a delinquent corporation, or held by third persons on their behalf, should be regarded as assets that can be attached in order to satisfy an order for the payment of wages that have not been paid by the delinquent corporation.
• If the assets of the delinquent corporation or its directors are transferred to another person or corporation subsequent to the registration of an order for payment of wages in court, the transferee shall be deemed to have acquired as well the obligation to pay the unpaid worker, unless the transferee is a purchaser at arm’s length with no knowledge of the order. The onus of demonstrating the lack of knowledge should fall on the transferee.
• Part III should be amended so as to prevent a corporate director from avoiding liability for unpaid wages, benefits or severance pay by resigning at a time when she or he knows or ought reasonably to know that the employer is likely to become insolvent. (R. 5.11, 5.12, 5.13, T 5.2, T. 5.5)

The Commission noted that there are a small number of rogue employers who manage to escape the payment of unpaid wages by abandoning the corporate entity that incurred the wage debt and launching a new corporation under a new name. This makes it difficult for any party to enforce the current Part III provision that makes company directors jointly and severally liable for up to six month’s unpaid wages. These proposals would go further than the current system, not just in the sense of the types of assets which could be seized, but also the actions taken to collect the monies owing to employees.

If the Labour Program were given the full responsibility for the recovery of wages, it would be important to collect wages in the most efficient manner possible. Because the Labour Program would have to apply the rules of each province in order to effect collection, the Commission recommended that a collection agency be used. Some provinces have used collections agencies in order to attempt to collect employees’ wages. The experience reported by the provinces, however, is that the use of collections agencies was not always as efficient as a government entity doing the collection itself and many are now using a combination of in-house and contracted-out collection methods.

Another of the Commission’s recommendations is that Part III should prevent a corporate director from avoiding liability for unpaid wages, benefits or severance pay by resigning at a time when she or he knows or ought reasonably to know that the employer is likely to become insolvent. Currently, directors are jointly and severally liable for wages and other amounts to which an employee is entitled under Part III, up to a maximum amount equivalent to six months’ wages, if the entitlement arose during the director’s incumbency and recovery of the amount from the corporation is impossible or unlikely (section 258.18 of the Code). The Commission recommended that this provision be amended to allow employees to recover severance pay where a director resigns before the company becomes insolvent or bankrupt in order to avoid severance pay obligations. As the provision currently stands, employees whose employment is terminated after the date that a corporate director resigns are not able to pursue that director for severance pay. This is because an entitlement to severance pay does not arise until the date of termination, and section 258.18 only allows employees to recover entitlements that arise “during the director’s incumbency.” One option might be to provide for director liability for severance pay that becomes due within a certain time period after a director resigns (e.g. six months or one year), if the corporation becomes insolvent or bankrupt within that time period. An issue for discussion is whether a corporate director should be liable in these cases only where he or she knows, or ought reasonably to know, that the corporation is likely to become insolvent or bankrupt. Another issue for discussion is whether such liability should apply only to severance pay, or also include unpaid wages and/or benefits (as the Commission recommended). For instance, the liability could apply to pay in lieu of notice of termination as well as severance pay.

Although the various measures proposed by the Commission may be effective in identifying assets for collection, it is unlikely that the process of collecting unpaid wages will be a fast one. The proposed new measures have the potential to raise expectations of employees who may believe that they will be able to collect their wages immediately. Provincial experience, as well as that of the Federal Mediation and Conciliation Service, suggests that this is unlikely to be the case.

For discussion:

• Should the Labour Program be fully responsible for any collection of unpaid wages? If so, should it rely on an internal process for collections, contract the work out to a third party, or be allowed to use a mixture of both?
• Should the Labour Program be given enhanced powers, such as being able to attach the order to an employer or corporate director’s assets (regardless of whether they are held by a third party) to aid with collection of unpaid wages?
• If the current collection process is retained, should the complainant’s costs of recovery be added to the amount that he/she can collect?
• Should corporate directors be liable for severance pay and/or other entitlements (such as pay in lieu of notice) that arise after they have resigned, in cases where the corporation becomes insolvent or bankrupt after the resignation? If so, should directors only be held liable if the insolvency or bankruptcy occurs within a certain time period after the date of resignation (e.g. six months to one year)? Should liability apply only where directors know, or ought reasonably to know, that the corporation is likely to become insolvent or bankrupt?

9. Complaints from Unionized Employees

Commission Recommendation:

Violations of Part III in unionized workplaces ought in general to be dealt with through the grievance procedure and arbitration. However, this general approach should be subject to two exceptions: (a) when the employer’s violation amounts to an unfair employment practice under Part III; and (b) when the union refuses to process the employee’s complaint under Part III to arbitration. (R. 9.32)

Legislative employment complaints systems commonly include provisions to avoid a multiplicity of forums dealing with the same issue. Part III currently provides for exclusive arbitral jurisdiction in four areas (i.e., Divisions II, IV, V and VIII, concerning minimum wages, vacations, holidays, and bereavement leave). Extending the exclusive arbitral jurisdiction provision to all Divisions would likely save resources and is the route taken in the provinces of Ontario and New Brunswick.

There is, however, a rationale in allowing for concurrent jurisdiction. As Part III reflects the public interest, the administrative process may, at times, be a better fit than the arbitral route. For example, in policy cases affecting large numbers of employees or where statutory remedial powers may be more appropriate than arbitrators’ powers, there may be some public policy reasons why unionized employees should be given a choice of forums.

The Commission’s proposed exceptions may alleviate this concern, but also may be problematic. The second exception could be seen as interfering with unions’ representation of their members, while the first exception (unfair employment practices) may only be established later in the complaint process.

Part III could adopt the approach taken in Ontario, which is to provide the Director of Employment Standards with the power to accept cases if he or she “considers it appropriate in the circumstances.” An alternative approach would be to exclude complaints by union members except where there are reasonable grounds for alleging an unfair employment practice or the Director considers it to be in the public interest to permit a union member to file a complaint.

For discussion:

• Should arbitrators be given exclusive jurisdiction over the labour standards complaints of unionized employees?
• Should a process similar to that of Ontario be adopted, giving the Director the power to accept cases where it is considered appropriate under the circumstances? Or should the only exceptions be those noted by the Commission?
• Are the exceptions suggested by the Commission sufficient to create an appropriate balance between the interests of the parties?
• Does the Commission’s second exception amount to interference in unions’ ability to represent their members?

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Date Modified:

2012-02-15