August 3, 2016
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Nelligan O’Brien Payne gratefully acknowledges the contribution of Sarah Clowater, Student-at-Law in writing this blog post.

Since February, federal public service employees have been suffering a huge range of payroll problems as a result of the Federal Government switching to the new Phoenix payroll system. CBC recently reported that “[a]bout 720 public servants – mostly new hires and students – have not received pay. Another 1,100 have not received parental, long-term disability or severance payments, while more than 80,000 employees entitled to supplementary pay for extra duties, over-time or pay adjustments have had problems.” It appears that the number of public servants who have reported not receiving any pay or parental, long-term disability or severance payments is continuing to rise.

These payroll aberrations have put many employees in desperate situations. Examples include the student eating handfuls of boiled rice for 3 meals a day, who could be forced to drop out of university; the single mom who has maxed out all of her credit; and the breast cancer survivor unpaid since her return to work.

Unfortunately, these problems are neither new nor unique. Previous case law on these issues indicates that the Federal Government could face serious repercussions as a result of the Phoenix mess.

Here are 4 ways that the Feds could be in hot water:

1. They could be in breach of various collective agreements

The Federal Government could be in breach of collective agreements, which contain terms stipulating when and how employees are to be paid. While many agreements may not contain any terms speaking to payroll, this does not mean that the government is let off the hook completely.

In the 2007 decision Union of Canadian Correctional Officers v. Treasury Board, the employer had continuously failed to pay benefits such as overtime, shift differentials or weekend premiums in a timely fashion, often taking up to 3 or 4 months to pay their employees. The Public Service Labour Relations Board (PSLRB) found that the collective agreement did not contain any terms stipulating when employees were to be paid, and that there was no applicable legislation governing the employees. However, the arbitrator read an implied term into the collective agreement that employees were to be remunerated within a “reasonable time”, in order to give business efficacy to the agreement. Reasonability is assessed on a case-by-case basis, having regard to past practice, the specific circumstances at the time of the delay, the number of transactions to be processed, and the capacity to process the volume of transactions.

The arbitrator ultimately decided that the employer had not breached the collective agreement, and therefore the delay in payments was not unreasonable. The employer was overburdened at the time of the delay, but quickly hired extra help in facilitating payments to employees. However, it is notable in this case that employees were still being paid their salary; it was only the “extras” that were delayed.

2. They could be in breach of the Employment Insurance Act

As recently highlighted by Nelligan O’Brien Payne lawyer, Alison McEwen, the Federal Government’s failure to issue records of employment (ROEs) in a timely manner is in breach of the Employment Insurance Act, which stipulates that ROEs must be issued within 5 days of the interruption of earnings.

3. They could be liable for damages as a result of points 1 and/or 2 above

In the 2011 decision Calgary Board of Education Staff Assn. v. Calgary Board of Education, the employer school board’s payroll system changeover caused significant problems, such as employees receiving too much, too little, or no pay at all, for between 40-70 days. The arbitrator concluded that the school board was in breach of provincial employment standards legislation and the collective agreement. The school board tried to argue that many of the problems were the fault of a third-party contractor providing the payroll services. However, the arbitrator said that the employer was ultimately responsible, as they should have anticipated the problems, properly trained personnel, and established support resources to deal with potential issues beforehand.

At the time of arbitration, the grievors had received all wages owed to them, but the arbitrator went on to award damages to compensate the greivors for the employer’s statutory breach and the employees’ personal emotional suffering. In assessing the quantum of damages, the arbitrator looked at factors such as whether the employees were the sole income earner, their level of pay, the efforts of the employer to get money in the employees’ hands, and the blameworthiness of the employer’s conduct.

The desperation of the employees’ situations seemed to play the largest part in the damage awards. One grievor was a single mother who could not afford to pay her bills – to the point where her colleagues had to “pass the hat” around the office to raise funds for her to make ends meet. The arbitrator held that, due to this deeply embarrassing situation, she was entitled to twice the amount of damages as the other greivors, who were the secondary sources of income in their households.

4. They may not be able to recover amounts overpaid to employees

In the 2011 decision Lapointe v. Treasury Board, the PSLRB found that a federal employee who had been overpaid for 4 years was in fact entitled to the overpayment, and his employer had to write off the money. The employer only noticed the error 5 years after it first started, and the employee began to repay the funds 2 years after that. In addition, the claw back of the funds put the greivor in a precarious financial situation. The PSLRB said that the employer exercised its discretion to recover the funds in an unreasonable manner and ordered it to repay the funds to the grievor.

Hot water, indeed

It remains to be seen how the fallout from the Phoenix payroll disaster will play out, but if the length of these payroll delays are any indication, the Feds will be cleaning up this mess for a very long time.

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Labour Law