The Law At Work
by Ned Nolan and Paul Di Clemente
By now you may be tired of hearing all of the arguments and rhetoric (and hyperbole) surrounding the minimum wage hike here in Ontario. It has been a hot topic in employment law circles this past year and we wrote about the pending changes in a recent The Law At Work article. At the risk of being repetitive, we feel the need to address the latest developments on the subject due to the recent backlash against some Tim Hortons franchises for purporting to “offset” the wage increase with rollbacks on other employee benefits.
Small Business owners woke up January 1, 2018 with more than just a hangover; those with minimum wage workers now owed them almost $2.50 more per hour than they did just the day before. There has been much debate about how this increase will affect the bottom line of businesses and many have been searching for a way to offset their increased labour costs. (Many other small businesses, on the other hand, have been proudly explaining that their bottom line was never dependent on poverty employee wages in the first place.)
Just days after the increase took effect, stories broke of dozens of Tim Hortons franchises and other Ontario employers whose response to the new minimum wage has sparked a public backlash with many calling for a boycott of the multi-billion dollar Timmys chain altogether.
One such group of Tim Hortons franchises sent a letter to their workers notifying them that “due to” the minimum wage increase, it was making changes to their contracts included eliminating paid breaks and scrapping employer-paid benefits. Notably, this group is co-owned by Timmys power couple Jeri Lynn Horton-Joyce (daughter of Tim Horton himself) and Ron Joyce Jr. (son of Ron Joyce Senior, the co-founder of Tim Hortons).
The letter cited minimum wage and lack of assistance from “the Government” as part of the problem. But wait, why do the heirs to the Timmys fortune need “government assistance?” This is a troubling reminder that a low minimum wage is exactly that – a form of government assistance for business. When the working poor have to depend upon social services to pick up the slack, everyone pays. A low minimum wage is not just government-sanctioned poverty, it is the subsidization of corporate profit by taxpayers.
Apart from the public relations nightmare this creates for Tim Hortons, it also raises a number of interesting legal questions. The first that comes to mind is whether this employer conduct could constitute a constructive dismissal.
Constructive dismissal occurs when an employer’s unilateral conduct breaches an express or implied term of the employment contract. In such a case, an employee can deem the unilateral action to constitute a termination of the employment contract itself and sue for wrongful dismissal. The question in constructive dismissal cases is almost always a matter of degree. The employee has to ask: how significant is the change? What is the impact?
Our courts have consistently held that benefits form an important part of an employee’s remuneration. A significant unilateral change in benefits may therefore be seen as a fundamental change to the employment contract. To use the Tim Hortons scenario as an example; if an employee at such a franchise previously had benefit coverage fully paid for by the employer but now is required to pay all or most of the cost themselves, this may be enough to constitute a constructive dismissal. Of course, to force the issue, an employee could have to leave her job to pursue such a claim with no guarantee of success.
Also interesting is the question as to whether stripping employee remuneration in direct response to the increased minimum wage could constitute a “reprisal” under the Employment Standard Act (ESA). Section 74(1)(a) of the ESA prohibits employers from penalizing employees who make inquiries about their rights under the Act or who exercise their rights under the Act.
The Tim Hortons franchises in question are alleged to have stripped employees of some important aspects of their remuneration with the express intention of countering the new minimum wage provisions in the Act. Most reprisal cases involve an employee inquiring about or attempting to exercise rights otherwise denied by an employer. If any of the Tim Hortons employees in question made an “inquiry” about their rights in relation to the new minimum wage, and subsequently had their benefits stripped, that could trigger s.74, notwithstanding the employer’s intention to comply with the Act in the first place.
Even if an employee made no such inquiry, the ESA prohibits penalization of any employee who simply “exercises” their rights under the legislation. Could the passive act of expecting and receiving the higher minimum wage rate be considered “exercising” one’s rights under the Act? If so, these employees are most certainly being penalized for that exercise and s.74 of the ESA could very well be applicable.
Unfortunately, the remedies in reprisal cases are often not very significant. In termination-as-reprisal cases, an Employment Standards Officer can order reinstatement. However, in less egregious reprisal cases where damages are minimal, the remedy will be correspondingly minimal. Interestingly, in the civil context, while there is no cause of action for reprisal, creative counsel can make the case that statutory reprisal is grounds for punitive damages and damages for bad faith in the manner of dismissal. Coupled with the aforementioned constructive dismissal argument, this could be significant.
Another interesting issue is the question of “consideration.” Employer clients may wish to simply have their minimum wage earners enter into new agreements in acceptance of the rollbacks. Employees can certainly agree to a substantial change in their employment contract provided there is consideration. It might be argued that in this case both sides are receiving something – the employer gets to reduce the cost of its benefit plan and the employee is receiving an increase in wages. Seems fair enough. But the employee would have been entitled to the increase regardless because it is mandated by law. Can a statutorily mandated raise that the employer had no choice but to provide really constitute sufficient and valuable consideration? Cue the creative legal arguments!
While these stories certainly elicit some interesting academic discussions, the sad reality is that many employees will face this type of action and have to make the difficult decision of how to respond. (So much for making their employment less precarious which was the noble aim of the recent amendments to the ESA). The less difficult decision? Maybe skip the lunchtime coffee from offending stores and support a local cafe whose bottom line is not so closely tied to the poverty of its workers.
Paul Di Clemente and Ned Nolan are employment lawyers at Nolan, Ciarlo LLP and can be reached at firstname.lastname@example.org and email@example.com.