Jurisdictional misclassification proves costly: ESA upholds $10,000 award

Jurisdictional misclassification can be an expensive mistake for employers, as demonstrated in a recent B.C. Employment Standards Tribunal decision that illustrates what happens when a company assumes it falls under federal rather than provincial employment laws.

The decision saw Crew Haulers, a transportation service contracted by CN Rail, being held liable for unpaid wages, vacation pay, and other entitlements to a former employee who brought complaints against the company for several Employment Standards Act (ESA) violations.

In June 2024, the director of employment standards found the employee was owed $10,000 in overtime and unpaid wages, in addition to findings of an earlier settlement agreement. Crew Haulers appealed that decision, claiming the director breached the principles of natural justice.

The tribunal rejected the appeal and enforced the award.

Misunderstanding jurisdiction: federal vs. provincial law

The decision, 1697692 Alberta Ltd., 2025 BCEST 7 hinged largely on whether the company was federally regulated under the Canada Labour Code (CLC) or provincially regulated under the ESA.

Crew Haulers argued that its operations were vital and integral to federally regulated CN Rail, and should therefore be governed by federal employment laws. If the tribunal had agreed with this argument, the decision would have been thrown out and the award rescinded.

However, as Frank Molnar of Field Law in Calgary explains, the "functional test" that determines jurisdiction of employers is based on the nature of business, not the nature of clients.

"Just because you provide services to a federally regulated company doesn’t make you federally regulated," he says.

"That's the question – is it vital or integral? And here they found that it wasn't."

Determining jurisdiction in employment law not clear cut

Determining jurisdiction is often case- and fact-specific, Molnar says, meaning the lines defining what constitutes “vital” to federal service are not fixed.

For example, mechanics who maintain airplanes have been found to be vital, while construction companies working on roads in a national park, for example would not be.

“Usually, construction companies are found to be provincial,” he says.

“Even though they're doing work for an airline or an airport, even though it's really, really important work, it's understood that the nature of their operations is provincial.”

Why the employer thought federal law applied

Ironically, being federally regulated could have exposed Crew Haulers to greater risk, Molnar explains, due to rules meant to give federal employees similar rights to unionized employees.

“He might have gotten more than just the statutory termination pay. He might have gotten some additional common law notice, and if it went all the way to adjudication, an adjudicator could have reinstated him back into his job,” he says.

“So, the employer would have been more at risk had the employee filed an unjust dismissal complaint under the Canada Labour Code.”

Crew Haulers also attempted to argue they were denied “natural justice,” because they were not given an opportunity to respond before the tribunal ruled they were provincially regulated rather than federally, and therefore subject to ESA rules. The tribunal also rejected this claim.

"The employer raised the jurisdictional issue, so it was their responsibility to provide evidence supporting their claim," Molnar says.

"Natural justice does not require that a party be given the opportunity to know what the decision will be and to then choose to provide more evidence if the decision will be unfavorable."

Key lessons for HR professionals

To help avoid legal risk around jurisdictional ambiguity, Molnar recommends the following best practices to ensure compliance:

• Don’t assume your jurisdiction: Just because a company serves a federally regulated business does not mean it is federally regulated.
• Consult knowledgeable legal counsel early: “If there’s any question about which jurisdiction applies, consult a lawyer. This ensures compliance and prevents costly legal battles."
• Understand the risks of federal vs. provincial law: While some employers believe federal jurisdiction offers advantages, it may also impose additional liabilities.
• Manage cross-border employment carefully: Employees working across provinces need clarity on which employment standards apply.

For Molnar, the key takeaway from this decision for employers is clear: do not make assumptions when it comes to jurisdiction and employment law.

“You want to make sure you have that right. Because if you are operating under the wrong jurisdiction, then you're not in compliance,” he says.  

“There's a risk that you're not in compliance with all of the rules that you're required to comply with.”