'If this case underscores one thing, it is the truly enormous sums of money that can be at play': litigation lawyer on employment class action
The Federal Court recently approved an $817-million settlement for a class action suit arising from a miscalculation of disability pension benefits that went undiscovered for almost a decade.
The case, Manuge v. Canada, involved members and veterans of the RCMP and the Canadian Armed Forces (CAF) plus their spouses, common-law partners, dependants, survivors and estates, amounting to roughly 330,711 class members.
The error, discovered by Canada’s Veterans Ombudsman in 2018, added up to an underpayment of about $165 million. However, that number ballooned to over $800 million after four class action proceedings were consolidated and settled.
“If this case underscores one thing, it is the truly enormous sums of money that can be at play in employment class actions,” said Eleanor Vaughan, workplace litigator with Hicks Morley in Toronto.
“Class action liability for payment errors or other sorts of employment law issues can be very large. Payroll is often one of the largest, if not the largest expense for most businesses, so it's easy to understand why this can be such a large potential liability.”
Errors in underpayment multiplied during class action litigation
Veterans Affairs Canada (VAC) addressed the oversight promptly, and budgeted $165 million towards corrective payments, which began in 2018 and were about half completed when class action proceedings began in 2019.
During the litigation process, class counsel found that underpayment had lasted longer than the seven years initially thought, due to additional errors. In 2022, the plaintiffs brought claims for that underpayment, as well as interest. The settlement was approved by the Federal Court in November 2023, paying out up to $817.3 million to roughly 333,711 class members.
“If an employer discovers that they are dealing with a payroll issue or a payment calculation error that impacts employees – it could be the inadvertent underpayment of overtime or vacation pay – the amounts that are owed to employees can potentially be very large; HR directors should be aware that there's the risk that a class action could be brought,” said Vaughan.
“Ideally, the minute that an employer discovers a payment or a calculation error that may affect a group of employees, they should be engaged in a proactive strategy to prevent a class action.”
This includes legal counsel, she said – especially counsel that specializes in class action proceedings, which are nuanced, technical and deal with huge numbers.
Misclassification of employment can result in class action
A recurring issue in employment class actions, Vaughan explained, is the misclassification of employees as independent contractors; in Canada, there are gray areas surrounding the rights of contracted employees and workers, which have resulted in costly class action claims.
“In those cases, plaintiffs will claim that the organization misclassified them as independent contractors when they were really employees,” she said.
“That is the kind of discussion that should be happening regularly between HR directors and employment counsel, the kind of thing that HR directors can be doing proactively to avoid this kind of risk down the road.”
