Happy new year!
This story from the CBC on a Tim Horton’s franchisee penalizing its employees by taking away a list of contractual entitlements and blaming it on the new minimum wage is just too precious to ignore. A similar story came emerged about Sunset Grill. So it will be the subject of my first blog entry of 2018.
At the outset, let’s note that these media stories wherein an employer proclaims that it is breaching employees’ contracts “because of” a new minimum wage law they disagree with are total fluff. Those of us with long memories of labour law
recall that whenever laws are enacted to help low income workers, there will be employers who see an opportunity to grandstand and blame the law for all sorts of economic ills. This is an age old strategy to undermine the legitimacy of the legal agenda and the ruling political party they hope is replaced in the next election. Unions do the same thing with anti-union laws, although of course unions do not possess the same power to make harmful unilateral changes to working conditions as employers.
The problem with these stories is that there is no attempt by the reporters to investigate the back story and the truthfulness of the claim which is so obviously self-serving, anecdotal, and politically motivated. Where is the investigation of the claim: What are the revenues and profits of the business? How much do the owners pay themselves? Have they given themselves raises recently? What factors unrelated to the minimum wage affected the decision? And so on. Without this backstory, a business’s claim that it is gutting employee benefits “because of” a law they disagree with passed by a government they would like to see replaced is an empty, self-serving cliche that the media should ignore.
Then there are the various interesting legal issues that arise from this particular Tim Horton’s story. Here’s a quick off-the-top-of-my-head discussion of a few.
What the employer is doing here is almost certainly a breach of the employees’ contracts. As a general rule, an employer cannot just unilaterally start changing conditions of employment without the consent of the employee. To state the obvious, there is a contract that prevents this. If breaks have always been paid, and if the employer has always paid 100% of benefit costs, then these are contractual entitlements that cannot be unilaterally stripped without running afoul of the contract. I haven’t seen the written contracts, so it is always possible there is some sort of term in there that makes these benefits at the sole discretion of the employer.
Presuming that the stripped benefits are contractual entitlements, then the employer is announcing its intention to breach the contracts. Here’s a list of the employee benefits the employer announced in a letter to employees that it would be unilaterally cancelling :
* Paid breaks
* Incentives formally paid on employee birthdays
* “Day off with pay after 6 months of not calling in are cancelled” [not even sure what that means]
* Employer paid benefits (now employees must pay part of the expenses (50 to 75%) themselves)
An employee quoted in the story commented that the benefits are an important part of the overall compensation package since the pay is so low.
In total, considering the job as a whole and how crappy the employees were paid to start, do you think that the employees at this Tim Horton’s store have a good case for constructive dismissal? As we learn in Chapter 15 of The Law of Work, a constructive dismissal occurs when an employer commits a breach of contract that is fundamental and that the employee treats as having terminated the employment relationship. The important question is whether the breach is “fundamental”. What do you think?
Of course, to make a constructive dismissal claim, the employee would need to quit and either file an ESA claim for termination and possibly severance pay, or file a wrongful (constructive) dismissal lawsuit in court. In either case, the employee is seeking damages for the termination of employment, but they still lose their job.
Was New Consideration Given to Employees? If not, there is no legally valid contract modification
Employment law students know that a modification of an employment contract is only legally enforceable if both sides (1) agree to the changes, AND (2) both sides receive something knew of value in the exchange (new consideration). I have a whole chapter on this (Chapter 10) in The Law of Work. It considers cases such as Wronko v. Western Inventory, Francis v. CIBC, Globex Foreign Exchange v. Kelcher, and Rejdak v. Fight Network.
The Tim Horton’s story seems to indicate that the employer told the employees that it was unilaterally cutting certain benefits. It asks the employees to sign a piece of paper indicating that they received the notice. I doubt that can be considered an “agreement” to the change. But more importantly, while the employer is receiving a new benefit in the modification in the form of a cost saving, what is the new benefit for the employee? It can’t just be that they will be receiving the new minimum wage, since they are already statutorily entitled to receive the minimum wage. There could be some other new benefit being given to the employees that is no evident in the letter, but if not, I don’t see how this move by the employer to simply pull back contractual benefits unilaterally is enforceable. In theory therefore, the employees could later claim damages for unpaid breaks and other out of pocket losses caused by the employer’s attempt to unilaterally cut contractual benefits without new consideration.
Here’s a fun one for class discussion. The Employment Standards Act, like other work-related statutes, includes a “no reprisal” section. It is found in Section 74 and it reads in part as follows:
No employer or person acting on behalf of an employer shall intimidate, dismiss or otherwise penalize an employee or threaten to do so,
(a) because the employee,
(i) asks the employer to comply with this Act and the regulations,
(ii) makes inquiries about his or her rights under this Act,
(iv) exercises or attempts to exercise a right under this Act,
If an employer violates this section by punishing employees for making inquiries, the remedy can include “make whole” orders, which presumably would include an order to reinstate any benefits unlawfully stripped from employees, and reinstatement, if an employee is terminated for making inquiries, as well as a fine.
Imagine one of the Tim Horton’s employees had made an inquiry about whether their wage would go up after Bill 148 was enacted (which is very possible), and the employer had responded thus:
“Yes, but in exchange we are unilaterally eliminating your paid breaks and we are no longer paying the full cost of benefits, and there will be other cuts to employee entitlements too.”
When the employer then makes the changes (in violation of the contracts), do the changes amount to an unlawful “reprisal”?
The government might have avoided these situations by including a clause prohibiting employers from penalizing employees by removing contractual entitlements that existed before Bill 148 came into force. For example, equal pay provisions prohibit employers from reducing men’s pay to create equal pay. That same idea could have been used here.
The letter from the Tim Horton’s franchise owner includes a curious admission. After announcing that negative changes are coming “due to” the increase in the minimum wage, the letter continues:
“The decisions of the following are the results of intense discussions with management and numerous small business owners in our area and other franchise owners.”
Interesting. I would like to know what these discussions entailed. If a single business decides to increase prices or scale back employee entitlements in response to an increase in costs (including wages), then that is fine (subject to contractual and statutory restrictions). However, if multiple businesses come together and agree on a coordinated strategy, then different rules may apply, including rules about conspiracy and price-fixing. To be clear, I have no evidence other than this curious admission in the Tim Horton’s letter (and the fact that several Ontario businesses have already made claims that they are cutting employee benefits in response to a law that has been in place for a mere 5 days) to suggest that there is a coordinated agreement in place.
Hypothetically though, what if a bunch of business owners got together, perhaps with their industry lobby, and agreed that the minimum wage law is bad and needs to be publicly attacked and undermined. So they agree to a strategy whereby they will breach employees’ contracts by cutting benefits, and raise prices, and then publicly blame the changes on Bill 148.
Does that scenario bring us into the realm of the tort of conspiracy to injure? We would have an intention to injure employees (unilateral gutting of employment benefits) by unlawful (breach of contract) means. Fun assignment: head to CanLII and search up “conspiracy to injure” cases to learn how this tort is applied in Canada. Labour law students will be familiar with the historical use of civil conspiracy by courts and employers to attack workers who joined together with the object of pressuring employers to raise wage rates and lower working hours.
Does an agreement amongst “numerous small business owners and other franchise owners” to raise prices (and publicly blame Bill 148) raise Competition Act issues, similar to the recent Loblaws’ bread price-fixing scandal? What if all coffee franchises in an area agree to raise prices by 5%?
We don’t have enough information right now about what is being discussed in the inner circles of industry to know whether conspiracy or price-fixing issues are present. But pay attention to this issue in the weeks to come.
One last point about Franchises
Finally, the Tim Horton’s letter also blames corporate Tim Hortons (the franchisor) for not helping franchisees. Presumably this means by adjusting the terms of the franchisee agreements in some way to help offset the increased labour costs. Interestingly, this argument supports the claims of labour activists in the lead up to Bill 148, that a real problem causing low wages in the service sector is the franchisor model itself. Franchisors have significant bargaining power over the profit margins of franchisees. Therefore, many argued for a new labour law model that forced the franchisors to the bargaining table or enabled industry wide collective bargaining. The Liberals did not go in that direction, and you’d think that the franchise industry would be thankful.
However, by blaming the franchise model, the Tim Horton’s franchisee in this case draws renewed attention to this problem. If the problem is that the franchise agreement cuts margins so low that some franchisees will have trouble with wage increases (and I’m not saying that is the case with this franchisee), then a public policy of increasing low wages must include looking at the terms of franchise agreements with the aim of removing this obstacle.
So many fun issues with this one! Given the growing backlash against Tim Hortons on social media after this story broke, business may be having second thoughts about this strategy of politicizing their decisions to gut employee benefits by blaming a law that remains popular with working folks. Certainly the Liberals are loving it, as demonstrated in this op-ed by the Premier. How great for them that they can so publicly stand up for the little guy.
Let’s keep our eye on this story in the coming weeks and months.