Court File and Parties
COURT FILE NO.: CV-20-00642921
DATE: 20210811
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
SURENDRARAJ NAVARATNARAJAH
Plaintiff
– and –
FSB GROUP LTD., FSB INSURANCE LTD. AND FSB COMMERCIAL LTD.
Defendants
COUNSEL:
Andrew Monkhouse and Alexandra Monkhouse, for the Plaintiff
Stephen Gleave and Ryan Campbell, for the Defendants
HEARD: July 22, 2021
Reasons for Decision
E.M. Morgan, J.
[1] The Plaintiff moves for certification of this action pursuant to section 5(1) of the Class Proceedings Act, SO 1992, c. 6 (“CPA”).
[2] The Plaintiff’s claim alleges that certain sales agents for the Defendants – called “producers” in the jargon of the insurance industry – have been misclassified as independent contractors when they should be considered employees. It is the Defendants’ view that not only is this claim incorrect, but that the current arrangement is to the financial benefit of the producers and that the claim is driven by a few putative class members to the detriment of the many.
I. The insurance business context
[3] The Defendants are related companies that sell both personal and commercial insurance products, including life, home, business, and casualty insurance. They function together as an independent brokerage that acts as an intermediary between insurance companies and their clients and sells insurance products from a number of different insurers to consumers. The Defendants generate revenue through commissions, calculated as a percentage of the premium paid by the client to the insurance company.
[4] The salespersons classified as producers are paid based on commissions for the number of sales and policy renewals they generate for the Defendants. As indicated above, they are treated as independent contractors by the Defendants. Each producer has his or her own book of business that can be of considerable value and is sellable on the producer’s retirement from the industry. All producers must be licensed by the Registered Insurance Brokers of Ontario. Each producer’s license must be registered under, or “sponsored” by, one brokerage, and no producer can be sponsored by multiple brokerages at the same time. A producer who is unregistered with a brokerage is prohibited from selling insurance products or services.
[5] The Defendants provide administrative support to producers in the form of underwriting and quoting support. They also provide personnel called Customer Service Representatives to assist in servicing producers’ books of business. Each producer’s relationship with the Defendants is governed by a Producer Agreement. Producers generally work to their own schedule, but are required to attend monthly producer meetings at the Defendants’ offices.
[6] The Plaintiff was introduced to the Defendants in June 2019. At the time he was apparently concerned that he would not be able to make enough commissions working only as a producer, and he negotiated with the Defendants to be employed as a part-time sales coordinator in addition to being engaged as a producer. Ultimately, the Plaintiff signed a Producer Agreement with the Defendants on June 18, 2019, making him an independent contractor; in addition, he accepted an employment offer from the Defendants as a sales coordinator on June 20, 2019. The evidence indicates that he spent 12 to 14 hours per week as a sales coordinator and the rest of his time as a producer. He therefore held a uniquely hybrid position which, in effect, graphically illustrates the different status of a producer from the Defendants’ other employees.
II. The certification criteria
a) Cause of action
[7] Section 5(1)(a) of the CPA requires that in order to be certified a claim must have an identifiable cause of action. This, however, has not been interpreted as a high hurdle for plaintiffs to cross. Winkler CJO stated in McCracken v Canadian National Railway, 2012 ONCA 445, at para 75, that there is no requirement that there be a demonstrated evidentiary foundation in order to satisfy this criterion for certification. Thus, the approach is similar to that which is applied under Rule 21.01 of the Rules of Civil Procedure: the section 5(1)(a) requirement is met unless it is “plain and obvious” that it discloses no reasonable cause of action: Cloud v Attorney General of Canada, [2001] OJ No 4163, at para 10 (SCJ).
[8] Given this low threshold, the cause of action requirement is not controversial here. In fact, although the Defendants dispute that the putative class members have been misclassified, they do not dispute that the pleadings disclose a cause of action for statutory minimum entitlements to minimum wage, overtime pay, vacation pay, and holiday pay pursuant to the Ontario Employment Standards Act, SO 2000, c. 41, all arising from an alleged misclassification of producers as independent contractors instead of employees.
b) Identifiable class
[9] Section 5(1)(b) of the CPA requires that there be two or more persons that can constitute the class of claimants. The class must be identified with sufficient clarity to allow for all persons that are entitled to notice, and that are ultimately entitled to and that will be bound by a judgment (if they do not opt out), to be identified: Western Canadian Shopping Centres Inc. v Dutton, 2001 SCC 46, [2001] 2 SCR 534, at para 38.
[10] The Defendants do not dispute that there is an identifiable class of two or more producers that would be represented by the representative plaintiff. Their only objection in this regard is that the class be limited to those whose claim falls within the applicable two-year limitation period.
[11] By contrast, the Plaintiff proposes a class definition that extends back substantially more than two years: “All persons engaged in services as producers on behalf of [the Defendants] since August 2004 who were classified as independent contractors.” The Defendants’ affiant deposed that the first person to work for the Defendants as a producer and independent contractor began work in 2004. The proposed class therefore encompasses all persons who have historically held such a position.
[12] It is apparent that the Class can be easily identified. Its membership is based on objective criteria that do not depend on the outcome of the common issues. In that respect, there is no real controversy over the existence of an identifiable class. I do, of course, understand the Defendants’ concern about including in the class persons whose claim might be limitation barred. However, the courts have determined that the question of whether any given class member is within or is beyond the limitation period should not be resolved at certification: Mayotte v. Ontario, 2010 ONSC 3765, at para 64, leave to appeal refused 2010 ONSC 5275 (Div Ct).
[13] The limitation question raises an individual inquiry in any given case about when the claim was discovered. In addition, Plaintiff’s counsel submits that there is controversy in the context of employment law as to whether the limitation period begins to run from the date of the commencement of employment or the date of termination of employment. I am not prepared to address these questions in the context of a certification motion. The discoverability question is for a much later stage of the action when individual inquiries can be made, while the question of law with respect to the running of the limitation period is for a trial judge to determine.
c) Common issues
[14] The essence of a class action is contained in section 5(1)(c) of the CPA – whether the claims of the class members raise common issues: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para 18. Again, this does not present a particularly high threshold. It must be demonstrated that “there is some factual basis for the claims made by the plaintiff and to which the common issues relate”: Singer v Schering-Plough Canada Inc, 2010 ONSC 42, at para 140. That said, class members’ claims must share a “substantial common ingredient” to justify a certification: Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1, [2014] 1 SCR 3, at para 41.
[15] Counsel for the Defendants emphasizes that the Plaintiff must present some evidence that the proposed classification is common to the entire class: Omarali v. Just Energy, 2016 ONSC 4094, at para 40. It is the Defendants’ view that there is insufficient commonality in the case at bar because the job function of producers has not been defined with sufficient similarity, and that without such careful defining of job function the claims of the putative class turn on an analysis of “it depends”: Ibid., at para 3.
[16] The common issues proposed by the Defendants are as follows:
Did the actual circumstances of the relationship between the Defendants and the class members constitute an employer/employee relationship, such that class members were in fact employees of the Defendants and not ‘independent contractors’?
If the answer to (1) is ‘yes’, are the Defendants liable to the class for employee benefits pursuant to the Employment Standards Act (including minimum wage, unpaid vacation pay and public holiday pay, premium pay and overtime)
If the answer to (1) is ‘yes’, are the Defendants liable to reimburse the class members for any Canada Pension Plan or Employment Insurance Act contributions which they may have paid or are owed resulting from the failure of the Defendants to pay statutory contributions.
If the answer to (1) is ‘yes’, what are the terms (express or implied or otherwise) of the class members’ contracts of employment with the Defendants regarding:
(a) Regular and overtime hours of work;
(b) Recording of the hours worked by the class members;
(c) Payment of hours worked by class members;
(d) Termination and severance pay;
(e) Lieu time as purported compensation for overtime hours worked.
- Whether the Defendants breached any of the contractual terms and if so, how. Without limiting the generality of the forgoing, whether the class members are owed damages from the Defendants for:
(a) Unpaid overtime;
(b) Compensation below minimum wage;
(c) Termination and severance pay;
(d) Vacation pay; and,
(e) Public holiday pay and premium pay.
- Whether the Defendants have a duty (in contract or in statute) to prevent class members from working, or a duty to not permit or encourage class members to work, overtime hours for which they were not properly compensated or for which the Defendants would not pay.
(a) If such a duty exists, whether the Defendants breached that duty.
- Whether the Defendants have a duty (in contract or in statute) to accurately record and maintain a record of all hours worked by class members to ensure that class members were appropriately compensated for same.
(a) If such a duty exists, whether the Defendants breached that duty.
- Whether the Defendants have a duty (in contract or in statute) to implement and maintain an effective and reasonable system or procedure which ensured that the duties in Common Issues 6) and 7) were satisfied for all class members.
(a) If such a duty exists, whether the Defendants breached that duty.
If liability is established, are aggregate damages available?
If the answer to Common Issue (9) is yes:
(a) What is the most efficient method to assess those aggregate damages? Without limiting the generality of the foregoing, can aggregate damages be assessed in whole or in part on the basis of statistical evidence, including statistical evidence based on random sampling?
(b) What is the quantum of aggregate damages owed to class members or any part thereof?
(c) What is the appropriate method or procedure for distributing the aggregate damages award to class members?
- Whether the position of the Defendants relative to the class members was one of fiduciaries such that the Defendants had a fiduciary duty to the class members.
(a) If such a duty exists, whether the Defendants breached that duty.
(b) Whether any profits made through a breach ought to be disgorged.
[17] An almost identical list of common issues, exploring the classification by an employer of independent contractors or employees, and the economic ramifications of that classification, has been certified in a previous case: Morris v. Solar Brokers, 2019 ONSC 6817. In general, the Defendants’ objections turn on whether the evidence in the record can answer the proposed common issues definitively, without resorting to any further individual inquiries as to who is properly in the class and who is not. These objections, however, ignore the “some basis in fact” analysis that generally applies to the certification process.
[18] The overarching issue in this case is whether producers who have been until now classified as independent contractors are improperly so classified. And while Defendants’ counsel may be accurate in stating that there are some detailed differences in the producers’ agreements and work arrangements with the Defendants, these appear to generally exist at the margins of the working relationship and not at its core. While one producer may have a desk at the Defendants’ premises and another chose to work entire out of their home, or one producer may keep different hours than another, the essence of their job is similar enough that the classification question can be addressed in common.
[19] Once the common issues are determined, any follow-up questions about whether individual members fit the description arrived at by the trial judge can be addressed in the individual inquiry process. In Dutton, at para 39, the Supreme Court addressed the overall thrust of the commonality rule and confirmed that the mere existence of some individual issues does not preclude commonality altogether:
...The underlying question is whether allowing the suit to proceed as a representative one will avoid duplication of fact finding or legal analysis. Thus an issue will be ‘common’ only where its resolution is necessary to the resolution of each class member’s claim. It is not essential that the class members be identically situated vis a vis the opposing party. Nor is it necessary that common issues predominate over non common issues or that the resolution of the common issues would be determinative of each class member’s claim, however, the class members’ claims must share a substantial common ingredient to justify a class action. Determining whether the common issues justify a class action may require the court to examine the significance in relation to the individual issues.
[20] Given the nature of the overall employment law question and the way that the proposed common issues flow from that question, I see no reason not to accept the questions as posed. If there are certain features of the Defendants’ relationship with some of the so-called producers that distinguish those individuals from others in the class, that can be identified in the judgement in the common issues trial. Section 1 of the CPA defines common issues as presenting “common, but not necessarily identical” issues of fact and law [emphasis added]. That definition fits the proposed questions aptly.
[21] This includes the question of whether damages can be assessed on an aggregate basis. In Baroch v. Canada Cartage, 2015 ONSC 40, at paras 60, 64, which like the case at bar arose in the employment context, aggregate damages were certified in respect of overtime claims. As Perell J. noted, there was “reasonable likelihood that the aggregate of the Class Members’ damage could be reliably determined without proof by individual Class Members.” Aggregate damages were determined to be appropriate there because [the] defendant would supply the proof.”
(d) Preferable procedure
[22] The preferability analysis required by section 5(1)(d) of the CPA generally proceeds with a view to the importance of the identified common issues within the context of the overall claim: Markson v. MBNA Canada Bank, 2007 ONCA 334, 85 O.R. (3d) 321, at para 69 (Ont CA). The analysis is a comparative one that holds the class proceeding up against a competing procedure. “The court has to consider the extent to which the proposed class action may achieve the three goals of the CPA, but the ultimate question is whether other available means of resolving the claim are preferable, not if a class action would fully achieve those goals”: AIC Limited v. Fischer, 2013 SCC 69, [2013] 3 S.C.R. 949, at para 23.
[23] There is no doubt about the importance of the characterization issue and all that flows from it in the context of the present claim. Plaintiff’s counsel, in listing the proposed common issues, has pinpointed the heart of the dispute. There is no sense that the class proceeding is being used as a means of having the tail wag the dog, as it were; the common issues are the true essence of the claim.
[24] Class actions have been found to be preferable procedures in numerous employment actions. One reason for this is that the class mechanism provides, if not strict anonymity for each employee, the security of numbers: Fulawka v Bank of Nova Scotia, 2012 ONCA 443, at paras 168-171. As other courts have observed, workers may fear reprisal and a class proceeding makes that much more unlikely to transpire: Walmsley v. 2016169 Ontario Inc., 2020 ONSC 1416, at para 38.
[25] Furthermore, the cost of litigating the individual claims of each producer would be prohibitive. Plaintiff’s counsel notes that the individual claims here could be for as little as several hundreds of dollars. It would be a waste of court resources, not to mention a financial burden on the class members, to expect each of them to launch their own individual claim. The cost would be disproportionate to each claim.
[26] Defendants’ counsel argues that the issues here could be dealt with by way of complaints to the Ministry of Labour. However, as Plaintiff’s counsel indicates, that process is subject to a strict deadline of two years from the date of the infraction alleged against the employer, which in turn is not subject to a discoverability analysis: Employment Standards Act, SO 2000, c. 41, s. 96(3). That procedure is not a preferable alternative to a class action, as it would exclude at least some members of the class from any access to justice.
[27] It is the preferable procedure requirement that poses most squarely the Defendants’ overarching opposition to certification of this as a class action – that is, the very nature of the claim is a detriment to all but a small portion of the class who, perhaps like the current Plaintiff, were only independent contractors for a relatively short period of time. Plaintiffs’ counsel answer this objection by pointing to the court’s decision in Sondhi v. Deloitte Management Services LP, 2018 ONSC 271, at para 91, where the “preponderance of opt-outs” was held not to be a bar to certification. Justice Perell found that there, like here, “the Class Members who do not opt out are entitled to access to justice and the representative plaintiff is duty bound to advance their common interest.”
[28] While I agree with Justice Perell’s statement, it does not really address the difficult situation described by Defendants’ counsel here. As they explain it, the current arrangement in which producers are independent contractors is to the financial advantage of most of the producers. If the Plaintiff wins his case and he and the entire class of producers are found to have been employees all along and thus are entitled to vacation pay and overtime pay, they may also be liable for back taxes. After all, independent contractors enjoy a variety business deductions and other tax advantages that employees do not enjoy.
[29] Further, if the producers all turn out to have been employees of the Defendants, the Defendants themselves may bring claims to the value of each producer’s book of business making this asset untransferable. I do not put these issues forward in order to pre-judge whether Defendants’ counsel is right or wrong in making these arguments, but I do point out that there is a risk that the producers may get more than they ask for and may not like it. What Defendants’ counsel’s argument suggests is that at some point, the majority of class members may find that their financial interest was hijacked by the claim rather than advanced by the claim.
[30] I find myself in some agreement with Defendants’ counsel about the risks of this action to the proposed class members. That said, it seems to me that the risks will be the same if the claim is not certified and those producers who want to proceed with individual claims simply do so. From a tax and financial point of view, the risks depicted by Defendants’ counsel will materialize with a single test case just as much as with a class action. It may take longer to notice a ruling in an individual case, but its impact will doubtless trickle down to each producer with the passage of time.
[31] Accordingly, while Defendants’ counsel makes a cogent point about financial risk, it is not really a point about the preferability or not of a class proceeding. It is more of a point about the wisdom of bringing this claim at all. The fact that it is proposed to take the form of a class action is, with respect to the matters identified by Defendants’ counsel in argument, neither here nor there. If this case ultimately prompts the revenue authorities to revisit the producers’ situation, or someone to challenge the transferability of the producers’ book of business, it will do so whether it goes forward on an individual or a class basis. In my view, that risk does not play into the preferable procedure analysis or any other part of section 5(1) of the CPA.
(e) Representative plaintiff
[32] The proposed representative Plaintiff must be “adequate” to the task in the sense that he or she must be willing to vigorously prosecute the claim: Dutton, at para 40. The current Plaintiff appears to understand the claim and to share an interest in it with the other class members. He has retained counsel who are well experienced in employment law claims and class proceedings. He and his counsel have put forward a workable litigation plan that sets the parameters for advancing the proceeding. He has not issued an individual claim in relation to this matter and the record does not establish that he has any conflict of interest with other class members.
[33] As indicated earlier, the Plaintiff had a hybrid position with the Defendants as both a producer/independent contractor and a customer service person/employee. This combination does not take him outside of the interests of the class. In his independent contractor capacity, he, like all producers, was not compensated for vacation pay, public holiday pay, and other Employment Standards Act requirements. In all relevant respects, he is in no different position than all of the others in the proposed class and appears adequate to the task at hand.
III. Disposition
[34] The criteria for certification under section 5(1) of the CPA are all met. This action is certified as a class proceeding. The Plaintiff is the representative Plaintiff and Plaintiff’s counsel are appointed as class counsel.
[35] The issues as set out in paragraph 16 above are certified as the common issues.
[36] Counsel may make written submissions with respect to costs.
[37] I would ask Plaintiff’s counsel to provide me with a Costs Outline and brief (3 pages maximum) written submissions within two weeks of the date hereof. I would likewise ask Defendant’s counsel to provide me with equally brief written submissions within two weeks of receiving Plaintiff’s counsel’s submissions. The cost submissions may be emailed directly to my assistant. There is no need to provide copies of any authorities referenced therein provided that they are linked in the written submissions.
Morgan J.
Released: August 11, 2021