Written By Christine Plante, Justin Lambert, Michael Eizenga and Hana Syed
Workplace class proceedings are on the rise in Canada. Recent class actions have involved employee claims for overtime, vacation time, damages for COVID-19 pandemic terminations, extended healthcare benefits, misclassification of workers and systemic discrimination and harassment. The Alberta Court of Appeal (ABCA) decision in Flesch v Apache Corporation, 2022 ABCA 374 [Flesch] now adds claims for long-term incentive compensation to this growing list. This decision also revisits the "gatekeeping" role the court has in certifying such class proceedings.
In Flesch the appellants Paramount Resources (Paramount, formerly Apache Canada) and Apache Corporation, as well as members of its board of director's management development and compensation committee, appealed the chambers judge's decision certifying a class proceeding brought on behalf of approximately 347 employees. The employee group claims damages arising from the cancellation of awards under Apache's omnibus long-term compensation plan.
Through a series of amalgamations, Apache Canada was sold to the company which later became Paramount. As part of the transition, Apache cancelled all restricted stock units, stock options and performance awards grants, advising transferred employees that they would instead participate in Paramount's share option plan—one that the plaintiffs claim to be far less remunerative.
On application, the chambers judge certified the action as a class proceeding as against Apache Corporation (asserting that it was a common employer to the Apache Canada employees), Paramount (as the successor employer) and the individual management and board members of the management development and compensation committee. The class proceeding claimed damages in breach of contract, breach of duty of good faith, breach of fiduciary duty and unjust enrichment.
The ABCA upheld all certification issues determined by the chambers judge except one—the claim for unjust enrichment was not certified as a common issue as it had no reasonable prospect of success.
Argument to Evolve Certification Test—"Reasonable Cause of Action"
While the majority of the ABCA applied the standard test for certification of a class proceeding Justice Slatter (concurring in the result) suggested enhancing the gatekeeping role of the Court at the certification stage. For example, Justice Slatter argued in favour of not just determining whether there is a cause of action, but "to consider whether the pleadings disclose a reasonable cause of action." Justice Slatter asserted that the certifying judge should identify the "main" cause of action advised, and to apply a generous test to that portion of the pleadings. With respect to any collateral causes of action, the judge should ascertain whether those additional causes of action are "reasonable" and should be examined as to their prospect of success, and whether they will enhance the policy objectives of class proceedings. While Justice Slatter's opinion was not part of the majority decision, it will be interesting to observe whether his suggestion of an enhanced gatekeeping role gains any traction with judges hearing certification applications in Alberta.
- Workplace class proceedings continue to increase in prevalence and subject matter, now including claims for long-term incentive compensation founded on breach of contract, breach of fiduciary duty and breach of the duty of good faith in contractual performance.
- Employers with large workforces participating in incentive programs should be alert to legal risks when revising those programs, including claims for constructive dismissal and class proceedings.
- Employers transitioning large workforces as part of corporate transactions should be alert to risks when comparable compensation is not "substantially similar in the aggregate".
- As here, there is a risk that courts may certify class action claims relating to long-term incentive plans against individual committee and board members who participate in the management of those incentive plans. While these individual claims based on breach of fiduciary duties may have a low chance of success, the court may still apply the standard "cause of action" test" to a certification. This low evidentiary threshold would allow these claims against individual members of the board of directors and management to proceed through litigation.
- The concept of good faith contractual performance as a general organizing principle of the common law of contract, as espoused in the Supreme Court of Canada in Bhasin v Hrynew, continues to be applied to employment claims.
- The "common employer" doctrine may result in shared liability when incentive plans apply across an interrelated corporate group.
- Successor employers may be added to class proceedings based on the conduct of prior employers.