) ) DIRECTOR OF EMPLOYMENT STANDARDS Applicant – v. –, 2023 ONSC 3975

CITATION : Director of Employment Standards v. Sleep Country Canada , 2023 ONSC 3975 DIVISIONAL COURT FILE NO.: 402/22 DATE: 20230626 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT Backhouse, Howard and O’Brien JJ BETWEEN: ) ) DIRECTOR OF EMPLOYMENT STANDARDS Applicant – and – SLEEP COUNTRY CANADA Inc. o/a sleep country canada – and – marianna molodkova – and – rick pane – and – ontario labour relations board Respondents ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) T. Wong and J. Pimentel, for the Applicant G. Beaulne and J. Barrack, for the Respondent, Sleep Country Canada Inc. M.

Molodkova, Self-Represented R. Pane , Self-Represented A. Hart, for the Respondent, Ontario Labour Relations Board ) ) HEARD: June 6, 2023, by videoconference in Toronto O’BRIEN j. reasons for decision Overview [ 1 ] The Director of Employment Standards brings this application for judicial review to challenge three decisions of the Ontario Labour Relations Board. The decisions turn on the meaning of “regular rate” in the overtime pay provisions of the Employment Standards Act , 2000, S.O. 2000, c. 41 (the “ Act ”) as they apply to commissioned salespersons working for the respondent Sleep Country Canada Inc.

The central question is whether the Board reasonably interpreted “regular rate” to include only non-overtime hours worked in a given week as opposed to all hours, including overtime hours, worked in a given week. There is a secondary issue relating to Sleep Country’s calculation of amounts owed using the approach endorsed by the Board. [ 2 ] The Act defines “regular rate” to mean: (

a) For an employee who is paid by the hour, the amount earned for an hour of work in the employee’s usual work week, not counting overtime hours, (

b) Otherwise, the amount earned in a given work week divided by the number of non-overtime hours actually worked in that week. [ 3 ] The respondents Ms. Molodkova and Mr. Pane were employed as sales associates at Sleep Country. After an initial training period for which they received a salary, they were paid entirely on a commission basis. Therefore, paragraph (

b) of the definition of “regular rate” applies to their situation. [ 4 ] In 2020, Ms. Molodkova and Mr. Pane filed claims with the Employment Standards Branch of the Ontario Ministry of Labour, Training, and Skills Development seeking more pay under the Act ’s overtime provisions. Employment Standards Officers (“ESOs”) assessed both claims and ordered additional pay of $37,447.92 to Ms. Molodkova and $610.74 to Mr. Pane.

[5] Sleep Country sought review of those decisions to the Board. In its initial decision, dated November 8, 2021, the Boardfollowed one of its prior decisions, RBC Insurance Agency Ltd Agence D’Assurances RBC Ltee v. Shahzad Ali, (ONLRB) (“RBC”), to find that Ms. Molodkova and Mr. Pane’s “regular rates” were calculable based on commissions earned before anyovertime hours were worked in a given week. [6] The Board directed Sleep Country to re-calculate overtime pay based on that finding. Sleep Country reported that, by itscalculations, Ms. Molodkova had been underpaid by $1167.18 and Mr.

Pane had been overpaid by $370.23 (and thus was not owed anypay). [7] In its subsequent decision, dated March 22, 2022, the Board accepted Sleep Country’s approach, including that SleepCountry was entitled to reconcile overpayments and underpayments over the period under review. Both Sleep Country and the Directorfiled requests to reconsider the Board’s decisions, which were dismissed on the basis that they were an attempt to re-argue the positionsalready taken. [8] The Director submits that the Board’s

interpretation of “regular rate” was unreasonable. In the Director’s submission, theplain wording of the statute requires subsection (

b) of the definition of regular rate (also referred to as “regular rate (b)”) to be calculatedby dividing the entire earnings for the week by the non-overtime hours for that week. [9] The Director further submits that, tracing the legislative evolution of the meaning of “regular rate” for non-hourly workersshows that the legislature intended to cure a problem with the definition in a prior iteration, which was that the more hours an employeeworked, the more their regular rate would be diminished. The Director submits that the Board’s

interpretation of “regular rate” in thiscase would reinstate the mischief the legislature intended to remove. Finally, the Director submits that, because the Act provides only forminimum rates, the Board erred in interpreting payments above the minimum amount to constitute “overpayments,” which should bereconciled with underpayments of overtime. [10] For the reasons that follow, the application is allowed on the issue of whether Sleep Country was entitled to reconcile itsunderpayments with overpayments. Otherwise, it is dismissed. Issues [11] The issues to be determined by the court are: 1.

Whether the Board erred in interpreting “regular rate” to mean commissions earned before overtime hours worked; and 2. Whether the Board erred in allowing Sleep Country to reconcile overpayments and underpayments in calculating overtime pay. Standard of Review [12] The parties agree that the standard of review is reasonableness. [13] As set out in Canada (Minister of Citizenship and Immigration) v.

Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653, at para. 13,reasonableness review “finds its starting point in the principle of judicial restraint and demonstrates a respect for the distinct role ofadministrative decision-makers.” Courts are to refrain from deciding the issue themselves. Their role is not to ask themselves whatdecision they would have made, but to consider only whether the administrative decision-maker, in its rationale and the resultingoutcome, was unreasonable: Vavilov, at para. 83.

Reasonableness is “concerned mostly with the existence of justification, transparencyand intelligibility within the decision-making process” as well as with “whether the decision falls within a range of possible, acceptableoutcomes which are defensible in respect of the facts and law”: Vavilov, at para. 86, quoting from Dunsmuir v.

New Brunswick, 2008SCC 9, [2008] 1 S.C.R. 190, at para. 47 [14] The Ontario Court of Appeal has emphasized recently, in the context of a decision of the Board, that the “relevant expertise ofthe administrative decision maker must be borne in mind by a court conducting a reasonableness review.” It noted that the Board “is ahighly specialized tribunal with considerable expertise, placing it in an elevated position to interpret its home statute”: Turkiewicz(Tomasz Turkiewicz Custom Masonry Homes) v. Bricklayers, Masons Independent Union of Canada, Local 1, 2022 ONCA 780, 476D.L.R. (4th) 421, at paras. 61, 77.

Here, the Board is empowered to review the orders of ESOs. The Act provides that the Board’sdecisions are final and binding on the parties to the review: s. 119(13). Subsection 119(14) specifies that “a decision of the Boardconcerning the

interpretation of this Act shall not be overturned unless the decision is unreasonable.” These statutory provisionsunderscore the importance of respect for the Board’s

interpretation of the Act. Analysis Did the Board err in interpreting “regular rate” to mean commissions earned before overtime hours worked? [15] The Director submits that the words used in the statute are precise and unequivocal such that the Board’s

interpretation resultsin an impermissible rewriting of the statute. Specifically, in the Director’s submission, the Board effectively rewrote “amount earned in agiven week” such that it should be read as: “amount earned in a given week prior to working overtime hours.” The Director submits thatthis

interpretation of the statute was unreasonable. [16] I disagree. The Board engaged in a transparent and intelligible analysis to arrive at a reasonable

interpretation of regular rate(b).

[17] As both parties submitted, the “modern principle” of statutory

interpretation requires that the words of a statute be read “intheir entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and theintention of Parliament”: Vavilov, at para. 117, citing Re Rizzo & Rizzo Shoes Ltd., (SCC), [1998] 1 S.C.R. 27, at para.21. [18] Here, the Board started its analysis by looking at s. 22 of the Act, which is the core provision requiring the payment ofovertime.

This provision is important because it differentiates overtime pay from an employee’s regular rate, which will become relevantin interpreting the meaning of “regular rate.” It provides: 22(1) Subject to subsection (1.1), an employer shall pay an employee overtime pay of at least one and one-half times his or her regularrate for each hour of work in excess of 44 hours in each work week, or, if another threshold is prescribed, that prescribed threshold. [19] Subsection 22(1) differentiates overtime pay from an employee’s regular rate in two ways.

First, the employee earns the“regular rate” during the first 44 hours of a week and overtime pay thereafter. Second, overtime pay is different from the employee’s“regular rate” in that it amounts to 1.5 times the regular rate. [20] The Board then turned to the definition of “regular rate.” At this point in the analysis, the Vice-Chair quoted directly fromRBC. The RBC analysis interpreted regular rate (

b) in the context of the entire definition of “regular rate,” so that (

b) would be consistentwith regular rate (a). The passage from RBC noted that using only the variable compensation earned during the first 44 hours of work isconsistent with regular rate (a), where it is clear that the regular rate uses only the amount earned for work in the usual work week, notcounting overtime. For convenience, I reproduce the entire definition of “regular rate.” It means: (

a) For an employee who is paid by the hour, the amount earned for an hour of work in the employee’s usual work week, not countingovertime hours, (

b) Otherwise, the amount earned in a given work week divided by the number of non-overtime hours actually worked in that week. [21] As stated in the passage from RBC, at para. 104: “Just as with an hourly rate of pay, one’s ‘regular rate’ should be based onwhat one has earned during the first 44 hours of work.” [22] While this is not the only possible

interpretation of regular rate (b), it is a rational

interpretation that ensures hourly employeesand variable compensation employees are treated in the same manner. As the Board stated at para. 31: “the Board was able to establish aformula that closely parallels the calculation of overtime for an employee paid on an hourly basis, as required by section 1(1)(a).” TheDirector’s proposed

interpretation would require variable compensation employees to be treated differently from hourly employees, anoutcome that is not easily justified. [23] The Board’s

interpretation also gives meaning to the notion that “regular rate” is “regular” and different from overtime, assuggested in s. 22(1), by preserving the distinction between compensation earned during regular hours from compensation earned duringovertime hours. To find otherwise would mean incorporating overtime earnings into the calculation of the “regular rate.” As stated in theRBC passage, “the calculation would have to include everything they earned after working overtime, thereby enhancing the overtime ratein a way that stretches the term “regular rate” beyond what, in my view, was intended by statute.” [24] The Director submits that the Board’s

interpretation leads to an absurd result. In some situations, it would require acalculation where the more overtime hours an employee worked, the lower the “regular rate” would become. This would arise where theemployee received a total amount of compensation that could not be divided into amounts received for particular hours or days worked.In that case, the regular rate would need to be calculated based on the percentage of non-overtime hours in the week compared to totalhours so as to allocate a proportionate share of earnings to the non-overtime hours.

As the total hours in the week increased, thepercentage of those hours that are non-overtime hours would decrease. [25] There are two responses to this concern. The first is that this problem does not arise on the facts of this case. Under SleepCountry’s payment structure, sales associates earn commissions on a sale when the sale is completed. A sale is considered completedwhen the customer receives the merchandise. Sleep Country is able to track the specific commissions earned to a specific day, includingidentifying which commissions are earned during overtime hours.

This means that Sleep Country has been able to calculate the actualcommissions Ms. Molodkova and Mr. Pane earned during non-overtime hours, as well as during overtime hours. There has been norequirement to calculate percentages. [26] Related to this, overtime hours at Sleep Country are purely voluntary. There is no requirement for employees to workovertime. This obviates the policy concern of an employer benefiting from requiring employees to work additional hours. [27] Second, different policy problems would arise if the Director’s

interpretation were to be adopted. In situations whereemployees already receive enhanced pay during overtime hours, the enhanced pay might be calculated into the regular rate (

b) to create acircular problem. Regular rate (

b) could increase each week as a result of the enhanced overtime pay from the prior calculation (forexample in the prior week). This is not an issue that has arisen on the facts of this case but demonstrates that the Director’s proposedinterpretation raises other potential problems. [28] The Director also submits that the legislature amended the definition of regular rate (

b) to address the policy ill it hasidentified of the regular rate (

b) decreasing as overtime hours increase. The evidence before the court does not demonstrate that thelegislature was intending to address this issue. The only justification the Director has provided for this claim are (1) two decisions ofemployment standards adjudicators issued in 1993 and 1996 raising the concern under the prior version of the definition; and (2) the factthat the legislature amended the definition as part of the amendments to the Act in 2000. [29] The amendment to the statute does not on its own tell us anything. Subsection 56(2) of the Legislation Act, 2006, S.O. 2006, c.21, Sched. F, provides that “the amendment of

an Act or regulation does not imply that the previous state of the law was different.” Here,there is no evidence from Hansard or otherwise demonstrating the legislature changed the definition for the reason identified by the

Director. In my view, comparing the previous version of the definition to the current version, the change does not clearly address the issue the Director has identified. This submission therefore does not provide a basis to find the Board’s

interpretation unreasonable. [ 30 ] Overall, commissioned earnings do not fit easily within the “regular rate” calculation under the Act . The Board, in its expertise, has arrived at an

interpretation of regular rate (

b) that fits within the scheme of the Act and which it has explained in its decision in a manner that is transparent, intelligible and justified. It is not the only

interpretation of the definition, but it is a possible, acceptable outcome that is defensible in respect of the facts and the law. Did the Board err in allowing Sleep Country to reconcile overpayments and underpayments in calculating overtime pay? [ 31 ] I do not find the Board’s decision to be reasonable on the second issue. In my view, the Board erred in permitting Sleep Country to reconcile weeks where it underpaid overtime with those where it paid more than the overtime calculated under the Act . [ 32 ] The Director submits that the requirement to pay overtime in the Act is a minimum standard.

It does not prescribe the total amount that an employer is required to pay employees for overtime hours, but instead the minimum amount an employer must pay for overtime calculated on a weekly basis. In the Director’s submission, Sleep Country was not entitled to offset amounts from weeks where it paid the employee more than the minimum overtime with the weeks where it underpaid overtime. [ 33 ] Sleep Country justified the Board’s approach on the basis that the Board was ordering a global figure retroactively in response to a complaint. [ 34 ] The Board’s reasons on this point are somewhat difficult to follow.

In its second decision, the Board stated the following about its order requiring Sleep Country to recalculate the overtime wages: What in fact has transpired is the Board made an order that required the employer to recalculate the overtime wages that were due and owing to the two claimants, as the Board disagreed with the calculations made by the Employment Standards Officer (“ESO”). That results in some situations in the employer having overpaid a claimant. Expressed alternatively, the employee never earned the wages as calculated by the [Employment Standards Officer] in the first place.

Further, the recalculation ordered by the Board has resulted in the overpayment. [ 35 ] The reference to the wages as calculated by the ESOs is unclear, as I do not understand the Director to be suggesting now (nor to have suggested before the Board) that the overpayment related to the ESOs’ orders.

The Director’s submissions were focused instead on how Sleep Country reconciled the calculations arising from the Board’s first decision. [ 36 ] If what the Board meant was that the employees never earned the amount calculated in accordance with the Board’s approach, I do not find that the statement follows rationally. Sleep Country had a compensation plan in which employees received commissions when sales were completed, including for hours which constituted overtime hours.

It was entitled to have that compensation plan in place, and employees were entitled to rely on it, so long as on any given week it did not pay employees less for overtime hours than the minimum as calculated under the Act . [ 37 ] The Board’s statement that the “recalculation ordered by the Board has resulted in the overpayment” only makes sense if the starting point is that Sleep Country was only required to pay at most overtime as calculated in the Act each week. However, the Board’s reasons do not explain why this would be the case, either under the Act or under Sleep Country’s compensation plan.

There is no suggestion in the Board’s reasons that there was an agreement between Sleep Country and its employees to pay them no more than the minimum required for overtime as calculated under the Act . [ 38 ] On this issue, then, I do not find the Board’s reasons to be transparent, intelligible and justified. Disposition [ 39 ] The application is allowed only on the issue of the reconciliation of payments. It is otherwise dismissed.

The matter is remitted to the Board to recalculate overtime payments on the basis that weeks for which more than the minimum was paid do not constitute overpayments. [ 40 ] The parties agreed that $7,500 in costs should be payable to the successful party. Although the result of the application is divided, I consider Sleep Country to have been successful on the more significant issue. I would therefore award it the bulk of the costs agreed-upon. The Director shall pay Sleep Country costs of $5,000 all-inclusive within 30 days. _______________________________ O’Brien J.

I agree _______________________________ Backhouse J.

I agree _______________________________ Howard J. Released: June 26, 2023 CITATION : Director of Employment Standards v. Sleep Country Canada , 2023 ONSC 3795 DIVISIONAL COURT FILE NO.: 402/22 DATE: 20230626 ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT Backhouse, Howard and O’Brien JJ BETWEEN: DIRECTOR OF EMPLOYMENT STANDARDS Applicant – and – SLEEP COUNTRY CANADA Inc. o/a sleep country canada – and – marianna molodkova – and – rick pane – and – ontario labour relations board Respondents REASONS FOR DECISION O’BRIEN, J Released: June 26, 2023