Jail sentence, hefty fine for employer highlight importance of compliance

Restaurant owner didn’t pay money owed to more than 60 employees
By John Dujay
|Canadian HR Reporter|Last Updated: 08/27/2018
Jail
Employers should review policies and processes so they’re not in a situation where they’re being levied fines and penalties, or facing jail time, according to Annie Chong, manager of the payroll consulting group at Thomson Reuters. Fred Thornhill (Reuters)

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A recent case in Ontario involving unpaid wages — and a severe penalty — should have employers taking note, according to experts.

The guilty party was Yuk Yee (Ellen) Pun, Toronto owner of the now-defunct Regal restaurant chain. She was found guilty of breaking Ontario employment laws after more than 60 workers were not paid $676,000 owed to them in wages, overtime and other compensation.

As a result, Pun was sentenced to jail for 90 days and punished with $900,000 in fines.

“It was a reflection of how disgusted the ministry was with the violation, and it’s really bad — they’re basically being ignored,” said Sharaf Sultan, principal at Sultan Lawyers in Toronto.

“And it seems that this business owner was also involved in basically defrauding other people. In this case, the signal was ‘If (the ministry) doesn’t respond in this case, what case are we going to respond in harshly?’”

Such a strong ruling is rare, according to Annie Chong, manager of the payroll consulting group at Thomson Reuters in Toronto (publisher of Canadian HR Reporter).

“Obviously, in this particular court case, it’s an ongoing thing for a few years. And the number of employees involved, we’re talking over 60 people. This is a very extreme-case scenario,” she said.

“It does send a very strong message. It also forces employers to look at and review their policies and their processes because they don’t want to be in the situation where they’re being levied fines and penalties, and jail time; I mean, 90 days — that’s really extreme.”

Administrative errors

Most of the time when employees aren’t being paid properly, it’s due to an error, according to Daryl Cukierman, partner at Blakes in Toronto.

“I don’t think it’s a relatively common thing, but when it happens, in my experience, I find it is often due to administrative error oversight; that perhaps something wasn’t calculated correctly,” he said. “There’s a lot of formulas under employment standards legislation for calculating vacation pay, for calculating holiday pay; there’s specific formulas in terms of what gets captured, for example, in the definition of wages.”

And for those business owners that are informed by employees that an error was made, most “are generally very quick to remedy that.”

“And if they miscalculated something or didn’t include something in a payment, once brought to their attention — if, in fact, the employment standards legislation requires that amount to paid — they will remedy that,” said Cukierman.

For those employees who feel they have a strong relationship with their employers, talking to them might be the best idea, instead of involving the ministry, according to Chong.

“I’ve always advised (employees) that if they know the company is doing something that they’re not supposed to be doing, maybe they’re not aware of it. I’ve often advised them to get the information in order, download the information, the legislation, because everything’s on the internet,” she said.

But ignorance of the law isn’t a defence that can be used to shield small and potentially less sophisticated employers from possible prosecution.

“A lot of these smaller businesses, they have accountants who look after their bookkeeping. And a lot of these folks don’t really have that level of knowledge in terms of what the rules are,” said Chong.

“Even though you have a third-party service provider processing your payroll, it falls back on the employer to ensure that if employees are entitled to overtime, they’re being paid overtime; if they’re entitled to vacation, they’re being paid vacation (and) leave of absence — things of that nature.”

So, how do some employers get away with not paying employees for so long?

“In general, there’s this underlying power imbalance between employers and employees. Oftentimes, employees that aren’t getting paid, they might continue working in the hopes that they will get paid,” said Miriam Anbar, associate employment lawyer at Rodney Employment Law in Toronto.

“The employees who are impacted by the failure to pay wages, they’re often vulnerable employees. And, in this case, the employees involved were cleaning crew, and it was employees in the food-service industry and many of them didn’t speak English as a first language — they’re the vulnerable sector of employees.”

Employees not being paid properly is probably more widespread than many might believe, said Sultan.

“There’s no statistic to prove this, but I think the violation rate is probably pretty high,” she said.

“What that means is that most employees are left with what is often a less-than-appealing choice to make, which is: Do they leave their employer under bad circumstances? Or do they just move on, maintain a good relationship and not really enforce their rights?” 

“That’s the dilemma... and I think that’s probably one of the one of the reasons why the Ministry of Labour needs to take a more proactive approach because they kind of have to be the guardians of it,” said Sultan.

Non-compliance not a good idea

The previous Liberal government in Ontario implemented an overhaul of the province’s employment standards last year, and the Pun ruling sends the message the ministry is ready to enforce the laws more enthusiastically, said the experts.

“(With) the jailing of an individual, I wouldn’t say it’s anything particularly new under the law, but I would say that it’s probably more accurately reflective of the new spirit of enforceability that probably came along with the recent changes to the Employment Standards Act, because one of the criticisms was that there just was not enough enforceability and or enforcement of the act itself,” said Sultan.

“There was just a general sense that employers needed to be held more accountable for their actions, because part of the issue is that a lot of employees don’t know that they have the right to pursue the rights they do; but, secondly, even when employers are scrutinized for having violated something under the act, whether it be wages or overtime, employers may get an order against them, let’s say to pay, but they can either appeal the order or they can... ignore the order.”

The ministry has also implemented new rules to publicize bad actors, said Anbar.

“The ministry can actually publish on the internet a detailed account of what companies have been issued (as) a penalty,” she said. “There’s a list of convictions online (and this can) damage their reputation by simply being publicly humiliated online, with respect to their conviction. So that’s something to be mindful of as well as an employer.”

“Where employers get in trouble is when either a claim is not resolved and it gets to the point where an order to pay has been issued by the ministry. And then the company either ignores the order to pay or doesn’t take it seriously. And then there’s non-compliance and that’s where the matter can escalate and, ultimately, result in jail time or fines and the publication of their convictions — and that’s where owners and directors may get involved as well,” said Anbar.

“Companies definitely need to consider the consequences of non-compliance especially in light of cases like this one.”

The ministry received 68 complaints before prosecuting the case. Pun was originally ordered by the ministry to pay the employees more than $457,000 in June 2015, but the order was ignored.

The practice of ignoring ministry orders may be coming to a close, according to Anbar, especially considering the ministry promised last year to hire 175 new employment standards officers.

“There’s been this sort of attitude that the ministry can’t really successfully collect on their orders to pay and so these cases really demonstrate that they can escalate and take more serious action if they can’t recover payment,” she said.

“It’s definitely a wake-up call for employers.”

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