Friday, May 16, 2008

Start-Up Overtime: To Pay, Or Not To Pay?

I keep a running list on my desk of issues to watch. (I know, I know: it’s a pathetic substitute for a hobby. Maybe I should give Sudoku another shot.) Near the top of the list for the last two years has been this note: “watch for class action lawsuit against successful start-ups (and possibly VCs) for unpaid overtime.” Despite the well-publicized lawsuits by bank teller and others, high tech companies in Ontario largely remain in denial about the fact that laws regarding overtime apply to them.

Generally speaking, in Canada overtime is payable at a rate of time and a half for each hour worked in excess of 40-48 per week (depending on the province). This standard does not apply if you are in an exempt category, or in a category for which special rules apply. Here’s where it gets tricky.

In Ontario, the Employment Standards Act is full of special exempt categories. My friend and labour law god Dan McKeown likens the Act to “a big old Victorian house with lots of tiny little rooms.” One such tiny little room is a category called “information technology professionals…[who] work on information systems based on computers and related technology.” In other words, IT help desk and other support people.

Many high tech companies in Ontario are dancing on the head of the “IT professionals” pin and applying it to all of their personnel – code developers, product support, engineering etc. Another technique is to provide most staff with the appearance of a managerial or supervisory role (both of which also are exempt from overtime). It’s not clear to me that either is a good defense to a claim for overtime.

The situation in Ontario differs in British Columbia, where the province has decided, as a policy matter, to create a broad exemption from overtime for “high tech professionals” which would include workers other than IT support. A few years ago, CATA and other groups lobbied for Ontario to adopt a similar change, in order to create a business friendly high tech environment. That appeal has gone unanswered.

Where does that leave Ontario high tech? Larger public companies have, for the most part, have either mandated that there will be no overtime, or acknowledged overtime and, to manage cash flow, indicated that overtime is to be taken as vacation pay. Of course, nothing helps enlightenment like a class action suit; in 2006 a US-wide class-action suit was launched against IBM by its high tech staff, which encouraged IBM and others to address the issue.

But for many start-ups and VC-backed businesses, the issue appears largely unaddressed. As a company scales, this can become a ticking time bomb. There are a number of ways to address the matter early and often. Want information? Give us a call, or come to our workshop on offers May 26.