Alberta Court rules in favor of WHL players in Class Action to go forward
(Walter v Western Hockey League, 2017 ABQB 382 (CanLII) - Nov. 29, 2017)
Justice Hall certified all of the causes of action pleaded by the plaintiffs, including (1) breach of contract; (2) breach of contractual duties of honesty, good faith, and fair dealing; (3) breach of employment standards legislation; (4) negligence; (5) conspiracy; and (6) waiver of tort.
Superior courts in Ontario and Alberta have certified that class actions can proceed against the Canadian Hockey League (CHL) and hockey leagues in Ontario, Quebec, and Western Canada, as well as member hockey teams, for (among other things) breach of employment standards legislation and unjust enrichment. The actions, brought by former hockey team players on behalf of team members, claim that they were not independent contractors, but employees entitled to minimum wages and overtime pay. Certification of class actions against American teams was denied on the ground that, given the relevance of U.S. law, the preferable procedure would be to sue in the U.S. [Editors' Note: Certification is the first significant step in a class action. Under class action legislation in place in most jurisdictions in Canada, litigants (for example, a group of employees) do not have to sue separately, and go through the stress and expense of an individual trial; instead, one lawsuit can be brought on behalf of a class of people whose cases raise common issues. In a class proceeding, lawyers are paid fees from the amount recovered, and members of the class (apart from the representative plaintiff) do not have to pay the other side's legal costs.] The first decision was rendered by Justice Paul Perell of the Ontario Superior Court on April 22, 2017. On June 15, 2017, Justice John Hall of the Alberta Court of Queen's Bench followed suit, granting a request for class action certification in a proceeding filed against the Western Hockey League (WHL) and its member teams. The players are similarly alleging that, while they played in the WHL, they were employees of the clubs for which they played and were entitled to receive payments in accordance with the minimum wage legislation in the jurisdictions where the WHL carried on business. In both the Ontario and Alberta cases, the courts have ruled that the criteria for certification – in this case, that a "cause of action" and "common issues" existed – were met. However, in contrast to the decision of Justice Perell who, to avoid redundancy, cost, and complexity, certified only the claims for breach of employment standards legislation and unjust enrichment, Justice Hall certified all of the causes of action pleaded by the plaintiffs, including (1) breach of contract; (2) breach of contractual duties of honesty, good faith, and fair dealing; (3) breach of employment standards legislation; (4) negligence; (5) conspiracy; and (6) waiver of tort. It is understood that a motion for class action certification will be heard by the Quebec courts in the fall. In the meantime, both the Alberta and Ontario certification rulings have been appealed. In the Ontario action, on May 29, 2017, the plaintiffs filed an appeal of the Superior Court's refusal to certify the class action against American teams, while an appeal of the decision to certify the class action against the Ontario teams was filed by the defendants on June 13, 2017. Similarly, in July 2017, the plaintiffs and the defendants in the WHL case filed appeals of the Court of Queen's Bench ruling, with the plaintiffs appealing the refusal of the Court to certify the action against American teams, and the defendants appealing the class action certification against the Canadian teams.
According to Justice Perell, who gave the plaintiffs a green light to proceed to trial in the Ontario action, the defendants "portrayed themselves as magnanimous patrons and benefactors of their hockey players," and the representative plaintiffs Berg and Pachis "as bitter, self-centered, and ungrateful also-rans, whose proposed class action would irreparably damage the enterprise that had been built for the players to advance their careers and their prospects to play in the professional hockey leagues." Conversely, the plaintiffs asserted that they were "the exploited employees of a for-profit employer and profitable commercial enterprise in the sports entertainment business." The defendants maintained that they could not afford to pay players minimum wages and employment benefits in addition to the benefits they already provided. They asserted that each season approximately one-third of OHL teams lost money. The losses ranged from approximately $100,000 to $800,000 per year. The defendants said that a third of the teams broke even each season and that only about one-third of the teams made any profit, and that positive financial results did not take into account the contingent liability for scholarships, which was approximately $1.5 million per team. If the action were certified, the defendants claimed, all the Ontario Hockey League (OHL) teams would reduce or eliminate benefits including the OHL Scholarship Program, the billeting program, tuition coverage, tutoring programs, and food and nutrition programs and some teams would be forced to cease operations, reducing the pool of available hockey opportunities for young athletes. Without determining the merits of the claim, which will now head to trial, Justice Perell held that class action requirements under the Ontario Class Proceedings Act were met, in part, since the plaintiffs had satisfied the "cause of action" criterion for all six of their pleaded causes of action, and had established the existence of "common issues," i.e., issues that were common to all class members. However, so far as claims were concerned that engaged matters other than legislated employment standards and unjust enrichment, Justice Perell concluded that they did not meet other class action requirements, such as the "preferable procedure" criterion, according to which plaintiffs should take the most manageable route to litigation. Perell also dismissed actions against U.S. teams because the preferable procedure would be to sue in the U.S., given the relevance of U.S. law. Although it was not necessary to do so, Justice Perell offered the following thoughts on the central issue – whether amateur hockey players are employees under an employment contract or under applicable employment standards legislation – which arguably come very close to opining on the merits of the certified causes of action themselves. In this regard, Perell mused: I begin this discussion by pointing out the obvious that Messrs. Berg's and Pachis' action [turns] on resolving a single profound question that apparently has not been answered in Canada or in the United States. The question is: When do amateur athletes become employees of their teams and subject to various employment standards statutes? Messrs. Berg's and Pachis' factums [i.e. written submissions] repeatedly emphasize that the core common issue in this action is whether the players are employees of the defendant businesses and, therefore, whether the businesses are obligated to provide players with the minimum protections afforded under employment standards legislation. This critical question in this proposed class action about the relationship between the owners of a team and the team members is a profound question.
There is a continuum of types of team ownerships ranging from sponsors of lower tier teams who earn no revenue from their sponsorships to owners of professional teams and proprietors of university teams who make a great deal of money from their athletes. Some owners of amateur hockey teams are municipalities. It seems that for professional athletes, who are represented by unions and agents, the relationship between team owners and players has been categorized as an employment relationship, and there is some case law like the Tonelli case that has characterized the relationship between an amateur athlete and his team as an employment relationship; however, in the cases involving amateurs, the point was rather assumed and not argued because the athlete appeared to be paid for his work. However, for owners of lower tier amateur teams, including school teams, it seems to be assumed that there is no master and servant relationship or dependent contractor or independent contractor relationship between the team owner and the members of the team. On a continuum of relationships, the precise nature of the relationship between owner and team member is, from a legal point of view, unclear. The nature of when work becomes employment is also unclear. Students do school work and homework under the control of teachers but are not employees. Judges are paid a salary but are not employees[.] There is little doubt that the players of the OHL work very hard, but are they employees? As Justice Perell and Justice Hall both noted at the outset of their rulings, the "cause of action" criterion for certification of a class action requires only that the statement of claim disclose a viable cause of action. How the questions posed by Justice Perell and Justice Hall will ultimately be answered must await a decision following a trial on the merits of the class actions.
The plaintiffs in the Western Hockey League action, all former players who played on WHL teams, alleged in their statement of claim that, while they played in the WHL, they were employees of the clubs for which they played. They claimed, therefore, that they should be entitled to receive payments in accordance with minimum wage legislation in each of the four Canadian and two U.S. jurisdictions where the WHL carried on business. The claim – made against the WHL, the CHL, and the owners of five Alberta clubs, six British Columbia clubs, four Saskatchewan clubs, one Manitoba club, one Oregon State club, and four Washington State clubs – was similar to that filed in Ontario, and pleaded the following causes of action: (1) breach of contract; (2) breach of contractual duties of honesty, good faith, and fair dealing; (3) breach of employment standards legislation; (4) negligence; (5) conspiracy; and (6) waiver of tort. Noting that he had the benefit of reading the certification decision of Justice Perell, and commenting that "[i]n that decision Justice Perell has provided an excellent summary of the evidence and background, most of which is common to these proceedings," Hall determined that, as the pleadings in the actions before him disclosed valid causes of action, and it was not "plain and obvious" that those causes of action could not succeed, all of the causes of action should be certified. While observing that Justice Perell in the Ontario class action had found the causes of action to be valid, but declined on the ground of redundancy to certify all but the actions for breach of statute and unjust enrichment, Hall declined to follow suit, due to possible differences in the law in Ontario and Alberta with respect to the ability to sue for breach of employment standards legislation, and because, in his opinion, it was not appropriate to eliminate otherwise valid claims at the certification stage of the proceeding.
Hall explained: In this case, I cannot agree with Justice Perell in respect of the breach of contract claim against the Canadian Defendants. A viable cause of action is properly pleaded herein [through the claim] that it is an implied term of a contract of employment that the Defendants will not violate the applicable employment standards legislation. While, in Alberta, Saskatchewan and Manitoba there is a parallel cause of action for breach of the statute itself, that question is murky in British Columbia because of the decision of [the B.C. Court of Appeal] in Macaraeg [v. E Care Contact Centers Ltd., 2008 BCCA 182 (CanLII), leave to appeal to SCC refused (9 October 2008), dealing with the ability to sue in court for breach of employment standards legislation]. Justice Perell chose not to certify various causes of action for reasons of efficiency and judicial economy. I am not prepared to follow his lead. If the pleadings disclose causes of action, then I consider that those causes of action should be permitted to proceed. While I recognize that the Court is to look at the preferable procedure question through the lens of access of justice, behaviour modification and judicial economy, and that redundant causes of action do not promote either access to justice or judicial economy, nevertheless, I am not prepared to strike causes of action which have been properly pleaded. I cannot do so in actions brought by a single plaintiff. Similarly I do not believe I can dispose of properly pleaded causes of action in a class action certification application. It may be that the Plaintiffs would be well advised to simplify their claims. It may be that some of these claims might be summarily dismissed upon proper application. However, I will not rule out such claims at this stage in the proceedings. After determining that there was "some basis in fact for a finding that the claims of the prospective class members raise … common issues," Hall addressed the requirement that a class proceeding be the "preferable procedure for the fair and efficient resolution of the common issues." In this regard, Hall found that, in respect of the Canadian defendants, a class proceeding was the preferable procedure.
Hall reasoned: The Plaintiffs note that there are thousands of prospective class members, and that any alternative to a class proceeding would require individual civil and/or statutory claims to be made in multiple jurisdictions before the [relevant] tribunals or courts. The common issues would be litigated repeatedly on an individual basis…. The plaintiffs maintain this would be inefficient and impractical, and would result in a significant waste of judicial and administrative resources; whereas a class proceeding would allow the common issues against the WHL and the affiliated clubs to be determined together in the most economical, efficient and practical manner…. … I note that, because the Statement of Claim deals with claims in four different provinces, and 2 US states, the Alberta Court must apply foreign law in determining the answer to the issues arising in the action. Because there are six different jurisdictions, where the law may differ in some respects in each jurisdiction, the matter to be tried is complex. However, the complexity of proceeding in one action pales in comparison to the inefficiency, confusion, and potential lack of consistency if each of the prospective Plaintiffs was required to litigate his claim separately. … I am satisfied that a class proceeding is the preferable procedure for the fair and efficient resolution of these common issues…. However, Hall agreed with the defendants that the class action was not the preferable procedure for the claims against American teams, and dismissed those claims. Noting that Justice Perell in the Ontario action had reached the same conclusion, and agreeing with his reasons for doing so, Hall stated: Justice Perell noted that the manageability of the class action is an important ingredient of the preferable procedure analysis. He was of the view that the differences in the claims against the Ontario teams versus the claims against the American teams create a management nightmare…[and] that there is a real prospect that there might be inconsistent outcomes for the class comprised of players from teams in Ontario, Michigan and Pennsylvania. He stated that it is not a given that players, whose playing circumstances are common under the SPA [Standard Player Agreement], would be classified as employees under all of Ontario, Michigan and Pennsylvania law, because each jurisdiction has its own common law and its own statutes to interpret. He noted that each statute must be interpreted discretely. He noted that the status of amateur athletes as employees is an open question in Ontario, Michigan and Pennsylvania. In the result, he did not accept that it was fair to the Defendants for an Ontario court to interpret and apply the Michigan, Pennsylvania or US federal government minimum wage and employment standards legislation, where access to justice is available to the players in the American courts in Michigan and Pennsylvania. … He held it would not be just and fair to the American team Defendants for an Ontario court to decide the application of American law. Therefore he concluded that an Ontario class action is not the preferable procedure to resolve the claims against the American teams. … I agree with Justice Perell's reasoning and conclusion respecting the US teams, and I find it is applicable to the teams in this action that are based in the states of Washington and Oregon…. [I]t would be inappropriate for an Alberta court to tell Washington and Oregon how their law should be interpreted and applied in these circumstances. … It would be preferable that actions proceed in Washington and Oregon in respect of the US Defendants. Like Justice Perell, I am not prepared to certify the class actions against the US Defendants. Finally, Hall ruled that the defendants had not established any disqualifying conflict of interest with respect to the proposed representative plaintiffs, either as between other prospective class members or the parents of players, whom the defendants claimed better understood the benefits of such items as the scholarship program, educational assistance, and coverage of costs related to equipment. Further, Hall rejected the defendants' claim that the possibility of teams going out of business and current players no longer receiving the benefits received by past players, or being cut from teams altogether, created a conflict of interest. In this regard, Hall adopted the following statement from Justice Perell in the Ontario proceeding: A disqualifying conflict for the representative plaintiff does not arise from a defendant's threats or dire predictions of the consequences of certification. A future theoretical risk is no basis to deprive class members of access to justice through a class proceeding: … Moreover, if the action is certified and if the sky does indeed fall, then the sky falling is not a reason to decertify the class action…. It is not exculpatory of wrongdoing for a defendant to argue or even prove that it cannot afford to comply with the law.
Comment: The certification decisions in the instant cases follow a high-profile dispute in the U.S. over what Perell called the "profound question" of when amateur athletes become employees subject to employment standards legislation. On December 5, 2016, the U.S. Court of Appeals for the Seventh Circuit ruled, in Berger v. National Collegiate Athletic Association, 843 F.3d 285 (2016), that college track and field athletes "are not employees and are not entitled to a minimum wage under the FLSA [Fair Labour Standards Act]." Following the decision in Berger, in Dawson v. National Collegiate Athletic Association, No. 16-cv-05487-RS (N.D. Ca. April 25, 2017), a class action claim against an American university on behalf of U.S. college football players was dismissed by a U.S. district court after the plaintiff unsuccessfully attempted to distinguish his claim from Berger by pointing out that college football teams generated considerable revenues for their institutions. While these decisions suggest that a student athlete would not be considered an employee under American law, the question remains open with respect to non-student amateur athletes, in the U.S. as well as in Canada. Indeed, two of the expert witnesses in the Ontario action testified that U.S. law remains unsettled on the question of whether amateur athletes in general are considered employees. The plaintiffs have hinted that they may attempt to emphasize the distinction between student athletes and non-student amateurs, as they argued that CHL players do not fall under any exception for interns or trainees because, unlike National Collegiate Athletic Association (NCAA) athletes, they are not student athletes representing any school or college. Although, as Perell observed, the substantive question of whether minor league hockey players should be considered employees remains unsettled, Canadian courts have addressed similar issues. In Toronto Marlboro Major Junior A Hockey Club et al. v. Tonelli et al., 1975 CanLII 517 (ON SC), 1977 CanLII 1385 (ON SC), and 1979 CanLII 1969 (ON CA), a series of decisions dealing with a claim for breach of contract, Ontario courts referred in passing to a minor league hockey player as an employee of his team and the SPA as his employment contract. More recently, in McCrimmon Holdings Limited v. Canada (Minister of National Revenue),  T.C.J. No. 823 (QL), the Tax Court of Canada ruled that minor league players were indeed employees, whose earnings were therefore subject to the Employment Insurance Act. However, these decisions will not necessarily dispose of the central issue in the instant cases. In Tonelli, the question of whether the players were employees was not actually in dispute. Further, the defendants in the instant cases argue that, even if players were once considered to be employees, they should no longer be, given the subsequent changes to the SPA. The defendants in the Ontario action made arguments to the effect that requiring them to pay players the minimum wage would impose financial hardship on many of the smaller clubs, to the point that it could compromise their ability to operate at all. After encountering this argument in the Ontario action, the plaintiffs in the Alberta action anticipated this position by requesting disclosure of financial statements and tax returns, not only from WHL teams but from OHL clubs as well. In a decision dated October 28, 2016, the Alberta court ordered the CHL, WHL, and their teams to produce relevant financial documents, noting that the defendants appeared to be planning to oppose certification on the basis that it will have a deleterious effect on their finances. However, the court declined to extend the order to OHL teams unless the defendants wish to rely on OHL-based evidence, as those teams are not subject to the Alberta action. As noted above, the class actions certified by the Ontario and Alberta courts are the subject of appeals by both the defendants and the plaintiffs, with the plaintiffs appealing the refusals to certify the actions in respect of the American teams, and the defendants appealing the decisions to certify the actions against the Canadian leagues. Readers will be kept apprised of further developments.