The Court of Appeal confirms the constitutional invalidity of certain pay equity provisions

On October 12, 2016, the Quebec Court of Appeal largely confirmed a Superior Court decision declaring sections 76.3 and 76.5 of the Pay Equity Act to be unconstitutional. These sections violate the Canadian Charter of Rights and Freedoms and the Charter of Human Rights and Freedoms on the grounds of gender discrimination.

The Court of Appeal also declared the second paragraph of Section 103.1 of the Pay Equity Act to be unconstitutional.

This decision affects three elements that could significantly change employers’ obligations pertaining to pay equity audits:

• Providing more information to employees in postings so that they can evaluate whether the audit results are good or bad (Section 76.3).
• Paying compensation adjustments retroactive to the date on which the change creating the gap occurred (Section 76.5). Adjustments are currently made every five years when the pay equity audit must be conducted.
• Paying retroactive compensation adjustments in response to a complaint filed with the Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST).

The Court of Appeal gave the Quebec legislator one year to adopt new provisions that comply with the charters.

However, the Attorney General of Quebec could appeal this decision to the Supreme Court of Canada. This would postpone the changes to the impugned provisions and could potentially alter the conclusions of the judgment. We are closely monitoring developments related to this matter.

A good way to prepare for the changes that could be made to the Pay Equity Act is to be well structured, adopting and applying a compensation policy and practices that promote equity. In addition to preventing gaps between female and male job classes when the pay equity audit is conducted, a clear and structured compensation policy will allow for internal, external and individual equity to be established.

Sound total compensation management benefits all organizations and goes beyond pay equity obligations. Good management practices will not only allow organizations to remain compliant with the Pay Equity Act, but will also help them attract and retain top talent.

The legislator could maintain periodic pay equity audits, but must make the exercise retroactive. The Court of Appeal stated that the infringement of constitutional rights does not lie in the periodic nature of the audits, but rather in the absence of retroactivity.

The legislator should amend two aspects of the Pay Equity Act: the information communicated via postings and the date on which compensation adjustments apply.

As regards the information communicated in postings, it is conceivable that the legislator would require further details concerning the pay equity audit method, including the nature of changes that have occurred within the organization since the last pay equity audit and the date on which these changes took place.

With respect to the date on which the adjustments apply, although it is difficult to predict how the changes to the Pay Equity Act could be structured, two options can be presented:

• A first option would be that a pay equity audit would be conducted each time that a change occurs within the organization, and that corrective action would be taken immediately. This would avoid having to pay interest on retroactive amounts owing, but would expose the employer to constant and upward salary fluctuations.
• A second option would be that the pay equity audit would continue to be conducted every five years, but that ensuing adjustments would be retroactive to the date of the change leading to the gap. This would require comprehensive and constant documentation of even the slightest changes related to jobs in the organization so as to be able to identify the event (and date) resulting in a pay gap.

Keep in mind that several events can generate pay gaps in an organization (for example, the creation or abolition of a job category, an increase or reduction in job tasks, the re-evaluation of job categories, the negotiation of a collective agreement, a salary increase, a merger with or the acquisition of a company, etc.).

For organizations that conducted pay equity audits and were not subject to any complaints, it is unlikely. However, for organizations that were subject to complaints of this nature, particularly those for which the employees are represented by the unions belonging to this coalition, it could be a possibility.

Remember that the provision preventing the CNESST from determining retroactive compensation adjustments was declared unconstitutional by the Court of Appeal.

You can consult the Court of Appeal’s judgment by clicking here.

Please feel free to contact us for additional information.