On October 12, 2016, in a highly anticipated decision (2016 QCCA 1659), the Quebec Court of Appeal unanimously upheld a Superior Court decision finding certain sections of the Pay Equity Act (PEA) unconstitutional. The Attorney General of Quebec (AGQ) could not convince the Court that the pay equity audit and compensation adjustment mechanisms were justified under the Section 1 of the Canadian Charter of Rights and Freedoms or the Quebec Charter of Human Rights and Freedoms. The Court ordered the government to remedy this situation in no more than one year.
In the meantime, employers should continue to maintain pay equity. It would even be advisable to conduct the exercise annually. Any new law will not be more flexible, and the costs related to retroactivity will continue to climb.
In 2006, Quebec’s pay equity commission, the Commission de l’équité salariale (CES), noted that, more than 10 years after the original version of the PEA was passed, one out of two companies still had not complied with the Act. After a few years of consultations, a bill creating new set of rules for maintaining pay equity was tabled and passed in 2009.
The new rules, contested in the case at issue, are found in Sections 76.1 to 76.11 PEA. They require, among other things, that a pay equity audit be conducted every five years. Ever since the new rules were adopted, there has been controversy surrounding issues related to retroactivity, employee participation in the audit and the posting of audit results.
To put the controversy to rest, the AGQ appealed a Superior Court decision. In its appeal, it asserted, primarily, that the amendments made to the PEA in 2009 were (1) necessary because the old rules were ineffective; (2) constitutional and (3) justified by the Canadian and Quebec charters, even if, at first blush, they appeared to be discriminatory.
In its decision, the Court of Appeal agrees that the 2009 reform had "[translation] an important and real objective of improving and strengthening the former, ineffective rules, particularly with respect to maintaining pay equity." However, it also states that the "[translation] preferred practice is inequitable, arbitrary and seriously breaches the right to equality rather than firmly, quickly and effectively ensuring that it is respected."
According to the Court, the problem mainly lies in the fact that "[translation] during periods of up to 62 months, pay inequity, although observed and demonstrated, will be tolerated without being compensated, to the detriment of female PAGE 2
employees." While a pay equity audit may be conducted periodically, the fact remains that "[translation] the longer the interval between audits, the greater the risk of distortions and injustices if the resulting compensation adjustments do not take into account the time elapsed."
From this, the court reasons that the provisions implemented in 2009 do not follow a constitutional route and are invalid.
Analysis and practical implications
The cornerstone of the Court of Appeal’s reasoning, in our view, is its position that "[translation] a legislative measure destined to perpetuate pay inequity is something very serious." The AGQ therefore had a very steep hill to climb, especially following the decision of the Superior Court. The Superior Court stated that, in the context of compensation adjustments, the absence of retroactivity combined with an adjustment every five years and an inadequate process for posting results made the entire process discriminatory and it consequently did not pass muster.
Justice Martin of the Superior Court had stayed the effect of his decision "[translation] for a period of one year or until the lawmakers remedy the situation, whichever is earlier." The AGQ has 60 days to take the decision to the Supreme Court, and it will be interesting to see if he does so. If he does not, expect further consultations and debates aimed at finding an adequate approach to compensation adjustments.
Because of this, we expect pay equity to be front and centre in the months ahead. Employers should pay careful attention to the debates: the costs associated with administrative proceedings related to PEA requirements, in addition to the costs directly related to achieving pay equity, are not to be overlooked.
Lastly, in addition to the review of the compensation adjustment mechanism under the PEA, the federal government recently announced its intention to compel employers subject to the federal labour relations regime to apply pay equity. Developments are expected between now and 2018. We will be following all these matters with great interest.
CSA publishes Client Focused Reforms: Amendments to NI 31-103
The Canadian Securities Administrators (CSA) recently released finalized amendments (the Amendments) to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations.