Sharon Michalowski didn't think she was selling her soul to Nygard International Ltd. in November 2001 when she signed a contract to work “all hours required to be worked” to earn her $34,000 salary as a clothing store supervisor for the company's Winnipeg operations.

But Nygard thought otherwise, forcing Michalowski to work almost 300 overtime hours in the six-month period before she left the company in January 2003.

“No matter how many hours a week I worked, I'd still get dinged on my bonus if I showed up 10 minutes late,” Michalowski says. “All the other places I've worked gave me time off in lieu of the overtime.”

Days after leaving Nygard, Michalowski contacted the Manitoba Labour Board, claiming the company owed her back overtime pay. The board agreed, awarding her $7,000 in November 2004.

In written reasons delivered in mid-February, the board concluded although Michalowski, who supervised three stores and 20 employees, was a salaried employee with the title of “manager,” she was nonetheless entitled to overtime pay.

The case has drawn national attention. Companies are concerned courts and labor boards are becoming more inclined to grant overtime pay to salaried employees, including supervisors and managers. Although overtime laws in Canada don't specifically exempt salaried workers, regulators rarely have applied them to nonhourly employees, especially managers.

“Companies are scooping up the decision because they're afraid that their own practices will now result in overtime complaints against them,” says Ken Dolinsky, a partner in Winnipeg-based Taylor McCaffrey and chair of the labor law subsection of the Manitoba Bar Association.

Nygard is seeking leave to appeal. If the Court upholds the board's decision, some businesses could be liable for millions of dollars in back pay.

“Companies may be sitting on a large amount of back overtime costs from employees who might challenge them,” says Dave Angus, president of the Winnipeg Chamber of Commerce.

It's not just Nygard that's making companies nervous. Recent legislative initiatives also are forcing companies to re-evaluate to which employees they must pay overtime.

Labor Pains

Particularly distressing to employers is the disregard the Manitoba Labour Board had for the written contract between Nygard and Michalowski.

“Nygard's lawyer told the board Nygard owned Michalowski seven days a week, 24 hours a day,” says Dave Dyson, executive director of the employment standards division at Manitoba Labour and Immigration. The board didn't see it that way.

The board concluded while certain high-level managers might be regarded as “employers” exempt from overtime, Nygard couldn't avoid overtime laws by simply calling Michalowski a “manager” and putting her on salary. Some experts think that decision overstepped the bounds of the law.

“Nygard is a case of a tribunal doing through the back door what labor legislation doesn't explicitly cover,” says Norman Grosman, a partner at Grosman, Grosman & Gale, a Toronto employment law firm.

In other words, while Canadian labor laws generally exempt “managers” from overtime laws, Nygard makes it clear that labor tribunals and courts are likely to define “manager” narrowly–regardless of an employee's title or what her contract says.

And now the legislation appears to be on the verge of change.

On the heels of Nygard, federal labor minister Joe Fontana announced he was launching a review of the labor standards portion of the Canada Labour Code. The code sets standards for 1.3 million workers.

Fontana indicated that the review–the first since the standards were enacted in 1965–was aimed at ensuring the law reflected modern working conditions. High on Fontana's announced list of priorities was overhauling the overtime rules, including “hours of work” and “work-life balance.”

His announcement also came after Health Canada revealed more than

25 percent of Canadians now work more than 50 hours a week; 10 years ago, the proportion was only 10 percent.

“The timing of the review suggests the government is anxious to look after employees who are not explicitly covered by current legislation,” Grosman says. “It wouldn't surprise me if the government broadened the categories of people who must be paid time-and-a-half for their efforts.”

Dyson agrees that change is inevitable: “My federal colleagues tell me they want to be visionary in their approach.”

Businesses will get their first glimpse of that vision in January 2006 when Harry Arthurs, a professor at York University's Osgoode Hall Law School and head of the federal review, is due to release his report on proposed revisions to the labor code.

Meanwhile, the province of Ontario, Canada's financial center, already has begun its attack on overtime.

Ontario Gets Radical

Ontario Labor Minister Chris Bentley announced in January 2004 his government intended to end the “60-hour work week.”

This turned out to mean that employers who want their employees to work more than 48 hours a week must conform with The Employment Standards Amendment Act (Hours of Work and Other Matters) 2004. The legislation, also known as Bill 63, went into force March 1.

Bill 63 requires employers who want their employees to work more than 48 hours a week to obtain written agreements from the employees, and have their overtime plans approved by The Ministry of Labour. The application for approval must meet a number of criteria, including evidence the overtime won't be detrimental to the health and safety of employees.

But Jeff Goodman, a partner at Heenan Blaikie in Toronto, says Bill 63 leaves employees no better off than they were under the previous legislation.

“How the added requirement of approval by the director of employment standards will decrease the pressure some employees may feel to work extra hours is unclear,” Goodman says. “What is clear is that the administrative burden on employers under the amendments will increase dramatically.”

Most troubling for employers is the lack of clarity in the approval process.

“Bill 63 states that the director can consider 'any factor he or she considers relevant' in deciding whether to issue an approval,” Goodman says.

Goodman also is concerned about the fairness of the approval process.

“Considering the impact that a denial of approval may have on an employer's ability to conduct its business, it is problematic that the director isn't obligated to meet with an employer before denying an application, or even provide reasons for the decision,” he says. “The effective injection of the director into an operations decision is remarkable.”

But no more so than the potential impact of the renewed focus on overtime generally.

Use Common Sense

According to Grosman, legislators and courts have tended to presume high-level employees have the power to protect themselves. But that's true only at the most senior levels, he adds.

“Advancement for middle managers in many companies is tied to working long hours,” he said. “Anyone applying for such a position is unlikely to get the job if he demands overtime pay.”

Nygard, the federal review and the toughening of Ontario legislation suggest the trend is to broaden employee protection so employees can regain bargaining power.

Meanwhile, Michalowski suggests common sense could have avoided all the hullabaloo that has emerged from her case.

“Overtime shouldn't be a legal issue for anyone,” she says. “Being sensible and reasonable with employees goes a long way.”