By Dante Manna

As we advised in a previous podcast, all federal employers with at least ten employees^[1] have been subject to the Pay Equity Act ^[2] (“PEA”) and Pay Equity Regulations ^[3] (“Regulations”) since August 2021, and are required to engage in a pay equity process culminating in a pay equity plan.

We are now just one year removed from September 3, 2024, the date when a final pay equity plan must be posted.

Lessons so far – two preliminary considerations from the first two years 

Federal employers during the first two years of the pay equity regime, have benefitted from careful review and planning in advance – particularly those required to form pay equity committees.^[4] Two interrelated considerations have arisen from preliminary work.

Finalizing “employer” determinations:  A common question among corporate groups has been which company in the group is a given employee’s “employer” for pay equity purposes.^[5] The ‘one plan per legal entity’ rule of thumb, supported by the Canadian Human Rights Commission’s (“CHRC”) policy on “definition of employer”, underscores the significance of the legal question for groups of affiliated companies, where it is common for employees to exist on one company’s payroll while providing services for another.  For employers employing both federal and provincial employees, the latter would be disregarded for pay equity purposes.^[6] Corporate transactions involving employee transfers are a further variable, which has incentivized completion of any planned mergers or restructurings prior to commencing pay equity work.

Compensation review, gap identification and mitigation: Pro-active employers have taken steps, on a preliminary basis, to estimate and compare total compensation for different classifications of employees.  Compensation comparison under pay equity legislation is a complicated system of inclusions, exclusions, averaging and/or statistical analyses which, combined with a series of esoteric CHRC policies, have prompted some employers to enlist outside assistance with this review.  One important variable is position reclassification, which can affect the relative compensation profile of a particular class.  This provides an impetus to complete any reclassifications, in addition to compensation changes, before the pay equity process begins.  As an added potential benefit, preliminary compensation review can potentially be leveraged during the pay equity process, including by a pay equity committee.^[7]

September 3, 2024 – a turning point

The PEA contemplates that,12 months from now, employers will transition away from establishing their pay equity plans, and towards administering and maintaining those plans. Recognizing certain aspects of the transition will be helpful to employers as they approach this turning point.

Pay equity plans should be substantially complete by early June 2024:  While final pay equity plans must be posted by September 3, 2024, the PEA requires that plans be posted, in draft, for a minimum of 60 days, with a notice to employees explaining how written comments can be submitted during that time.^[8]  Only after these comments are considered by the employer, or pay equity committee, as the case may be, can the pay equity plan be finalized, with such comments taken into consideration.^[9] We expect that this will effectively require draft plans to be posted by early June, 2024, in order to allow for time to finalize the plan. These obligations should be considered when approving vacation time for the summer of 2024, particularly in workplaces with a pay equity committee.

Phase-in period for pay increases in accordance with plan begins the following day:  The phase-in period for the pay equity plan must begin no later than September 4, 2024;^[10] pay increases must start as of that date.^[11] Even where a collective agreement applies, the PEA states that the pay equity plan requirements prevail to the extent of any inconsistency it may have with the collective agreement.^[12]

Are timeline extensions possible?

The pay equity regime provides no automatic deadline extensions; all applicable deadlines should be followed wherever possible.  Nevertheless, it is worth noting that alternative timelines for posting a final pay equity plan may apply in limited circumstances.

Requests to Pay Equity Commissioner:  Employers may apply to the Pay Equity Commissioner for an extension of the timeline for posting a final pay equity plan.^[13] Such extensions are at the Commissioner’s discretion, if the Commissioner considers the request appropriate in the circumstances.^[14]

New federal employers:  New federal employers will generally be subject to the PEA as of January 1 of the year after the first calendar year in which they employ ten or more employees on average.^[15]  Such employers will generally have three years to post a final pay equity plan from the date that the PEA first applies to them.^[16]  However, this general rule is subject to some exceptions.  For example, the purchaser of the business of an existing federal employer is immediately liable for the seller’s obligations under the seller’s pay equity plan.^[17]  Also, where a formerly provincial employer becomes a federal employer at least 18 months after the PEA’s coming into force, their timeline for posting a final pay equity plan is only 18 months from the date on which such federal employer first became subject to the PEA. ^[18]

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Labour and Employment group.

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[1] The PEA applies to all “employers” with at least 10 “employees”, on average; PEA, infra note 2, s. 6.  “Employers”, for these purposes, include any private sector employers employing employees in connection with any federal work, undertaking or business as defined in section 2 of the Canada Labour Code (PEA, infra note 2, s. 3(2)), and “employees” includes persons employed in such federal work, undertaking or business, including dependent contractors (PEA, infra note 2, s. 3(1)). Undertakings under s. 2 of the Canada Labour Code are known to generally correlate to work in certain industries, including telecommunications, broadcasting, banking, air transportation and interprovincial or international transportation, marine shipping, postal and courier services.  In this update, the term “federal employer” will mean a private sector employer employing employees in a federal work, undertaking, or business.
[2] Pay Equity Act, S.C. 2018, c. 27, s. 416 [“PEA”].
[3] Pay Equity Regulations, SOR/2021-161 [“Regulations”].
[4] Generally, pay equity committees are required for federal employers employing more than 100 or unionized employees; see our reference chart summarizing this and other high level procedural requirements from the PEA and Regulations.
[5] The PEA and Regulations generally do not require one employer to disclose its employees’ compensation data to the pay equity committee of another employer.
[6] The PEA definition of “employee” includes only those employed in a federal work, undertaking or business; PEA, supra note 2, s. 3(1).
[7] The PEA and Regulations neither require pay equity committees to, nor preclude them from, adopting a compensation review provided by the employer or a third party in the establishment of a pay equity plan.  In fact, CHRC’s legislative guide explicitly supports the use of third-party experts by a pay equity committee as a means of resolving disputes.
[8] PEA, supra note 2, ss. 52, 54.
[9] PEA, supra note 2, s. 54.
[10] PEA, supra note 2, s. 61.
[11] This is subject only to a 90-day waiting period for complaints – the PEA requires that potential complainants made must wait at least 90 days, dating from the date of a required payment that was allegedly not paid, before a complaint regarding such alleged violation may be filed; PEA, supra note 2, s. 96.
[12] PEA, supra note 2, s. 95.
[13] PEA, supra note 2, ss. 57 and 85.
[14] PEA, supra note 2, s. 112.
[15] PEA, supra note 2, ss. 7(3) and (4).  Examples provided in the CHRC’s legislative guide indicates that it interprets “average” to mean a simple average over the payroll periods in a given calendar year.
[16] PEA, supra note 2, s. 55.
[17] PEA, supra note 2, s. 92.
[18] PEA, supra note 2, s. 94(1)(b).