CHL REACHES SETTLEMENT WITH FORMER PLAYERS IN MINIMUM WAGE LAWSUIT

By Alec Roberson

On May 15, 2020, the Canadian Hockey League (“CHL”) finally settled lengthy litigation with ex-CHL players involving the CHL’s refusal to classify its players as employees and instead classifying them as student athletes by filing a settlement agreement (the “Settlement Agreement”) with the courts of Ontario, Alberta and Quebec. This comes after a two day mediation and as a finalization (at least to a degree) of what was roughly six long years of litigation facing the CHL. If you have been following our blog you will remember our very first article explored the facts and issues in that lawsuit. If you have not read that article, check it out here as it helps explain the back story of this controversy. If you are not familiar with this situation you should read that article before jumping back to this one.

With all of that said, this article provides a general outline and analysis of what the final Settlement Agreement says and does, as well as what it does not do. If you are interested in reading the full Settlement Agreement, you can find the final version here.

The Class and the Parties

The first important piece to point out regarding the Settlement Agreement is understanding who is actually a party to, and therefore directly affected by, the Settlement Agreement itself. The CHL, each of its leagues, and each of the Canadian teams within the CHL is considered a “defendant” under the Settlement Agreement (collectively the “Defendants”). This includes every Canadian team in the Western Hockey League (“WHL”), the Ontario Hockey League (“OHL”) and the Quebec Major Junior Hockey League (“QMJHL”). There are 60 teams that comprise those three leagues and 52 of those teams are based in Canada.

By: Tabercil from Canadian / CC BY-SA (https://creativecommons.org/licenses/by-sa/2.0)

Those 52 teams are the ones responsible for the payment to the players who are eligible and file a claim. The remaining 8 teams based in the United States are not part of this Settlement Agreement or the lawsuit. At this time, that may be good for some teams such as the Portland Winterhawks who are currently dealing with bankruptcy and transfer in ownership issues due to COVID-19 but may leave the door open for problems down the road.

Perhaps more interesting than the teams responsible for the payout is the way the Settlement Agreement defines the eligible class of players that can join in the settlement and file a claim. There are many former players that had joined the class action lawsuit who will actually be ineligible to participate as a party to the settlement. To start off, any player that signed an NHL contract is automatically ineligible to file a claim. The Settlement Agreement further defines the eligible “Class” as former players that played on teams at certain times and at certain ages based on the Canadian province where those teams were located. Generally speaking, they must have played between 2010 and 2019 but the Settlement Agreement is more specific than that depending on the province. To give you a brief snapshot, the requirements for a former player who played in Ontario are as follows:

(a) All players who are members of a team owned and/or operated by one or more of the clubs located in the Province of Ontario or at some point commencing October 17, 2012 and ending November 15, 2018, who were members of a team and all players who were members of a team who were under the age of 18 on October 17, 2012.

Each province has a different range of dates and ages and I encourage you to look at pages 5 and 6 of the Settlement Agreement if you are particularly interested in the specifics for each one. It is important to note that former players whose playing careers in the CHL only encompassed part of the time frames specified in the Settlement Agreement are still eligible for a reduced, pro rated payout.

Payment

The total payout amount from the 52 Canadian CHL teams due to all of the players who are eligible and file a claim is 30,000,000 Canadian Dollars (the “Settlement Amount”). A large portion of this Settlement Amount will be paid by insurance (roughly 15,000,000) but it is estimated to cost each of the teams around CAD $250,000.

Even though the Settlement Amount is due to the eligible Class, there are some amounts that are taken off the top before the remaining amount is distributed to the Class members. First off, administrative expenses, legal counsel fees, amounts payable to any entity that assisted in funding any of the class actions and taxes are among a few other items that are paid out of the Settlement Amount first. In addition, the representative plaintiffs for the classes in each class action lawsuit (Ontario class action, Quebec class action, and Alberta class action) gets paid what is known as a “representative plaintiff honorarium.” Samuel Berg, the representative plaintiff in the Ontario class action receives CAD $20,000 while the remaining representatives each receive CAD $10,000. The remaining amount will go to the eligible Class members that make a claim. After notice to make a claim is distributed to each member of the Class, each Class member will have 90 days to complete and return an administration form to make a claim. The amount paid to each Class member will be based on the length of time that class member was in the class and how many individuals make claims. Therefore, the actual amount each individual will receive will be dependent on how many eligible individuals make claims.

Pursuant to the mediation that produced the Settlement Agreement, the original date that all settlement funds were to be paid was June 10, 2020. However, due to COVID-19 and the cancellation of the 2020 Memorial Cup (the CHL’s championship), the parties agreed that (i) 50% of the Settlement Amount shall be paid on or before June 10, 2020, (ii) 25% of the Settlement Amount (CAD $7.5 million) shall be paid on or before September 10, 2020, and (iii) 25% of the Settlement Amount ($7.5 million) shall be paid on or before October 10, 2020. All payments are to made by way of a wire transfer or a certified cheque (check) and any prepayments by the CHL are to apply to the next required future payment. The late penalty for not paying such amounts on time is a 5% interest rate on the amount due, compounded monthly, from the date the payment was due until it was paid.

There are some additional provisions that provide for other mechanisms related to the payout such as the utilization of a trust account so if you are particularly interested I encourage you to read the full Settlement Agreement.

Releases and Liability

On the other side of the monetary payments to the Class in the Settlement Agreement comes the release of liability to the CHL, its leagues, and the applicable Canadian teams. The Settlement Agreement specifically provides that the the Settlement Amount paid is in full satisfaction of the matters released specified in the Settlement Agreement.

Before getting into the specific “Releases and Dismissal” of liability against the CHL, its leagues, and the applicable Canadian teams, the Recitals in the Settlement Agreement establish pretty early the legal climate and framework involving the question of whether Canadian major junior hockey players are employees. Specifically, it reiterates that, as was stated by the Ontario Court of Justice in its decision to certify the Class in this lawsuit, no court in Canada or the United States has ever found athletes such as these as employees pursuant to any employment standards legislation. Likewise, that each province in Canada where the CHL operates have now enacted legislation specifically excluding Canadian major junior hockey players as employees. Therefore, the Settlement Agreement continues, there is not “a legally recognized obligation for owners in a similar position to the Defendants to treat the players….as employees.”

*By: Christopher Mast / CC BY-SA (https://creativecommons.org/licenses/by-sa/4.0)*

So, why did the CHL agree to the Settlement Agreement if the law was seemingly on their side? For one, the established provincial laws would not directly control the past actions of the CHL or former players as specified in this lawsuit, only current and future players. The Defendants make it clear in the Settlement Agreement that even given these considerations, the costs to the Defendants to defend this action in court are so substantial and financially threatening that the CAD $30 million payout is desirable to bring it to a close. There is some belief that without reaching a settlement, the lawsuit could have lasted another decade, increasing fees that may push up against the insurance fund cap. Stating this in the Settlement Agreement this way is vital to the Defendants’ position that in no way are they admitting or acknowledging that the players are or ever were employees even though this Settlement Agreement was reached.

One other piece I wanted to quickly point out that is somewhat interesting is that the Settlement Agreement specifies that the Settlement Amount paid out is not to be considered wages or income, or the payment of past due wages, to the Class. Sometimes you see similar provisions in settlement agreements for tax purposes. While that was likely a reason it was done here, it was also likely not the main. The Defendants likely wanted to be extra careful to make sure that in no way, shape or form were the payments under the Settlement Agreement to be considered current or past due wages to the Class as that would inadvertently mean they were agreeing to them being considered employees.

As of the date of the Settlement Agreement, the Class, through and including the Class representatives, agree to essentially release the Defendants from any and all liability associated with the matters in the class action lawsuit, including matters known or unknown that could have been raised in the lawsuit but were not, and agree that they have no further claims against the Defendants relating to these matters. If any member of the Class does make a claim on these matters down the road, the Settlement Agreement can be used as a defense to block it. This is a pretty big reason that anyone that may be in the Class and able to make a claim should. If they do not, they too are included in the people who are precluded from making a claim. The lawsuit was likewise dismissed with prejudice which means it could not be refiled again in the future by these parties.

These types of releases are what the Defendants are paying for.

Where Does this Leave Everyone?

So it seems like after this Settlement Agreement we won’t see this type of issue pop up again right? Well maybe, maybe not. Two things were clearly specified in the Settlement Agreement that pertain to this in addition to the releases of liability stated above. One is that none of the terms of the Settlement Agreement are to be construed as any admission of liability by the Defendants. Two is that, regardless of whether the Settlement Agreement was approved or not, nothing in the Settlement Agreement or any of the discussions, proceedings, documents, negotiations etc. leading up to it was to be used as evidence in any future legal or administrative proceeding with the exception of some very few instances. This type of language in conjunction with the releases of liability acts to sort of “shut the door” between the parties with the Settlement Agreement being the final action.

It is important to keep in mind that a similar lawsuit could be brought by some former or current players against the CHL teams based in the United States depending on when they played and where the teams are located. Likewise, any players that did not meet the definition of the “Class” described above could attempt to bring a similar lawsuit as long as they are not current players attempting to bring such a suit against a team in Canada, Michigan or Washington.

However, absent the terms of the Settlement Agreement, remember that every Canadian province that has a CHL team has passed legislation specifically excluding these players from the legal definition of an employee. Similar legislation has been passed in Michigan and Washington in the United States. Therefore, current and future players would realistically be prevented from bringing a similar suit in such places. While the CHL has had a very successful lobbying effort (which is likely where a lot of its funds went), who is to say that future legislatures won’t repeal those laws. Rarely is anything set in stone.

One place that may particularly be interesting to watch is Oregon. Oregon has not passed such legislation and, if you remember from our previous article, their legislature seemed to be turned off to the idea of doing so. Sure, it is possible nothing happens there at all. However, there may be ripple effects in that state that cause the moving or even end of some teams.

*By: leafschik1967 / CC BY-SA*
*(https://creativecommons.org/licenses/by-sa/2.0)*

Who Won?

There is a common saying in law that a good settlement means that all parties walk away unhappy. Did that happen here? Maybe to a degree but its hard to say. The Defendants surely saved a lot of money by only having to fork over CAD $30,000,000 (compared to the $180 million in back wages, overtime pay, vacation pay, and punitive damages the Class was supposedly suing for), most of which is covered by insurance. While it seemed the Defendants would likely have ended up winning, the reality is that they did not want this to drag on any longer than it had from both a monetary and PR standpoint. This lawsuit, in conjunction with a current concussion lawsuit, and COVID-19 has pretty substantially hurt the CHL financially. While some CHL teams were better off than others, a good portion of those teams simply were not. Even though they knew they would likely win at the end of the day, it simply would cost more to fight it out than to agree to and reach this Settlement Agreement.

On the former player’s side, once the legislation mentioned in the previous paragraph was passed a lot of their bargaining power was likely lost. At that time, the CHL’s liability was also capped as the size of the Class wouldn’t likely grow a lot more. They could have fought to the end attempting to get a court to rule in their favor using its own standards for the time prior to the passage of the legislation, or overturned the legislation on some other legal grounds, but that simply was not likely. In the sense that they probably would not have won in court, or had they won possibly not gotten nearly as much as they originally thought, getting the CAD $30,000,000 payout was a win. In the grand scheme of what they would have liked to have received it’s a little more of a loss. This also does not directly help any former players that do not fit into the Class or any current players.

What it has done, however, is bring awareness to the public of some of the issues and realities facing Canadian major junior hockey. This includes not only the employment law issues but also some of the financial disclosures that CHL teams were required to release that previously had been held behind closed curtains. Simply put, certain teams were better off financially than had been previously portrayed. Even if the players are not employees, you might could see a scenario where they may receive more “employee-like” benefits following this action. Of course, the CHL and its teams will want to be careful to not fully treat the players as employees as that could inadvertently lead to further legal issues down the road. This also doesn’t include the possibility mentioned above that certain legislatures change their mind and reverse the laws that have recently been enacted concerning these issues. Only time will tell.

Its a fine line the CHL and its teams will now have to walk . While they may have dodged the immediate bullet, who’s to say there won’t be a bigger bomb down the road.

UPDATE

Following a hearing for approval of the Settlement Agreement, on October 22, 2020 Madam Justice Chantal Corriveau, writing for a Quebec court, and Justice Paul Perell, writing for an Ontario court, both denied the Settlement Agreement in its current form.

Madam Justice Corriveau specifically stated “the settlement terms were overly broad and may give the CHL too much protection from liability for conduct that falls outside the claims alleged in this case.” She also pointed out that the CHL currently has three class action lawsuits pending as well.

Likewise, Justice Perell had issues with the Settlement Agreement preventing former or current players’ ability to sue the CHL in other class action suits for compensation for significant injuries. In addition, Justice Perell had issues with the amount of money the attorneys were to receive related to the Settlement Agreement. He specifically wrote, “[I]n the immediate case, Class Counsel had far more to gain ($9M) than the $8,381 net recovery of a class member . . .”

While the Settlement Agreement was not approved, both Justices recommended that the parties amend the terms of the Settlement Agreement to bring it into conformity with the Justices’ concerns. Some teams have already made payments towards the settlement so it will be interesting to see how the parties renegotiate this Agreement. Even though the Canadian legislature agreed with the CHL and the players lost some negotiating power, the courts here seem to be very concerned with protecting the players’ interests against the CHL. We will keep you updated as it progresses.

Post image attribution: By: Sean Hagen / CC BY-SA (https://creativecommons.org/licenses/by-sa/2.0)