Class actions landscape in financial services

 
Beyond provincial consumer protection statutes, federal claims under the Competition Act—particularly those involving “drip pricing” and “double-ticketing”—are gaining traction. Legal teams within financial institutions must now navigate not only complex regulatory disclosure regimes but also evolving expectations around online pricing transparency. Plaintiffs are expanding their strategies to include digital representations of pricing, making it essential for in-house counsel to collaborate closely with marketing, compliance, and product teams to mitigate exposure.

In this article, we set out some additional trends we have observed in class actions against financial services businesses in common law and civil law jurisdictions. We also draw on experience in the United States, as history suggests trends south of the border tend to migrate north.

Vacation and holiday pay class actions

In recent years, there has been a notable trend of proposed class action proceedings being initiated, mainly against financial institutions, pertaining to vacation pay and holiday pay entitlements. Approximately ten class actions are ongoing in Canada, with about half having been certified. None of these actions have yet been adjudicated on their merits. The first matter anticipated to proceed to a merits hearing is Curtis v. Medcan, which is currently scheduled for a common issues trial at the end of October 2025.

The scope of these actions varies: some pertain to narrowly defined employee categories, such as employees compensated entirely by commission, whereas others have a broader reach and may encompass all or nearly all employees within a workforce.

These actions raise a range of legal questions:

• What constitutes “wages” for the purpose of calculating vacation pay and holiday pay? Should this definition extend to bonuses and/or other forms of incentive compensation, such as employee share ownership plans or restricted share unit plans?
• Can an employer include vacation pay or holiday pay in payments to employees, such as in commissions or bonuses? If so, what is the proper way to do so?
• Can an employer use a “negative vacation pay” arrangement, whereby an employee is permitted to take vacation in their initial year of employment, resulting in a “negative vacation bank” to be offset by future overtime or deductions from wages upon termination of employment?

Given the high level of activity and publicity surrounding these actions, employees of financial institutions are likely scrutinizing employment agreements, policies and pay practices more closely.

Legislative attention on vacation pay has also increased. In June 2024, Ontario introduced changes affecting alternate vacation pay arrangements, including requiring agreements to pay vacation pay on each pay cheque. As such, it would be prudent for institutions to conduct a privileged payroll compliance review to mitigate the class action risk in this area. This could include a review of payroll and wage policies and practices, bonus plans, variable compensation structures and pay statements to identify and mitigate exposure.

Class actions in Québec target extended warranties and protection plans

Over the past two years, Québec has seen a surge in proposed class actions alleging that certain extended warranties and protection plans fall within the definition of insurance, and therefore should comply with the regulatory framework governing insurance distribution. More than 40 defendants (including big box retailers, automakers and their consumer financing companies, telecommunications providers and financial institutions underwriting the plans) have been targeted in a series of class actions on this topic. A first authorization judgment was rendered in summer 2025, though none of these proposed class actions have yet been considered on their merits.

This wave of litigation is the latest chapter in a decade-long regulatory and judicial debate in Québec over the proper classification of extended warranties and protection plans. The Autorité des marchés financiers (AMF) has maintained that any plan covering risks beyond manufacturing defects (e.g., accidental damage, water or drop protection) constitutes insurance. It has imposed administrative monetary penalties on several companies for non-compliance and, in 2023, the Québec Court of Appeal¹ confirmed the AMF’s authority to investigate such practices, even where the seller is not a licensed insurer.

These actions raise several key legal questions:

• Where should the line be drawn between a product qualified as an extended warranty and a product qualified as insurance?
• Does third-party underwriting affect the legal characterization?
• Who is authorized to sell these products?
• Do sales taxes or insurance taxes apply to the plans?

Given the maturity of the protection plan industry and its prevalence across consumer sectors, retailers and financial institutions should proactively review product coverage and distribution channels to mitigate regulatory and class action risk.

AI-driven class actions

While not yet a dominant feature of class action litigation in the financial services industry in Canada, class action litigation in the United States (and in other industries in Canada) is increasingly scrutinizing the use of artificial intelligence (AI) software. To date, class action claims in Canada and the U.S. relating to the use of AI tools have largely focused on human rights and privacy law breaches². The potential implications of this litigation trend are highly relevant for financial institutions in Canada.

U.S. insurers deploying AI for claims processing, underwriting, and customer service have also faced litigation risks around bias, misrepresentation, and breach of contract. For example, in Huskey et al. v. State Farm Fire and Casualty, plaintiffs allege that State Farm’s AI-driven claims processing system disproportionately subjected Black homeowners to delays and heightened scrutiny. Similar claims have been filed against insurers including Cigna and UnitedHealthcare, challenging AI tools that allegedly denied medically necessary care to vulnerable populations.

In the employment context, Mobley v. Workday, Inc. centers on claims that Workday’s AI-powered applicant screening tools discriminated against job seekers based on race, age, and disability. The system, which is used by many organizations, analyzes job postings and compares them to applicant resumes to assess skill alignment, generating recommendations for employers. The case raises important questions about liability when employers rely on third-party AI systems that may produce biased outcomes.

In the privacy law context, companies’ use of AI tools are being increasingly scrutinized for potential privacy law violations, especially as these tools process vast amounts of personal data. Class actions targeting companies for data breaches or improper data handling practices are on the rise, frequently revolving around the collection, storage and use of data in relation to AI systems. For instance, there has been a surge in class actions alleging that companies improperly obtained individuals’ biometric identifiers through AI-based machine-learning systems³.

For financial institutions increasingly deploying AI in areas such as credit scoring, fraud detection, claims handling and customer service, these cases highlight the legal and reputational risks of algorithmic bias and the need for prudent data governance. Further, the regulatory landscape is evolving, with provincial laws and guidance from regulators such as OSFI and Québec’s AMF relevant to AI governance.