Further, an employee’s contract of employment (express or im-plied)
can provide for a greater right or benefit with respect to
vacation time or pay. For example, an employer can provide four
weeks of vacation time and 8 per cent of wages as vacation pay.
COMMON EMPLOYER MISTAKES
The entitlements outlined above appear uncomplicated. However,
this perceived simplicity results in employers often falling prey to
unforeseen errors, including improperly calculating vacation pay,
inappropriate forfeitures, incorrect assumptions of exemption and
Improperly calculating vacation pay
Based on the model from the United States, vacation tends to
be viewed by employers as a period away from work during
which an employee will continue to receive his or her base sala-ry.
However, simply continuing an employee’s base salary during
periods of absence may not be compliant with employment stan-dards
Under Ontario’s legislation, while the term “wages” includes
regular earnings, the meaning of the term is actually much more
expansive. In fact, the term “wages” includes, among other things,
overtime pay, public holiday pay, termination pay, bonuses and
gifts that are non-discretionary or that are related to hours of
work, production or efficiency. In contrast, “wages” does not in-clude
items such as severance pay, tips and gratuities, vacation pay
and discretionary bonuses and gifts that are unrelated to hours of
work, production or efficiency (e.g., a holiday bonus that is unre-lated
As an example, if an employee worked overtime during a vaca-tion
entitlement year or received a bonus related to production,
the continuation of the employee’s base salary during a period of
vacation would not, by itself, be compliant.
Many employers require that vacation be used or it will be for-feited.
Generally, employers are permitted to enforce the forfeiture
of vacation entitlements that are in excess of the statutory mini-mums.
However, an employee can only forfeit some or all of his
or her statutory vacation time with the employer’s written agree-ment
and the approval of the Ministry of Labour’s Director of
Employment Standards and an employee cannot forfeit the right
to vacation pay, even if agreed to in writing.
The exemptions to Ontario’s vacation entitlement provisions are ex-tremely
limited. For example, unlike the overtime exemption, there
is no general exemption for managerial or supervisory employees.
Under Ontario’s legislation, employers have very specific record-keeping
requirements related to vacation entitlements, including
records relating to the balance of vacation time remaining at the
end of the vacation entitlement year, the vacation pay paid during
the vacation entitlement year and the amount of wages on which
the vacation pay was calculated. A failure to adequately keep
appropriate records could result in the employer being unable to
defend a claim for unpaid vacation pay.
WHY HAVEN’T THERE BEEN ANY YET?
Although courts in Ontario have shown a willingness to certify
classes of employees, vacation pay class actions have not yet arisen
in Canada. Presumptively, these may be some of the reasons why:
1. The rules for vacation pay and time are complicated and
nuanced. Even if an employer is calculating vacation pay
incorrectly, employees do not often take notice.
2. The amounts at issue tend to be relatively minimal for
average employees. The costs associated with class action
proceedings can be substantial. When compared with the
costs, there may not be much of an incentive. However,
vacation pay class actions could be bundled with other claims
(e.g., unpaid overtime and vacation pay).
3. There exist statutory mechanisms for simple and cost-effective
enforcement. In Ontario, employees can register a
complaint through the Ministry of Labour at no cost.
PREVENTATIVE MEASURES FOR EMPLOYERS
The certifications of the overtime-related class actions have high-lighted
the need for employers to be vigilant and diligent with
their practices. To reduce the likelihood that an employer ends up
defending a vacation pay class action, employers should:
■■ Review their methods of calculating vacation pay to ensure
that all elements are included and that the appropriate vacation
entitlement year is referenced;
■■ Review their existing vacation policies to ensure that “use it or
lose it” does not apply to statutory minimum entitlements;
■■ Ensure that appropriate records of vacation time and pay are
being kept, including a tracking mechanism, to defend against
claims of improper forfeiture or failure to pay vacation pay; and
■■ Obtain legal counsel if unsure as to whether or not vacation
entitlements are being properly provided. n
Kathleen Chevalier and Alex Lemoine are associates practicing in
the Employment and Labour Group at Stikeman Elliott.
THE RIGHT TO
EVEN IF AGREED
TO IN WRITING.
38 ❚ OCTOBER 2017 ❚ HR PROFESSIONAL