Five common misconceptions around vacation law in Canada
By John Hyde
EDITOR’S NOTE: ‘Legal steps & missteps: Addressing common workplace concerns’ is a weekly Talent Canada series, in partnership with John Hyde of Hyde HR Law in Toronto. This series takes a deeper look at issues in which organizations can be proactive to prevent legal issues and highlight where common errors occur.
Do you think you understand the ins and outs of vacation laws?
The rules surrounding vacation time and vacation pay are some of the most complicated, but least understood, part of employment law in Canada.
When a dispute arises over vacation, the answer is almost never clear and the liabilities can sometimes be severe. Minor missteps add up over time, becoming huge potential sources of liability down the road.
Let’s explore the five most common misconceptions about vacation laws in Canada, and how they can lead to costly missteps by employers.
Misconception 1: Vacation pay is payable on base salary only
Quite simply, this is wrong.
It’s a common scenario: employee receives a base salary every two weeks, and vacation pay on the base salary. Less frequently — perhaps monthly, quarterly, or yearly — the employee also receives a payment for a bonus, commission, or profit share, based upon the employer’s results. Usually, the employee does not receive vacation pay on those amounts. The employer could be making a very expensive mistake.
In most Canadian jurisdictions, vacation pay is payable on all regular pay, including salary, commission, and non-discretionary performance bonuses.
However, the practice of withholding vacation pay on bonuses and commissions is so commonplace, that many employers — including large, sophisticated multinational corporations — are continually failing to meet this standard at the institutional level.
It may seem like a minor technicality, but the price tag for this misstep can be extremely expensive. For example, a recently launched class action lawsuit is seeking $800 million in damages from RBC Dominion Securities, claiming that the employer has been failing to pay commissioned employees (such as investment advisors, wealth advisors and portfolio managers) vacation and holiday pay on their commissions, as required by provincial and territorial employment standards laws.
Misconception 2: All vacation is ‘use it or lose it’
Employee handbooks often warn that unused vacation time expires at the end of the year. This idea is so ingrained, that each December around the holidays, a rush of employees scramble to use up their banked vacation days.
In actual fact, it is the employer’s responsibility to ensure that every employee takes the minimum vacation time, and employers who fail to do so could be exposed to liability.
In most Canadian jurisdictions, employment standards legislation makes vacation time mandatory, as a separate (but parallel) entitlement to vacation pay.
That means that employers must schedule vacation time for most employees unilaterally to ensure that the minimum vacation time is taken — even if the employee does not want to use the vacation time.
Misconception 3: Employees must keep track of their own vacation time
Contrary to popular belief, most employment standards legislation actually requires employers to keep records of an employee’s accrued entitlement to vacation time and vacation pay, and to produce statements of those entitlements to employees. This requirement goes hand-in-hand with the minimum vacation pay and vacation time entitlements.
Employers may frequently find that they have dug themselves into a deeper hole by:
- (a) failing to pay the appropriate vacation pay
- (b) failing to keep proper records of vacation pay.
In one Ontario Court of Appeal case, the court upheld an award to an employee for approximately eight years’ of vacation and holiday pay found to be owing — well beyond the general two-year limitation period for civil claims.
The employee was permitted to claim damages from many years ago, specifically because the employer failed to keep records of vacation pay as required by Ontario’s Employment Standards Act. Therefore, the potential claim for vacation pay could not be “discovered” by the employee until he received his very first vacation payment – several years after it ought to have started accruing.
Misconception 4: Employees may choose when to take vacation
Contrary to popular belief, employers have near-absolute discretion to schedule employee vacation at a time that is convenient to the business, so long as that discretion is exercised reasonably.
Legally speaking, employees have little to no say in when they may take their holidays. The only stipulation is that employment standards require employer-scheduled vacation time to be of a minimum length (usually one week), so that the employer cannot “sprinkle” single-days of vacation throughout the year to satisfy the entitlement.
Misconception 5: Two weeks of vacation is the standard
It is a common belief that the minimum standard is just two weeks of vacation per year. While this was once a widespread standard, recent amendments to employment standards legislation around the country have changed this.
Presently, vacation is a flexible entitlement across Canada (excluding the Yukon), which increases with an employee’s length of service. In most provinces, vacation increases from two to three weeks at around five years of service. Employees subject to federal legislation become entitled to four weeks’ vacation after 10 years of service.
Even still, employers continue to use employment contract templates that categorically limit employees to two weeks’ vacation. Those contracts are not only misleading, they may not be enforceable.
John Hyde advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.
Nicholas Goldhawk, an associate at Hyde HR Law, co-wrote this commentary.
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