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Summertime, when everybody wants vacation

Under the provisions of the Ontario Employment Standards Act, every employee is entitled to a minimum of two weeks vacation after twelve consecutive months of employment. Of course, this is subject to company policy granting employees greater vacation entitlement. This entitlement generally increases with the years of service.

vacation-beachWhile it is a simple matter to determine how much vacation an employee is entitled to, it is more difficult to assess when that vacation may be taken. Under the provisions of the Act, employers are required to schedule vacations in blocks of at least one week unless the employee provides a written request for a different allocation of vacation time. However, an employer is entitled to schedule these vacations to coincide with the requirements of the company’s operations. While the determination of what is necessary for such operations is within the discretion of the employer, employers would be well advised to create a policy for the allocation of vacation time, particularly in the summer months. While many employers allocate such vacation entitlement based on seniority, this will often result in unfairness as the same employees get to take their vacations in the summer year after year. In order to address this unfairness, some employers will institute a system of first-come first-served, where the first employee who requests vacation will receive priority to the second employee. Generally, employees cannot be heard to complain if this policy is applied consistently throughout the company.

Employees are entitled to be paid while on vacation. The Act provides that the employee must receive a minimum of four percent of the gross wages that employee earned in the twelve months for which the vacation pay relates. Vacation pay can be paid in a lump sum where the employee takes vacation or by way of payment of and additional four percent of gross wages with each paycheque. In the latter case, employees would not receive additional pay while on vacation. Including payment of vacation pay as part of a regular bi-weekly paycheque requires written consent of the employee.

The issue often arises as to what is included in gross wages. Generally, all compensation including salary, commissions, and overtime pay are included in that figure. However, payments relating solely to expenses incurred in the performance of the employee’s job, such as compensation for mileage, car expenses, and payment to benefit plans are generally not included. Employers should be aware that while the entitlement to vacation time under the Employment Standards Act only arises after twelve months of active employment, vacation pay accrues from the commencement of employment, at the rate of four percent of the annual salary.

The entitlement to vacation pay is a statutory entitlement of the employee. Therefore, if an employee is terminated without cause, the calculation of his damages will include an amount to compensate for the loss of vacation pay during the period of reasonable notice. This amount will be based on the company policy for vacation pay rather than the Employment Standards Act.

It should also be noted that the Regulations exempt employees who are entitled to “…receive all or any part of his or her remuneration as commissions in respect of offers to purchase or sale of goods, wares, merchandise or services and which offers or sales are normally made at a place other than the place of business of the employer.” In other words, a salesman who works on commission outside of the employer’s place of business would not normally be entitled to vacation pay. However, the Ontario Court of Appeal has interpreted this section such that the exemption does not apply to employees who only spend a small portion of their time away from the employer’s place of business. The Ontario Labour Relations Board has held that the exemption in the Regulations “appears to be based on the notion that employees who are not subject to the usual controls of the employer in terms of reporting for duty or, for that matter, actually performing work cannot expect a guarantee of statutory minimum wages.” In this case, the Court of Appeal rejected the exemption of the employee in question based on the fact that he attended work at regular business hours and spent a fair bit of his time on site at the employer’s place of business.

Employers should also be aware that vacation pay continues to accrue during certain specified absences such as temporary lay off, sick leave, pregnancy, parental, or family leave.

While allocating summer vacation may be a politically difficult task within the workplace, a written policy as to vacation entitlement, and the application of that policy in an equitable manner will generally avoid conflict.

Earl Altman
Garfinkle, Biderman LLP

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Earl Altman

Legal consultant at EA Consulting
Earl Altman was a partner at Garfinkle, Biderman and now heads his own consulting firm. Earl has practiced commercial and employment litigation. Earl’s practice focuses on employment disputes, including acting for employees and employers in wrongful dismissal claims, and in breach of contract and breach of fiduciary duty claims. Read more
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