July 23, 2024
Do you pay out unused vacation pay at the end of each year?
THE ISSUE
If not, you may accrue a significant hidden liability over time.
THE CASE
For example, in Boyer v Callidus Corporation, the former vice-president of the company was unsuccessful in his claim for constructive dismissal. He was found to have retired, and that his departure before his planned retirement date was his own decision. In light of the pending retirement, it made sense for the employer to transfer ongoing work to other employees. This was not constructive dismissal.
However, the evidence of the employee was accepted that he had only taken six weeks vacation. The judge found that he had earned a total of 28 weeks, not the 30 sought.
The employer claimed to have a “use it or lose it “ policy on vacation time, but in the absence of a written policy, the judge found in favour of the employee.
But this still resulted in a judgment for 22 weeks pay in lieu of vacation. As he was a senior executive, this worked out to a substantial judgment.
EMPLOYMENT STANDARDS ACT
Ontario’s Employment Standards Act says nothing about “use it or lose it” being legal. It does require payment of accrued vacation pay at or before the corresponding vacation time is taken. The Act does provide that unused vacation pay from previous years must be paid out on termination and requires that records be kept of unused vacation time, but uses different language about vacation pay, so there is some ambiguity. It says nothing about “use it or lose it”. Although apparently not argued in the Boyer case, a “use it or lose it” policy may have no force or effect. Our usual advice to employers is to avoid accruing an unfunded liability by paying out unused vacation at the end of each year.
TAKEAWAYS
- Any unfunded liability may be a significant issue.
- This is more significant upon sale of a business, so to allow for a smooth transaction, which is another reason why dealing with vacation time on a current basis is advisable.
- Good record keeping is essential.
- If an employer has policies on vacation pay, they must be in writing and known to employees.
HOW WEILERS LLP CAN HELP YOU
At Weilers LLP, we pioneered providing employment law advice in Northwestern Ontario, over 75 years ago. Now based in Thunder Bay and serving the region, we are your regional source for advice, whether you are an employer or employee. Part of our service is helping employers draft policies to conform to law.
Where disputes arise upon termination, we may represent either employers or employees.
If you need advice or representation , please give us a call and see if we are the right layers for you.