Vacation Pay

Written on behalf of Peter McSherry
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Vacation Pay

Most employees in Ontario know that they are, by law, entitled to at least two weeks of vacation every year. However, not many employees realize how important the vacation provisions in the Employment Standards Act (ESA) are, including provisions related to vacation pay, and how much these provisions can impact other aspects of their relationship with their employer.

Pending Changes to Minimum Vacation Time

The Liberal Government has recently introduced amendments to the ESA, expected to be effective as of January 1, 2018 once passed, to increase vacation entitlement to 3 weeks’ per year for all persons with 5 years of consecutive employment with the same company.

Statutory Protection

Vacation pay is deemed to be an “employment standard” under the ESA, which means it is a special right which cannot be contracted out by written agreement or policy document.

The ESA requires that there be a vacation pay accrual on the mandatory termination payment in the absence of working notice. For example, a 10 year employee facing termination without notice is entitled to receive 8 weeks’ pay in lieu of notice plus a vacation accrual on the same amount.

This may seem at first blush to be of modest consequence. It can, however, in certain circumstances, be very important. For example, if an employment contract states that the employee is entitled to only the minimum 8 weeks sum in full satisfaction of all severance entitlements, there is a good chance that a court will determine the contract to be unenforceable due to the failure to include the vacation pay gross-up.

This may well expose the employer to a much larger common law severance claim well in excess of the typically modest amount imposed by the employment contract.

Use it or Lose It Provisions

Similarly, a contract term which includes a “use it or lose it” term applying to vacation pay will generally not be enforceable. Indeed, one case awarded the sum of $50,000 for past due vacation pay in which the employer had unsuccessfully made this argument.[1]

Bonus & Commissions

Many companies do not know that bonus payments also require a vacation pay gross-up.[2] However, it is possible for the employer to draft a bonus plan which clearly sets out that any bonus sums being paid are inclusive of a vacation pay gross-up for that sum.

Where there is no such clear wording, there will be additional claim for vacation pay accrual on the bonus. The failure to make this payment not only makes the company liable for the unpaid sum, but also again may expose the employment contract to an inherent vulnerability. A contract which sets out a predetermined severance sum and denies all other possible claims will be challenged by this argument. Again, vacation pay is an employment standard which cannot be eliminated by contract. The contractually protected severance sum may well be set aside due to the failure to address this entitlement.

Most employees[3] who are paid on commission or partially by commission also are entitled to receive a vacation pay increment on the commissions received. The issues involved parallel the bonus analysis.

Vacation Pay Arrears

There are often arguments raised as to how far back the employee may go to determine the extent of unpaid vacation pay. In Ontario, there is generally a limitation period of two years to enforce such a civil claim.

This was not, however, the decision of the Ontario Superior Court[4] in determining a similar claim which arose from the Canada Labour Code. In that case, the Court determined that there was indeed a limitation period of two years to sue, but the claim allowed was for all vacation pay accumulated during the course of employment, not just the last two years of employment.

Take Advice Before You Act

As you can see, the seemingly benign issue of vacation pay is much more complicated than what one might initially expect. If you are facing a question of vacation pay entitlement, a termination, or a contractual dispute with your employer, it is wise to take legal advice as soon as possible.

Situations of this nature shout out for competent legal advice. Get advice before you act. Contact the offices of Guelph employment lawyer Peter McSherry. We can help you determine whether you may have a claim due to a poisoned work environment or a constructive dismissal claim. Contact us online or by phone at 519-821-5465 to schedule a consultation.



[1] Geluch v Rosedale

[2] This is always required unless the bonus payment is purely discretionary and not tied to performance.

[3] There is an exception for certain persons traveling outside the office

[4] Kinch v Dufferin The case involved an interpretation of the Canada Labour Code. The Ontario statute is similar in its wording. The Geluch case involved a similar issue although the Court’s reasons are not direct on this issue.