Vacation Pay on Termination in Ontario

What is the Employment Standards Act?
The Employment Standards Act is the law that contains basic rules about employing people and working. Both employees and employers have rights and
responsibilities under the Act.
Does the Act cover all employees in Ontario?
Most employees are covered by the provincial legislation. However, employees working in industries that fall under Federal jurisdiction, such as, Post office, Banks, Railways, Radio stations, Airlines, Television stations etc. are not covered. 
If you are member of the trade union and your contract of employment is governed by the collective agreement, you may not be covered by the Act.
If you are currently employed with the company, you may be able to file a claim with a request that your name not be disclosed. The Act protects you when you are exercising your rights under it.
Section 38 of the Act states:
If an employee’s employment ends at a time when vacation pay has accrued with respect to the employee, the employer shall pay the vacation pay that has accrued to the employee in accordance with subsection 11(5).
This section requires the employer to pay vacation pay to the employee that he or she is entitled to when the employment relationship ends in accordance with the requirement of the Employment Standards Act, 2000. The Act requires that all outstanding wages earned by the employee must be paid when employment relationship ends either seven days after the termination or the next pay day whichever, occur later.
If the employer calculates vacation entitlement year different from the time when he or she started his or her employment, for example, the employee was hired on January 1, but the employer considers vacation entitlement year to start from April 1, the period from January 1 to March 31 is called stub period. Even though, the employer’s calculation of vacation entitlement starts from April 1, while the employee was hired on January 1, the employee does not lose any vacation time or vacation pay. The employer will be required to give both vacation time and vacation pay at some point. However, if the employment relationship ends before the employer has taken care of the stub period; the employer will be required to pay vacation pay at the rate of at least 4% for the stub period. As the employment relationship has ended, the employer is not required to give vacation time.
There are no special rules for what the employer can deduct or not deduct from vacation pay. The same rules apply for the deductions from payment of wages.
If the employer has not kept proper records for the payment of vacation pay, the Ministry rejects the employer’s position that the wages paid to the employee include vacation pay. The Ontario Labour Relations Board concurs with the Ministry position. In addition, no paid time off can be deducted from the employee’s vacation pay entitlement unless the employer can clearly prove that the paid time off was an advance payment and not a greater benefit. For example, the employer may give three weeks vacation with pay instead of two weeks as required under the Act, the employer cannot deduct one week pay from the employee’s outstanding wages including vacation pay when the employment relationship ends because the employer provided greater benefit than required the Act. The employer is not permitted to undo the greater benefit simply because the employment relationship has ended.
If you or the employer disagrees with the investigating officer’s decision, both parties have a right to appeal to Ontario Labour Relations Board within 30 days of the officer’s decision. The Board appoints a referee to hear the appeal. It does not cost the employee to request an appeal but the employer may be required to deposit monies in trust with the Ministry of Labour if it is found to be owing. The referee decision is final and binding on both parties.    
In the past, the Ministry was very aggressive in defending the rights of an employee and would send a legal counsel to represent the employee at the Board’s hearing to deal with the matter. It rarely does so now. Obviously, the employer has advantage over the employee in these circumstances. The question arises, should the employee also engage the services of a professional? It is my view, employee’s may not engage such services at the officer’s level hearing but may do so at the at the referee level hearing, particularly, if the issues are complex.
It is important that if a hearing has been scheduled, the employee must attend such a hearing to present evidence to support its position or to contest the employer’s evidence, otherwise, the officer or the referee may rely on the evidence of the employer to render a decision.   
This information is provided for guidance only and should not be considered as a legal advice.

This article is provided by Rajinder K. Batra, who is a retired Employment Standards Officer with the Ministry of Labour with 15 years experience in these matters.

If you have any questions regarding your employment, please contact the writer by e-mail at 

If you don’t have access to e-mail; you can fax your question at (905) 331-1805.

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