Many employers supply greater vacation benefits than the employment standards minimums. For example, many employers provide 3 weeks of vacation time, and vacation pay at 6%, even if the applicable employment standard only requires 2 weeks and 4%. So what happens when employees are terminated? Must the employer pay vacation pay according to the terms of the employment contract or do only the employment standard minimums apply?
The answer depends primarily on the jurisdiction involved, but may also include other factors, such as termination for cause. This article shows what’s required in 3 typical jurisdictions: BC, Alberta and Ontario. In an article of this length it’s not possible to cover all jurisdictions, so be sure how your own situation may or may not be different from the requirements discussed below.
The basic rule in all 3 jurisdictions is that, on termination, the employer may not unilaterally alter the terms and conditions of employment. Generally, if the employer provides greater vacation benefits, these greater benefits are expressed in a signed letter of offer, in a collective agreement or in policies that are included, by reference, in the terms and conditions of employment. In other words, the assumption is that greater vacation benefits are an enforceable condition of employment.
The first question is whether this general rule extends to the notice period.
In Ontario and Alberta, greater vacation benefits must be provided during the notice period, even if no actual notice is given and employees are terminated on the spot. If an employee is entitled to 4 weeks of wages in lieu of notice, the employer must pay the amount the employee would have earned under the contract of employment for the whole notice period, even if the employee is terminated and told not to return. For example, if the employee earns paid vacation time based on the length of employment, the right to earn paid vacation time extends throughout the notice period. In these 2 jurisdictions, where greater vacation benefits are earned by working, they become part of the wages in lieu of notice owing on termination.
The same is not true in all jurisdictions.
For example, in BC there is no employment standards requirement to maintain greater vacation benefits if employees are not actually given notice. There are two reasons for this. First, wages in lieu of notice in BC are calculated retroactively, based on regular wages earned in the last 8 weeks that normal or average hours were worked. By contrast, in Ontario and Alberta, wages in lieu of notice are calculated forward to what employees would otherwise have earned during the notice period. Second, there is no provision in the BC Employment Standards Act that allows the Act to be used to enforce greater employment benefits, when notice is not actually given. For example, if a BC employment contract provided greater vacation benefits, these greater benefits could be claimed in a wrongful dismissal suite. By contrast, in Ontario and Alberta, the employer failing to provide greater vacation benefits, owing under the contract of employment, would be a contravention that employment standards authorities have the authority to redress.
There is also a difference where employees are terminated for cause. In all 3 jurisdictions, if employees are terminated for cause, no notice or wages in lieu of notice are required. Greater vacation benefits are part of any notice required, or notice given in the case of BC. Without the requirement to provide notice, there is no employment standards requirement to continue greater vacation benefits after the actual termination. However, in all 3 jurisdictions any greater vacation benefits owing under the employment contract prior to termination are enforceable under the applicable employment standards.
Example: Mark was entitled under his individual contract of employment, to 3 paid vacation weeks for each completed year of employment. No vacation pay was accrued for these, as the employer paid Mark at his current rate when vacation time was taken. Mark was terminated for cause after he had earned the right to his next 3-week paid vacation, but before this time had been taken. On his last pay cheque, Mark is entitled to be paid for these 3 weeks as part of the money owing to him under the employment standards.
Notice that none of the above depends on whether greater vacation benefits are provided as paid vacation days or as a higher rate of vacation pay accrual. The result is the same whether the employment contract calls for 3 or 4 weeks paid vacation versus vacation pay accrued at 6 or 8%.
Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at firstname.lastname@example.org, (250) 228-5280 or visit www.alanrmcewen.com for more information. This article first appeared in Canadian HR Reporter and Canadian Payroll Reporter on June 4, 2013.