Big picture sometimes works best when reading employment standards

Anyone responsible for ensuring compliance with employment standards, or with source deduction requirements, should have at least some familiarity with the legislation that applies. I’d even go further and say that anyone with these responsibilities should make a conscious, ongoing effort to master this legislation.

This isn’t quite as onerous as it sounds. Most employment related legislation, or at least most parts of it, are reasonably understandable. In other words, most parts of this legislation can be read using the ordinary grammatical sense of the words used.

However, that’s not always the case.

Here’s an example. This is from the BC Employment Standards Act and defines the phrase “termination pay”, the amount owing when employees don’t receive the notice required under a group termination:

termination pay” means, for each week of notice an employee is entitled to, the amount obtained by totalling the employee’s weekly wages, at the regular wage, during the last 8 weeks in which the employee worked normal or average hours of work and dividing the total by 8;

A plain reading of this definition suggests there are four steps to calculate the group termination pay owing to an employee:

  1. Determine an employee’s “regular wage”;
  2. Total those wages over the last 8 weeks the person worked his or her normal or average hours of work;
  3. Divide that total by 8;
  4. Multiply the result by the number of weeks of notice required under the group termination.

Let’s not focus on what “regular wages” might be. Those words have a specific meaning, but I don’t want to get sidetracked on that. I’d rather focus on step 2, dealing with the 8 weeks used to total an employee’s regular wages.

Please notice these 8 weeks may not be the last 8 weeks prior to the group termination itself. The key word in step 2 is “worked”. In other words, you exclude weeks the person did not work at all or worked either less or more than normally or on average.

Here’s the first complication. Notice that step 2 uses two slightly different words to select those weeks to be included in the 8: “normal” or “average” hours of work. How do we decide which to use?

Most people would agree that if an employee has regularly scheduled hours or is guaranteed to work a minimum number of hours, those would be the “normal” hours. On the other hand, there are employees whose work is casual, i.e. only when called in by the employer, or whose work is scheduled as needed from week to week. In these circumstances, you’re going to have to select a block of representative weeks, and then average all the hours worked over that block. The resulting average can then be used to either include or exclude weeks from the 8 needed.

Notice the termination pay definition above doesn’t say how these average hours are calculated. In other words, you’re going to have to use some judgement in deciding which weeks to base that average on. Here, I’ve suggested you select a block of representative weeks. But how many weeks to include in the block? What would make a week representative? The legislation doesn’t specifically say how this average should be calculated.

Here’s the next complication. What happens when employees work under an averaging agreement, where work hours are concentrated in one part of each averaging period, with no work in the other part. Would we exclude the weeks with no work from the 8 needed to total regular wages? That’s what a literal reading of the termination pay definition above says to do.

Assume work hours were averaged over 3 weeks, with work concentrated in the first two weeks and no work in the 3rd week. If an employee had regular wages of $4,500 in each 3-week averaging period, how would we get 8 weeks over which to total these?

If we only took the 2 weeks worked in each 3-week averaging period, we would need 4 complete cycles to get the necessary 8 weeks. Over those 4 averaging periods, the person’s regular wages would be $18,000 ($4,500 times 4). Divided by 8, this would give $2,250 as the weekly termination pay. If the employer was required to pay 3 weeks worth of notice, i.e. having given 5 weeks notice out of 8, the termination pay would be $6,750 ($2,250 times 3). Note, this is more than the person would have earned over a 3-week averaging period.

Is this how we’re meant to interpret the termination pay definition, in these circumstances? That termination pay could be more than what an employee would have earned if he or she had worked out the notice required. Luckily, the answer is no.

Normally, words in legislation are meant to be read just as they are. However, there are circumstances where we’re entitled to depart from those words. One of those circumstances is if the literal reading goes against a stated purpose of that legislation[1]. One of the stated purposes of the BC employment standards, is to “promote the fair treatment of employers and employees”. Would it be fair to the employer, if an employee on an averaging agreement were to be paid more in termination pay, than the regular wages for an equivalent period?

Since the answer is no, we have to find another calculation method, when the regular work schedule has weeks when no work is performed. My own suggestion would be to basis this on the averaging period itself. For example, if averaging periods are 3 weeks, I would total the regular wages over 3 averaging periods and divide by 9 to get a weekly average.

For example, if an employee earned $4,500 in regular wages in each of 3 averaging periods, times 3 and divided by 9 would give a weekly average of $1,500. If termination pay was required for 5 weeks of notice, this pay would be $7,500.

Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 25 years’ experience in all aspects of payroll. He can be reached at armcewen@shaw.ca or (250) 228-5280. If you like these articles, please sign up to my email list to be notified of future postings.

[1] My favourite reference material for this is Ruth Sullivan, Statutory Interpretation.

About Alan R. McEwen

HRIS/Payroll consultant and freelance writer
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