Employers must tread carefully when considering taking deductions from employee wages.

There is a general prohibition under section 13 of the Employment Standards Act, 2000 (Ontario) (the “ESA“) which prevents employers from withholding wages that an employee has earned, making a deduction from an employee’s wages, or causing an employee to return their wages to the employer, subject to a few key exceptions.  

1. Deductions authorized by statute or order.

The ESA permits deductions from employee wages where a statute or court orders such deductions, including, for example, income tax, CPP and EI contributions, and court-ordered garnishments.

2. Deductions with employee written authorization.

The ESA also expressly permits deductions from employee wages where an employee has provided a written authorization for such deductions.  The written authorization must, however, specify the specific amount of money to be withheld or provide a method or formula to calculate the specific amount of money to be deducted.  Blanket authorizations or oral authorizations are not permitted.

Deductions cannot be made, even where a written authorization is provided, for things like faulty work, cash shortages, lost property, or events such as “dine-and-dash” or “gas-and-dash”.

3. Overpayments.

The ESA also permits deductions from employee wages where there has been an overpayment, including, for example, for an administrative error.  Note, however, that overpayments do not include a situation where an employer intentionally pays an employee more than the ESA entitles the employee to.  For example, where an employer provides an employee with public holiday pay or vacation pay when they are not entitled to it under the ESA.  

One such example that frequently arises in workplace disputes is when an employee leaves their employment after having allegedly taken more vacation days than they were entitled or accrued.  

Consider the Ontario Labour Relations Board decision of Carlisle Technology, 2005 CanLII 45821, where an employee took more vacation than she had accrued, despite an employer’s policy that noted that the employee only accrued vacation on a pro-rata basis.  In response, the employer offset the overpayment of vacation from a residual bonus that the employee was entitled to receive in her final payment of wages.  The Ontario Labour Relations Board examined Section 13 of the ESA and considered the narrow exceptions and found that the employer had breached the ESA.  In reaching its conclusions the Board noted, as follows:

The residual bonus payable to Ms. Morgan constitutes wages within the meaning of the Act. In May 2005, Carlisle deducted from those wages the vacation overpayment. Subsection 13(1) prohibits an employer from making a deduction from wages unless authorized under section 13. Ms. Morgan did not authorize the deduction pursuant to subsection 13(3), nor was the deduction made pursuant to a statute or court order, as contemplated by subsection 13(2). In these circumstances, there is no relief available to the company in this proceeding. The plain wording of subsection 13(1) applies.

It might be suggested that the result in this matter is harsh. However, there are a number of things an employer can do to avoid such a consequence. For example, it can make a clear written policy on deductions or off-sets from wages in respect of wage errors or overpayments, including overpayments of vacation taken in advance, and obtain an employee’s written authorization to such a policy. In Ms. Morgan’s case, there would appear to be nothing to have prevented the company from prohibiting her from taking a week of vacation after announcing her resignation. In fact, had she not taken that vacation, there would have been almost no issue of any overpayment. Finally, there is nothing to prevent an employer from pursuing its claims against an employee in the proper legal forum. What employers are not permitted to do under the Act is take unilateral action as paymaster to satisfy those claims.

Takeaways for Employers

Tread cautiously when making any deductions from employee wages – especially if it does not fall into one of the narrow exceptions outlined above. 

If you are an employer that needs advice with respect to a deduction, please reach out to Treiber Law.

 This article should not be relied on as legal advice or legal opinion. 

Sometimes our media is absolutely terrible about reporting about changes to employment standards legislation.

Take, for example, the headlines in 2021 and 2022 in response to the Ontario government’s amendments to the Employment Standards Act, 2000 (the “ESA“) which required, effective June 2022, Ontario employers with 25 or more employees to introduce a workplace disconnection policy.  This was unfortunately dubbed by the media as creating an alleged “right to disconnect” and outlets like BlogTO and the Toronto Star rushed to declare that workers in Ontario could disconnect from work after-hours.

But if you read the news headlines and then reviewed the legislation and the guidance from the Ministry of Labour, you might be surprised to know that the media was a little disconnected (pun intended) from what the legislation actually requires.  

The legislation stipulates only the following:

• if an employer has 25 or more employees in Ontario, an employer must have a written workplace disconnection policy;
• the policy must address the topic of “disconnecting from work” which is defined under the ESA as “not engaging in work-related communications, including emails, telephone calls, video calls or sending or reviewing other messages, to be free from the performance of work”;
• the policy must be dated;
• the policy must apply to all employees (though the policy does not have to be the same for all employees, i.e. you treat managers differently than non-managers);
• the policy must be in place by March 1 if on January 1 of that same year the employer had 25 or more employees in Ontario;
• the policy must be provided to employees within 30 days of it being implemented or, if implemented, within 30 days of an employee’s new hire;
• a copy of the policy must be retained for 3 years.

The legislation does not specifically create a “right to disconnect”.  In other words, an employer could have a workplace disconnection policy that specifically says that employees do not have a “right to disconnect” and that would satisfy the policy requirement under the ESA.  Though, this is of course, subject to the ESA‘s overtime or hours of work requirements.  

What will the recently announced federal legislation look like?

Last week, the federal government signaled in its Budget 2024 that it intends to introduce legislation to amend the Canada Labour Code to create a “right to disconnect” for federally regulated workplaces (e.g. banks, airlines etc.).  The text of that legislation has not yet been released but it remains to be seen whether federal legislation will go one step further than Ontario legislation and actually create a “right to disconnect,” as opposed to just a policy requirement.

Takeaways for businesses

If you are a provincially regulated business in Ontario with 25 or more employees you need to have a workplace disconnection policy.

If you are a federally regulated business, Treiber Law will continue to monitor the Budget and its implementation legislation and provide updates as they become available. 

If you have any questions or need assistance with drafting a workplace disconnection policy for your workplace, please contact Treiber Law at info@treiberlaw.ca 

 This article should not be relied on as legal advice or legal opinion. 

If you are buying or selling a business and that business has Ontario-based employees you need to speak to an Ontario labour and employment lawyer.  Seems simple enough, right?  Not quite.  

I am often asked to advise on transactions at the 11th hour when the deal is almost at the finish line.  This can be an extremely costly mistake because sometimes labour and employment law considerations (er… liabilities) may even alter whether a deal is viable.  

Outlined below are some key considerations for your business when considering the sale or purchase of another business: 

Due Diligence Considerations

As a purchaser, conducting effective due diligence is critical to conducting an accurate valuation of the seller.  It also helps identify risks and helps the purchaser assess the requirements for operations going forward.

In tailoring your due diligence requests, you will need to consider the following:

• What provinces does the seller operate in?
• Is the seller provincially or federally regulated?
• Is the seller’s workforce unionized?  (Note the successor provisions in the Labour Relations Act!)
• Is the deal a share purchase or an asset purchase?
• Is the purchaser willing to assume the seller’s labour and employment-related liabilities?

A purchaser’s diligence requests will be dependent on a wide number of factors, including the scope of review, budget, any materiality threshold or temporal restrictions, but the below are a list of key things that a purchaser may wish to seek diligence from a seller:

1. organizational charts;
2. an employee census (including position types, employment status, all forms remuneration, seniority and union status);
3. information related to recently terminated employees;
4. a list of employees on a leave of absence (the reasons and expected return date);
5. a list of employees on temporary layoff;
6. pension plans and any unfunded liabilities;
7. employment contracts and review of any termination clauses or restrictive covenants;
8. issues related to employment standards legislation (i.e. hours of work, overtime, vacation, holidays, workplace violence & harassment, Accessibility for Ontarians with Disabilities Act, pay equity, misclassification, workplace injuries etc.)
9. litigation history and any pending claims.

Structuring The Deal

How the deal is structured will have important implications on what happens with the employees and related labour and employment liabilities.

In a share purchase, ownership of the business transfers, but the corporate identity, and that of the employer, stays the same.  This means that from an employee perspective there are no changes as the purchaser steps into the seller’s shoes.  For the new purchaser, this also means that you will be purchasing the employer’s obligations to the employees on termination of employment, which can be significant if the employees do not have employment contracts or their contracts do not contain valid or enforceable termination provisions.

In an asset purchase, technically, the employment relationship ends at common law.  The purchaser and the seller will typically agree in advance who will “hold the bag” on termination liabilities and this will typically be addressed in the purchase agreement.  There will likewise typically be a requirement in the purchase agreement that the purchaser will make comparable offers of employment to any of the seller’s employees the purchaser wishes to carry on with the purchaser.

Beware of Litigation Risks

The case law is replete with examples where costly mistakes were made during a transaction that sellers and purchasers ought to be aware of.  

Beware of pre-closing misrepresentations

In Gascon v. Newmont Goldcorp, 2022 ONSC 2511, the seller made a number of pre-closing misrepresentations to an employee that post-sale his employment would be continuing with the new employer.  The employee was terminated shortly after the sale took place and the seller was ordered by a court to pay the terminated employee $50,000 in moral or exemplary damages after failing to fulfill its common law duty of honest performance.

Offers of comparable employment do not mean any employment

In Dussault v. Imperial Oil Limited, 2019 ONCA 448, the Ontario Court of Appeal found that two employees did not fail to mitigate their damages when they refused offers of employment from the purchaser of a former employer as the employment offered was not comparable.  The terms of the offers of employment stated that their salaries would be reduced after a period of 18 months and their prior service would not be recognized at common law.  The Ontario Court of Appeal upheld the award of the plaintiffs 26 months’ notice each.

Beware of fixed-term contracts for key employees

In McGuinty v. 1845035 Ontario Inc. (McGuinty Funeral Homes), 2020 ONCA 816, the Ontario Court of Appeal upheld the award of 9 years worth of liquidated damages to an employee and former owner of a business who sold his interest in a funeral home to a group of buyers who put the employee on a 10-year fixed term contract.  The Ontario Court of Appeal upheld the trial judge’s finding that the employee had been constructively dismissed after just 11 months into the contract and that in the absence of an early termination provision in the fixed-term contract, the employee was owed compensation for the entire 10-year term.

Takeaway for Businesses

If you are buying or selling a business in Ontario that has Ontario-based employees you need to consult a labour and employment lawyer. If you have any questions about buying and selling a business, please contact Treiber Law at info@treiberlaw.ca 

This article should not be relied upon as legal advice or opinion.