Treiber Law: Employers Beware of Unauthorized Deductions

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.