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Civil Litigation, Employment & Labour

Employer cannot contract out of CLC vacation pay obligations

A recent decision involving vacation pay entitlement for a commission sales employee represents a well-reasoned approach to the application of Canada Labour Code (CLC) provisions, say Toronto civil litigators Kevin Fisher and Reshma Kishnani.

“This case is a great outcome for our client and a very clear decision, on vacation pay obligations for those employers in industries that fall under federal jurisdiction such as radio, telecommunication, banks, etc. who are all required to follow the provisions of the CLC,” says Fisher, a partner with Basman Smith LLP. “It appears that it is a relatively common practise for employers to try and contract out of their obligations to pay these benefits to employees in these types of arrangements.”

Kishnani, an associate with Basman Smith LLP, says the case is important, “because other decisions involving vacation pay entitlement usually only deal with the issue within the context of termination,” she says. “Often the courts don’t do an analysis as to what the provisions of the act are with regard to vacation pay and what employers are required to do.”

In Kinch v Dufferin Communications Inc. c.o.b. as Evanov Radio Group, 2015 ONSC 6610 (CanLII), Fisher and Kishnani successfully represented Karen Kinch, who appealed an earlier decision dismissing her claim against her former employer for entitlement to vacation pay pursuant to the provisions of CLC.

Kinch was employed by Evanov Radio Group as a commissioned sales representative from 2002 until 2012, although she only claimed for the period from 2006 to 2012 for vacation pay she was owed. In the employment agreement with ERG, Kinch was a commissioned sales rep, and all of her wages were received as commission payments.

The employment agreement with ERG stated that Kinch’s statutory amounts for vacation/holiday pay as well as statutory pay would be included in the commission payments that she received from ERG. After Kinch left ERG, she brought an action against the company for vacation pay of $35,396.02 that she argued has not been paid to her pursuant to the CLC.

The case proceeded to summary judgment where the motion judge dismissed Kinch’s claim against ERG and found that ERG could include the amounts it was obligated to pay to Kinch within the commission payments under the employment agreement and awarded fixed costs against her in the amount of $20,000, in favour of ERG.

In a unanimous decision dismissing the motion judge’s ruling, the three-member Divisional Court panel determined that the provisions of the CLC with respect to vacation pay are mandatory and apply notwithstanding any contract to the contrary.

“Thus, an employer who seeks to satisfy its obligations to pay vacation pay by taking that pay out of commission sales must, at a minimum, demonstrate that the employee is aware of her vacation pay entitlements under the CLC and, that by agreeing to such an arrangement, she is receiving a benefit that is either equal to or greater than those entitlements,” the ruling states.

“In this case, there is no evidence that either of these minimum requirements were met. In fact, to the extent that it exists, the evidence is to the contrary. First, neither at the time the contract was entered into nor since that time has the employer provided any evidence to show that the appellant’s commission rates were adjusted upwards to reflect the fact that they were now going to include vacation pay.

"In fact, the employer’s records do not demonstrate that they did any vacation pay calculations. There are no deductions shown on the appellant’s pay slips or commission statements (except for one anomaly at the end of her employment once the employer was aware that there was an issue) and there are no amounts shown for vacation pay on the appellant’s T-4 slips,” the decision continues.

Kishnani tells the lesson learned is that if an employer wants to include vacation pay on a commission cheque, they can do so but they have to be clear as to what they're doing and they have to comply with the statue. For example, the statutory entitlement should be in writing, there should be a breakdown as to how the vacation pay will be calculated on the commission, and the vacation pay should be listed on each paycheque.


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