Canadian Employment Law Today

Canadian HR Reporter, 2020 4 CASE IN POINT: EMPLOYMENT STANDARDS No walk in the park Managing employee vacation entitlements requires diligence and good policies BY JOEL SMITH W hile we all love to take time away from the office, business owners, managers and HR professionals must take care to ensure employees are pro - vided with their legislated minimum vaca- tion entitlements while also carefully track- ing and documenting that time to avoid costly compliance issues that could result in everything from fines to legal challenges. In addition, policies and employment agree- ments should distinguish between vacation time and pay to avoid inadvertently granting vacation pay accrual to employees during unpaid leaves. Understanding how to deal with vacation accrual during leaves of ab - sence is another priority area. While managing employee vacation pay and time may seem like an administrative nightmare, in reality, it's fully manageable with a proactive, strategic and well-orga - nized approach. That's important at a time when employee entitlements have emerged as a key factor in employee attraction, reten- tion and engagement initiatives, particularly among organizations in fierce competition for top talent in their industry. The discussion is even more relevant in the context of recent employee-friendly trends on the vacation front, such as an in - crease in statutory vacation entitlements for longer-service employees in provinces such as Ontario. The same is true at the federal level, where changes to the Canada Labour Code that came into effect on Sept. 1, 2019 extended employee vacation entitlements, among other employment standards en - hancements. Then there's the emergence of a new en- titlement trend, particularly among knowl- edge-economy businesses aiming to glean a competitive advantage by building appeal- ing workplace cultures and benefit packages: unlimited vacation time. A progressive (and risky) approach to employee vacation benefits Although an appealing employee-friendly perk, unlimited paid vacation time presents several compliance challenges. First, employers must be sure they still meet legislative requirements, such as re - cord-keeping related to vacation time and pay, while also calculating vacation pay in the manner required by legislation, even if unlimited vacation is offered. In addition, employers must ensure that employees take their minimum vacation time entitlement and receive their minimum vacation pay entitlements. Employers also can't rely on offering unlimited vacation to avoid other legal obligations — even if the unlimited vacation is deemed to provide greater value than the entitlement they are seeking to con - tract out of. For example, employers gener- ally can't contract with their employees to provide unlimited vacation in lieu of paying overtime pay required by statute. Beyond legislative requirements, employ- ers must carefully consider whether unlim- ited holidays are practical and make sense based on the operational realities of their business model. A retailer or manufacturer requiring a consistent staff presence in the workplace at set hours to provide customer service or operate machinery, for example, will not be able to permit workers to come and go as they please. In contrast, a software development company may have greater flexibility in allowing employees to take va - cation when and how they prefer. Common misconceptions between vacation pay and vacation time Employers must understand that vacation time and vacation pay are separate concepts under each Canadian jurisdiction's employ- ment standards legislation. Failing to un- derstand and reflect that fact in policies and agreements can create significant exposures. It's common for employers to state in their workplace policies and agreements that employees are entitled to a certain amount of "paid vacation time" per year, rather than separating vacation time and pay. In many cases, those types of policies and agreements will result in the employer unintentionally guaranteeing that the employee will be en - titled to that amount of paid vacation each year, regardless of whether they take unpaid leave. Why? In Ontario, as in many other provinces, the Employment Standards Act, 2000 (ESA) provides that vacation time accrues during both active employment and while the em - ployee is off work on an ESA-protected leave. However, vacation pay is only earned under the ESA when the employee is earning wag- es, because vacation pay is a function of the wages earned by the employee. Practically, this means that an employee on an unpaid leave under the ESA (such as parental leave, for example) will continue to accrue vacation time throughout the leave, but they will not accrue vacation pay dur - ing that period. However, if an employer provides in its policies or employment agreements that its employees are entitled to a certain amount of paid vacation per year without differentiating between vaca - tion time and pay, the employer may un- intentionally be providing for vacation pay to accrue during unpaid leaves in excess of the ESA's requirements. Employers can eas- ily avoid this risk by ensuring policies and agreements are clear that vacation time and pay are separate entitlements that do not al- ways accrue at the same time. Vacation time is a right, not a privilege As most employers in Ontario know, provin- cially regulated employees earn vacation time during each "vacation entitlement year" un- der the ESA, which is a recurring 12-month period. Many employers opt to align the vaca- tion entitlement year with their fiscal year or the calendar year for ease of administration. Employees are required to take — and employers are required to ensure employees take — their vacation time entitlement un - der the ESA for a given vacation entitlement year by 10 months after the end of the enti- tlement year in which the vacation time was earned. Many employers mistakenly believe that obligation means they must allow their employees to take the vacation any time Some employers are building appealing workplace cultures and benefit packages by providing unlimited vacation time. When it comes to the HR and employment law compliance challenges that organizations face — and there are many — properly managing vacation time and vacation pay can be one of the most daunting. That's because many organizations struggle to fully understand employee vacation entitlements, largely due to the plethora of common misconceptions surrounding provincial employment standards legislation. HR lawyer Joel Smith takes a look at best practices and pitfalls involved in managing vacation time and pay for employees. BACKGROUND

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