Canadian Employment Law Today

January 22, 2014 Ask an Expert with Brian Wasyliw Sherrard Kuzz, Toronto Have a question for our experts? Email Jeffrey.R.Smith@thomsonreuters.com Reclaiming overpayments due to clerical errors Question: If an employee's paycheque was too much due to a clerical error, can the employer reduce the subsequent paycheque to even it out? The employee has a set salary and regular pay schedule. Answer: Yes. In the case of a clerical error, the employer can deduct the overpayment from the subsequent paycheque so long as the reconciliation of the overpayment is done within a reasonable amount of time after discovering the overpayment. In Ontario, s. 13 of the Employment Standards Act (ESA) places specific limitations on the ability of an employer to make deductions from employee wages. An employer shall not deduct or withhold wages except in the following circumstances: as required or authorized by statute, pursuant to a court order, or with the employee's written authorization (including the precise amount or formula to calculate the amount of the deduction). However, none of those exceptions applies to the scenario posed in the question above. So how can the employer make the deduction? The answer comes from case law and an examination of the purpose of legislation such as s. 13 of the ESA. Section 13 is designed to prevent an employer from unilaterally recovering amounts through a payroll deduction. For example, a dispute between employer and employee over an unpaid loan cannot result in the employer simply deducting the disputed sum from the employee's payroll. However, in the scenario posed above, the employee was overpaid through a clerical error. Accordingly, the amount in dispute was never owed to the employee and is therefore not to be regarded as wages payable. 2 In MenuPalace.com Corp. v. Saladino, a deduction from an employee's wages for vacation days taken but which had not yet been earned did not violate the ESA. The vice-chair explained that s.13 was not intended to prevent an employer from recovering a recent overpayment of wages, stating: "Section 13 of the act significantly limits when an employer can make a deduction from an employee's wages. However, this provision is not so prescriptive that it prevents the employer from subsequently recovering an overpayment of this nature, provided the deduction occurs within a reasonable period of time. The act is concerned with ensuring that employees are paid all the wages they have earned. Section 13 is designed to prevent an employer from recovering, through a payroll deduction, amounts that are unrelated to wages. Recovering a recent overpayment of wages, as is the case in this instance, cannot be considered a "set-off" or deduction from wages that is subject to section 13 of the act." Employers should be cautious about applying these principles too broadly. A clear mistake due to a clerical error is to be distinguished from other circumstances where an employer may wish to make a payroll deduction. For example, where an employer decides to pay an employee during a leave of absence when not required to do so, the employer cannot later characterize the payment as an "overpayment" and deduct the amount from the employee's wages. Where the issue is not a clerical error — for example, where a loan to the employee needs to be repaid — then the employer would require a clear written acknowledgement from the employee regarding a specific amount or formula to repay the money from wages. Failing such an acknowledgement, it would be necessary to commence legal proceedings seeking repayment of the money. Finally, in a workplace where the employee's relationship with the employer is governed by a collective agreement, it will be important to review the agreement for applicable language, if any. Time allowed to review employment contract Question: How much time is appropriate to allow for a new hire to look over an employment contract or seek legal advice before signing? What should an employer do if the employee wants to sign right away? Answer: While there is no hard and fast rule, three business days is generally accepted as a fair and reasonable amount of time. There are a few purposes served by giving a potential employee time to review an employment contract. First, and perhaps fundamentally, it's the fair thing to do. However, it is also wise to do so from a business perspective. Canadian courts have long recognized the relationship between an employer and prospective employee is typically not one of equal bargaining power. As such, if an employer seeks to rely on the terms of a written employment contract — often at the time of termination — the employer must demonstrate the contract is lawful and the employee entered into it freely, voluntarily and with an understanding of its meaning, having had time to seek advice as to its meaning. Allowing an employee time to carefully review a contract can be critical to demonstrating the employee either understood the contract or had the chance to obtain advice as to its meaning. This is why it is also often prudent to include in the contract a statement that the employee was afforded the opportunity to and was encouraged to seek independent legal advice. Extending the probationary period is problematic since employment is continuous while At a minimum, three business days is a reasonable time frame for a potential employee to avail herself of the benefit of a contract review (whether by the employee or with independent counsel). Should an employee wish to sign the contract immediately, without the benefit of a review period, the employer should resist this and consider ways to encourage slowing down the process. In appropriate circumstances, this might include making a financial contribution towards the employee having the contract reviewed by independent counsel. Particularly where the potential liability would be significant if the employer was later unable to rely on the contract language. A financial contribution might be a small price to pay toward solidifying the enforceability of the contract. Finally, it is important to have the contract signed by the new employee before the employee commences her first day at work. If the contract is signed after work has already commenced it is possible the employee could later argue she was not given anything identifiable in Published by Canadian HR Reporter, a Thomson Reuters business 2014 Continued on page 6

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