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Archived - Discussion Paper on the Review of Labour Standards in the Canada Labour Code

I. Responding to the Evolving Workplace

H. Communicating with Employees

2. Deductions from Pay

Commission Recommendations:

• Employers should be entitled to deduct from an employee’s wages reimbursement for personal charges or fines incurred by the employee provided that
  
  1. the amount does not exceed one day’s wages for each pay period;
  2. the rules governing personal use of company property or liability for fines have been announced and agreed to in advance;
  3. the sums owing are clearly specified in an account, legal notice, traffic ticket or similar document, which the employer provides to the employee;
  4. the employer has suffered actual financial loss; and
  5. the employee does not deny incurring the charge or fine.
• The employee should have the right to appeal against a deduction to an inspector, and if the appeal succeeds, the employer should immediately return the money to the employee, together with interest. (R. 5.7)

Employers are currently prohibited from making deductions from an employee’s wages, except when authorized by Part III. An employer may deduct amounts that are authorized in writing by the employee, with one major exception: no deductions can be made for loss or damage to property or money where a person other than the employee had access to the property or money, even if the employee consents to the deduction. In addition, the current interpretation of this provision does not allow an employer to make deductions if the employee incurs personal charges on a company credit card or cell phone account, uses a company vehicle for personal purposes, or commits an offence that requires the employer to pay a fine or damages. Even if the employee has agreed in advance to reimburse the employer for these types of expenses, it is not enforceable under Part III because of the way that the provision has been interpreted.

Some would say that it is unfair to completely preclude employers from making pay deductions in these types of situations, especially in cases where an employee is well aware of company policy, or has admitted to causing damage to property and agrees to a deduction. However, there is some concern that a minority of employers could engage in abusive or opportunistic behaviour if they were given more latitude to make wage deductions. In the Commission’s view, these opposing interests could be balanced by allowing deductions with strict conditions, such as limiting the maximum amount of a deduction and giving the employee the right to appeal to an inspector.

Imposing a maximum amount for a deduction could help prevent misuse of the right to deduct. It would also ensure that employees are not perpetually in debt to their employer, continuing to work while receiving no pay, where the proposed deduction is quite large. Employers could choose the alternative of court action if the maximum allowable deduction is not sufficient.

Under the Commission’s proposal, the employer would be allowed to deduct one day’s wages per pay period. This could lead to inconsistent treatment of employees who are paid on a more frequent basis. Those who are paid on a weekly basis would see one day’s wages deducted per week, while those paid on a monthly basis would only have one day’s wages deducted for the entire month. One option would be to restrict the amount of the deduction to a fixed percentage of a pay period. For instance, employers could be allowed to deduct 10% of the amount paid in a pay period. In addition, employers could be subject to a time limit for making a deduction.

However, the Commission’s proposal is unique in the Canadian context. There is no Canadian jurisdiction that allows for deductions in respect of personal charges. One province—Manitoba—does permit deductions in respect of fines. An employer may deduct an amount that is payable for a traffic offence committed by the employee, for which the employer is being prosecuted. The employee must provide written authorization to make the deduction.

Several provinces allow for deductions in respect of cash shortages and/or property loss or damage, but only under strict conditions. Much like the federal jurisdiction, the provinces of Alberta and Ontario only permit such deductions where the employee had sole access to the cash or property. Deductions in respect of accidental breakages or loss are prohibited in some Canadian jurisdictions if they reduce the employee’s wages below the minimum wage.[11]

It has been argued that deductions in respect of personal charges, fines, loss or damage should not be permitted, because of the potential for abuse. In this view, no conditions are sufficient to prevent “self-help” measures by some opportunistic employers—except perhaps a determination by an inspector or another third party that the deduction is justified, prior to any deduction being made. For instance, an employer could apply to a Labour Program inspector for a determination of whether or not it can make a deduction and if so, how much. This may afford better protection to employees than the right to appeal a deduction to an inspector after it has already been made. Indeed, this is the procedure used in Prince Edward Island: an employer may only deduct an amount in respect of a cash shortage if it can verify to the satisfaction of an inspector that the employee is responsible for the shortage.

On the other hand, some believe that an inspector’s intervention in the matter—whether before or after a deduction is made—would be costly and administratively burdensome given the relatively small amounts that could be deducted.

For discussion:

• Should employers be allowed to make a deduction for unauthorized personal charges, fines, cash shortages or property loss or damage, subject to certain conditions to safeguard the employee from abusive conduct? If so, are any of the conditions proposed by the Commission appropriate? Should other conditions apply? Should employees have a right to appeal after a deduction is made, or should there be a third-party determination of a deduction beforehand?
• If there is to be a maximum amount for a deduction, how should it be determined?

3. Easier Calculation of Statutory Benefits

Commission Recommendation:

The Minister should enact regulations that will permit easy calculation of benefits and other entitlements accruing to employees who are paid on any basis other than time. (R 5.6)

The Commission heard evidence from stakeholders and Labour Program staff that variations in methods of calculating pay has made it difficult to calculate pay-related benefits that are required by statute. When Part III was enacted, most employees were paid on an hourly basis. Today, employees are paid in any number of ways, including by commission, or according to output or product. Furthermore, those who are paid on an hourly basis may work irregular hours. This can make calculating statutory benefits—such as overtime, severance or vacation pay—rather challenging.

For instance, employees who are entitled to statutory severance pay must be paid the greater of five days’ wages or two days’ wages for each completed year of employment. A day’s wages is paid at the employee’s regular rate for his or her regular hours of work. If the employee is paid per task completed, it may be difficult to determine his or her regular wage rate. To take another example, the overtime pay rate is worth one-and-a-half times the employee’s regular wage rate; however, this rate may not be clear when employees are paid by commission.

In determining how statutory benefits ought to be calculated, the goal is to achieve equivalent outcomes between workers paid on a basis other than time and hourly-paid workers with regular schedules. However, as the Commission pointed out, in some cases this might not be possible to achieve using a simple time-related formula. For instance, for workers paid on a per-job or whole-contract basis, it might be necessary to calculate their entitlement to statutory benefits on the basis of a percentage of their earnings.

For discussion:

Should the Minister enact regulations to permit easy calculation of statutory benefits and other entitlements accruing to employees who are paid on any basis other than time? For what particular statutory benefits should there be special calculations? Should a percentage of earnings be used as the basis for at least some of these statutory benefits, and if so, what percentage would be appropriate?

[11] In the Northwest Territories and Nunavut, employers can deduct an amount in respect of accidental breakages to property, but the deduction cannot reduce the employee’s wages below the minimum wage. In Nova Scotia, employers may deduct an amount for a loss that occurs while the employee is working (including customer theft if it can be proven that this is the employee’s fault), but the deduction cannot reduce the employee’s wages below the minimum wage. The employee must also provide a written authorization for the deduction.

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Date Modified:

2012-02-15