Part V of the Employment Standards Act, 2000 (Payment of Wages) is intended to ensure that employees receive wages for work performed. This Part regulates the payment, manner and place of payment of wages, deductions from wages, and the priority of wage claims over other unsecured creditors. It also establishes obligations with respect to the provision of statements of wages and outlines the information required on such statements.

The provisions regarding vacation statement obligations previously contained in s. 12(1)(d) of this Part of the ESA 2000 were repealed by the Government Efficiency Act, 2002, SO 2002, c 18, which came into force on November 26, 2002. They were replaced with new vacation statement obligations set out in s. 41.1 of Part XI (Vacation with Pay).

Lastly, a new requirement to provide a statement of wages paid when employment ends was added by the GEA 2002 (s. 12.1 (new)).

Section 11 – Payment of wages

Payment of wages - s. 11(1)

Subsection 11(1) requires employers to:

  • Establish regular pay periods and pay days, and
  • Pay all wages earned in each pay period no later than the pay day associated with the pay period.

The regular pay day could be weekly, bi-weekly, semi-monthly, monthly or any specified period. An employer may establish different recurring pay days for different employees, and for different components of the wage package, e.g., sales commissions, overtime.

Floating pay days

The question has arisen as to whether an employer is in compliance with s. 11 where the contract establishes a recurring pay day but further provides that if that recurring day should fall on a weekend or a statutory holiday that the following business day is considered the recurring pay day. The Program’s position is that s. 11 requires the establishment of a fixed period of time and a fixed date upon which an employee can expect to receive wages earned within the fixed period of time. The contract provision described above has the effect of creating a floating pay day that puts employees at a disadvantage as they are required to wait in certain cases for a longer period of time before receiving the wages earned in the pay period. As a consequence, Program policy is that such a contract is not in accord with the requirement in s. 11 to create a recurring pay day.

Payment under an overtime averaging arrangement

The question has arisen as to how an employer is required to pay wages to an employee who is subject to an overtime averaging arrangement: is the employer required to pay the employee straight time for every hour worked within the pay period - including those over 44 - and postpone paying only the extra half of any overtime pay owing until the averaging period has ended? Or is the employer required to pay straight time only up to 44 hours a week and can postpone paying the entire time-and-a-half for any overtime pay owing until after the averaging period has ended?

It is Program policy that the employer is required to pay the employee straight time for each hour worked within the pay period, including those hours over 44 and then pay the extra half of any overtime pay owing after the averaging period has ended.

For example, pursuant to ESA Part VIII, s. 22, an employee's hours of work are averaged over four work weeks and works the following hours:

  • Week 1 - 56 hours
  • Week 2 - 43 hours
  • Week 3 - 35 hours
  • Week 4 - 46 hours

Assume the employee has a weekly pay period and is subject to an overtime threshold of 44 hours.

The employee worked, on average, one hour of overtime in each week.

The employer is required to pay the employee:

  • For the pay period that covers week 1: 56 hours at straight time;
  • For the pay period that covers week 2: 43 hours at straight time;
  • For the pay period that covers week 3: 35 hours at straight time;
  • For the pay period that covers week 4: 46 hours at straight time and 4 hours at 0.5 of the employee's regular rate.

Changing the pay day

The requirement to establish a recurring pay period and pay day does not prevent the employer from subsequently establishing a new and different pay period or associated pay day. It should be noted, however, that in some situations such a change, if it is a substantial change in the terms and conditions of employment or a breach of a fundamental term of the employment contract, may constitute a constructive dismissal and thus potentially be a termination and a severance of employment.

Monetary entitlements under the employment contract

If a contract establishes an entitlement that falls within the definition of wages, that entitlement can be enforced through s. 11, even if there would otherwise be no entitlement under the ESA 2000. For example, if an employee was exempt from overtime pay under the ESA 2000 but the contract provided for overtime pay (e.g., a premium rate to be paid once the employee worked a certain number of hours), any unpaid contractual overtime pay would be enforceable as unpaid wages under s. 11.

It is essential, for assessment or enforcement purposes, to review the terms of employment to ensure that the wages in question are earned during the pay period. For example, in the area of sales commissions or bonuses, innumerable variations exist on when in fact they are considered to have been earned and therefore due to be paid.

OHSA-related meetings

In Ingersoll Machine & Tool Co. Ltd. v Griffin et al (August 9, 1982), ESC 1263 (Picher), Referee Picher ruled that where the former Occupational Health and Safety Act required the employer to pay employees for attendance at joint health and safety committee meetings under that Act, such payment could be enforced as wages under the predecessor provision to s. 11(1) in the former Employment Standards Act, on the basis that rights under statutes other than the Act were incorporated into the contract of employment. Note that the current Occupational Health and Safety Act, RSO 1990, c O.1 continues to provide employees with the right to be paid for time associated with such meetings and therefore such wages are likewise recoverable under the ESA 2000.

Payment for time for voting

Under the Municipal Elections Act, 1996, SO 1996, c 32, the Ontario Election Act, RSO 1990, c E.6, and the Canada Elections Act, S.C. 2000, c 9, an employee who is qualified to vote has the right to three consecutive hours for the purpose of voting during the period the polls are open. Those acts do not require the employer to give employees three hours off during working hours, but if an employee's working hours are such that the employee does not have three consecutive hours outside of their shift during the period the polls are open, the employer must give the employee time off to ensure that they do have three consecutive hours to vote. By way of prohibiting deductions from an employee’s pay, all three statutes require the employer to pay the employee for such time off work. Under ESA Part I, s. 1, wages are defined to include monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied. The Program’s position is that the right to any paid time off to vote is a statutory term of the employment contract and that payment can accordingly be enforced as wages under s. 11.

Method of payment – s. 11(2)

This section  requires payment of all wages in cash, by cheque,  direct deposit in accordance with s. 11(4) and any other prescribed method of payment.

Payment of wages is to be made in cash (legal tender in Canada) or by cheque that is negotiable for legal tender. If payment is made by cheque, the cheque must be payable only to the employee. If payment is made by direct deposit, the payment must be made to an account in the employee's name to which only the employee and persons authorized by the employee have access – see ss. 11(4). There are currently no additional methods of payment prescribed by regulation.

There is nothing to prevent an employment contract providing for additional non-wage forms of compensation, e.g., food, bus or subway tickets or merchandise to an agreed value, provided the employment standards (e.g., minimum wage standards) have been met. However, note that benefits such as transportation, food, bonuses or other assistance could not replace the required payment of wages by cash, by cheque or by direct deposit. See Peter Muscat General Contracting v Buttigieg (September 7, 1978), ESC 543 (Davis). Also note that the enforcement of non-wage payments of this nature would lie beyond the Program’s jurisdiction.

Place of payment by cash or cheque - s. 11(3)

Section 11(3) requires that wages paid by cash or cheque must be given to the employee at the workplace or an alternate location agreed upon by the employee. Such an agreement must be in writing as required under ESA Part I, s. 1(3). In the absence of such an agreement, payment must be made at the workplace.

Under ESA Part III, s. 7, an employee's agent (e.g., trade union) may agree on behalf of the employee to an agreement under this provision to designate some other place for the payment of wages.

Direct deposit - s. 11(4)

Under s. 11(4), an employer choosing a direct deposit payment arrangement may only deposit wages to an account at a financial institution:

  • If the account is in the employee's name;
  • Provided that only the employee or a person authorized by the employee has access to the account

An additional condition that had previously been in the Act – that an office or facility of the financial institution be located within a reasonable distance from the workplace, unless the employees agrees in writing otherwise – was repealed by the Supporting Recovery and Competitiveness Act, 2021, effective June 3 , 2021.  As such, there are no longer any geographic restrictions in the ESA with respect to where the institution (or its offices or facilities) into which an employee’s wages are deposited can be located.

In order to make payments by direct deposit, it is necessary that the employee have an account at a financial institution to which only they (or person authorized by the employee) have access.

An employer may make having such an account a condition of employment and where an employee is directed to open an account, including at a particular institution, and refuses, the employer may terminate the employee without running afoul of the reprisal provisions of the ESA 2000. This is because in such a case, the employee is not engaging in any activity that is protected by the anti-reprisal provisions. In particular, there is no right under the Act to not open an account or to not be paid by direct deposit. The employer would of course be required to comply with the notice of termination and severance provisions in ESA Part XV.

The Program considers the reference to “direct deposit” in ss. 11(4) to include Interac e-Transfers (i.e. where money is transferred from one bank account directly into another).  As such, employers may pay wages by Interac e-Transfer so long as the conditions set out in paragraphs (a) and (b) are met.  This is the case whether or not the employer and/or employee chose to use the security question feature with the e-transfer.  Note, however, that if the money is not actually deposited into the employee’s account the employer will not be considered to have paid the employee’s wages.  This could happen, for example, if the employee fails to take a necessary step to electronically accept the deposit within the allotted time, or if the money is inappropriately diverted to someone else’s account (such as where someone hacked into the employee’s email and directed the money to a different bank account).

If employment ends - s. 11(5)

Under s. 11(5), any wage entitlements owing to an employee whose employment has ended must be paid out no later than the later of seven days after employment has ended and the next regular pay day. In allowing the employer to choose the later of seven days after the employment ended and the regular pay day following the date the employment ended, the employer has some flexibility to use regular processes (e.g., the employer’s computerized payroll system rather than having to cut a manual check) to make the final payment to the employee.

In this regard it should be noted that the pay day referred to in paragraph (b) is not necessarily the pay day that covers the period to the date of termination, but is rather the very next pay day to fall after the date employment ends.

Example:

  • employee's employment is terminated on January 22
  • Employee is paid on January 31 for the wages earned in the pay period January 1 to 15, and paid on February 15 for the wages earned in the pay period January 16 to 31 (i.e., the pay day for the pay period that would have included January 22 would be February 15)
  • Employee is entitled to payment of any outstanding wages on the date that is the later of:
    • Seven days after the termination date - January 29 (seven days after January 22) and
    • The next pay day - January 31

The employee in this example will therefore be entitled to payment of any outstanding wages on January 31, not February 15.

Finally, it should also be noted that s. 11(5) does not relieve the employer in any way of its obligation to pay the wages earned in any given pay period on the regular pay day for that pay period as per s. 11(1).

Example:

  • Pay day for the pay period September 12 to 25 is October 2
  • employee's employment is terminated on September 30 (i.e., after the pay period is completed but prior to the pay day for that pay period)

Under s. 11(1), the employer must still issue a pay cheque as usual on October 2 for the wages earned in the pay period ending on September 25.

And, in addition, s. 11(5) will require payment of any other outstanding wages to which the employee was entitled on termination (e.g., the wages earned September 26 to 30, any termination pay in lieu of notice, severance pay, vacation pay and public holiday pay for a substitute holiday that had not been taken) on October 7, the day that is the later of seven days after the termination, or October 2, the next pay day following the termination.

Section 12 - Statement re wages

Statement re wages - s. 12(1)

Section 12 creates a requirement that ensures an employee receives, at the time wages (other than vacation pay) are paid, a detailed statement that demonstrates how his or her gross and net wages have been calculated. It is not necessary that all the information required in s. 12 be contained in a single document; the written statement may consist of one or more documents. The Government Efficiency Act, 2002, SO 2002, c 18 (GEA 2002) repealed s. 12(1)(d), which set out the vacation statement obligations. Those obligations are now set out in ESA Part XI, s. 41.1.

Even though an employee may be aware in one way or another of the details concerning his or her pay and despite the fact that the details may remain unchanged from pay period to pay period, a written wage statement is required on or before each pay date.

Tips and other gratuities do not fall within the definition of wages. Therefore, the ESA does not require employers to include information about tips and other gratuities on wage statements.

It is Program policy that an employer can provide the written statement by way of a secure internet accessible database and be in compliance with s. 12(1), even though an individual wage statement is not personally sent in any format to the employee, if the employees have a reasonable opportunity to access the database and a printer (and know how to use them) on or before their payday. If the employee works at a location other than the employer’s workplace (for example, an employee of a temporary help agency who is providing services at a client’s office), the employer may comply with s. 12(1) if the employee is provided with access to a computer and printer at the client’s place of business.

The written statement must contain the following information:

Pay period for which the wages are being paid

Pursuant to s. 12(1)(a), the written statement must state the pay period for which the wages are being paid. This requirement is satisfied if the statement identifies, in a way understandable to the employee, the pay period to which the statement pertains. This would typically be by showing the start and end dates of the pay period, but other ways of identifying the pay period might also be used, such as, for example, by indicating that the pay period is period #2 in the 26 pay periods for this year.

Wage rate, if there is one

Under s. 12(1)(b), the written statement must contain the wage rate, if there is one. This would include all special rates of pay, e.g., overtime rate, premium rate or shift rate in addition to the regular rate.

Gross amount of wages andhow that amount was calculated

Under s. 12(1)(c), the written statement must contain the gross amount of wages and, unless the information is provided in some other manner, how that amount was calculated. This requirement is satisfied if the wage statement shows:

  • The amount of the gross wages earned; and
  • The formula for the calculation of gross wages earned. If the information regarding the calculation of gross wages earned is provided in some other manner, the employer is obliged to establish evidence to show how this has been done.

Amount and purpose of each deduction from wages

Under s. 12(1)(e), the written statement must contain a description of each deduction and the amount.

Any amount with respect to room or board that is deemed to have been paid to the employee under s. 23(2)

Under s. 12(1)(f), the written statement must contain any amount with respect to room or board that is deemed to have been paid to the employee under ESA Part X, s. 23(2). Where this clause applies, the prescribed amount of room and board is deemed to be wages paid to the employee. See O Reg 285/01, s. 5(4), s. 19(2) and s. 25(5) for the prescribed amount.

Net amount of wages being paid

Under s. 12(1)(g), the written statement must contain the net amount of wages bein paid to the employee.

Same - s. 12(2) repealed - GEA, 2002, November 26, 2002

Prior to the repeal of s. 12(2) and s. 12(1)(d) by the GEA 2002, which came into force on November 26, 2002, s. 12(2) provided that the information regarding vacation pay detailed in the former s. 12(1)(d) did not need to appear in the wage statement for a pay period in which one or more vacation days were taken, if the employer was paying vacation pay in accordance with ESA Part XI, s. 36(3) as it read prior to amendment by the GEA 2002.

Section 12(2) was replaced with ESA Part XI, s. 41.1(5). Section 41.1(5) similarly provides that the vacation statement obligations set out in ESA Part XI, s. 41.1 do not apply if the employer is paying vacation pay that accrues in each pay period on the pay day for that pay period, and provides a statement of wages that sets out vacation pay separately from the other wages being paid or provides the employee with a separate statement setting out the amount of vacation pay being paid in accordance with s. 36(3) as amended by the GEA 2002.

Electronic copies - s. 12(3)

Section 12(3) permits an employer to provide a wage statement to an employee using a confidential electronic mail system to convey the information, instead of a paper document. However, an employer may only provide a statement by electronic mail where the employee has access to the means of making a paper copy of the document.

Under s. 12, it is the employer’s responsibility to ensure that a wage statement is provided. Where the employee's access to a means of making a paper copy is outside the employer’s control, the employer will not be able to ensure the provision of a statement; therefore, access to a means must be interpreted to mean at the workplace.

Some examples of situations where this section’s requirements will not be met include:

  • The employee has no access to computer equipment and software at the workplace to print a copy of the document;
  • The employee is unable to access computer equipment and software necessary at the workplace on the day that the wage statement is due under s. 12(1);
  • The employee is not provided with an electronic mail account at the workplace;
  • The employee has access to the necessary equipment at the workplace, but is not trained to use it;
  • The employee must request another individual at the workplace, other than the employee's manager, to produce a copy of the document.

Confidentiality will be a reasonable expectation with regard to the employee's ability to make a copy of his or her own wage statement under s. 12(3).

See the discussion above at s. 12(1) for a discussion of wage statements that are provided via a secure internet accessible database.

Section 12.1 - Statement re wages on termination

This section was added to the Employment Standards Act, 2000 by the Government Efficiency Act, 2002, SO 2002, c 18, which came into force on November 26, 2002. Section 12.1 requires employers to provide a statement with respect to wages (including vacation pay) paid on termination of employment on or before the day on which the employer is required to pay wages under s. 11(5). It also requires the employer to provide information in the statement as to how the gross amounts of termination pay, severance pay, vacation pay and any other wages in addition to those amounts was calculated, unless that information is provided in some other way by the employer.

Section 13 - Deductions, etc.

Deductions, etc. - s. 13(1)

Section 13(1) establishes a general rule prohibiting an employer from:

  • Withholding wages that an employee has earned;
  • Making a deduction from an employee's wages;
  • Causing the employee to return their wages to the employer, except where the employer is permitted to do so under this section.

For the balance of this chapter, reference will generally be made only to deductions, but the discussion should be understood as covering an employer’s withholding of wages and an employer causing wages to be returned to the employer as well.

Note that pursuant to O Reg 285/01, s. 3.1, s. 13 of the Employment Standards Act, 2000 does not apply to an employer who participates in an Ontario Municipal Employees Retirement System (OMERS) pension plan under the Ontario Municipal Employees Retirement System Act, 2006, SO 2006, c 2, but only with respect to the fees that a by-law made under s. 28 of that Act requires the employee to pay.

The purpose of s. 13(1) is to protect the employee from improper interference with their earnings by ensuring that an employer who owes wages is not in the position of being both a claimant against the employee and an arbiter of the validity of the claim. The exceptions to the general prohibition against deductions in s. 13(1), as set out in ss. 13(2) and 13(3), underline this principle by permitting deductions where a statute of Ontario or Canada, a court order, or the employee's written authorization permit the deduction. In such cases, someone other than the employer, such as a legislature, a court, or the employee, has determined that the employee owes the money to be deducted.

It is important to note that what s. 13(1) prohibits is deductions from wages, i.e., deductions from the monetary remuneration that an employee is entitled to under their employment contract. The contract may provide a formula for calculating an employee's wage entitlement and that formula may involve a deduction being made at some point in calculating what the employee's wage entitlement is; however, such a deduction is not a deduction from wages, but rather a step taken in calculating what wages are due. For example, an employment contract may provide that the employee will be entitled to a yearly bonus that is calculated as $X amount per unit of productivity minus the amount of shrinkage and shortages that take place during the year. While the bonus constitutes wages within the meaning of the definition in the Act, no deduction is being made from wages in this case; rather, the deduction is part of the calculation that is necessary to determine the amount of wages. The distinction between a deduction from wages and a deduction that is a step in the calculation of what wages are owing is a longstanding one. See Sagar v Ridehalgh & Sons Ltd., [1931] 1 Ch 310, Becker Milk Company of Canada Limited v Ure (December 14, 1985), ESC 2002 (Egan) and Fruitman v Stephenson’s Rent All Inc., 2000 CanLII 3317 (ON LRB).

However, it should also be noted that a deduction made in the course of calculating what wages are due, unlike a valid deduction from wages, must not produce a result that is less than the minimum wage or, where overtime hours are worked, less than an employee's overtime pay entitlement under the ESA 2000.

Thus, if the employment contract provides a formula that involves a deduction in order to calculate what the employee's wages are, it would be a violation of the minimum wage provisions if the employee ends up receiving less than the minimum wage. Note, however, that compliance with the minimum wage is determined on a pay period basis, not on a per hour basis.

Also note that compliance with the limits on hours of work must be determined on the basis of actual hours of work, and not on provisions in the employment contract that might in some circumstances deem the employee to have worked less time than they in fact did.

Examples

An employee has a regular work week of nine hours per day, five days per week, with shifts beginning at 9 a.m. each day. Their regular rate is $17.00 per hour. However, under the terms of the employment contract, if they punch in more than five minutes but less than 15 minutes late, the wages with respect to the first scheduled hour of work (9 a.m. to 10 a.m.) are calculated as if they had worked only 45 minutes, even if the employee worked, for example, 54 minutes in that hour. If the employer pays the employee $767.13 for the week in accordance with the contract (based on 44 hours and 45 minutes, with the 45 minutes paid at the rate of one and a half times the regular rate), there will be an overtime pay violation; as there were actually 54 minutes of overtime worked, the employee should have been paid $770.95

Consider the slightly different example of an employee with a regular work week of eight hours a day, five days a week, and a regular rate of $17 per hour. If the employment contract provides that the employee will be paid for only 45 minutes if they punch in more than five minutes but less than 15 minutes late, and the employee punches in six minutes late, there will be no violation if the employee receives only $675.75 for the week. While the employee was paid for only 45 minutes even though they actually worked 54 minutes out of the first scheduled hour on the day they were late, they received all the monetary remuneration that was due to them under the contract and the calculation of wages under the contract does not result in any violation of the hours of work, overtime or minimum wage provisions of the Act. Note that $675.75 when divided by 39.9, the number of actual hours worked in the week, produces $16.94, which is in excess of the minimum wage.

What if the employee in the preceding example was just being paid minimum wage, which at the time of writing was $15.00? If the employer treats the employee as having worked only 39.75 hours in the week in question and pays the employee $596.25 for the week, there will be a violation of the minimum wage requirements, because $596.25 divided by 39.9 (the employee's total hours for the week) equals $14.94, which is less than the minimum wage. The employer should have paid the employee $598.50 (39.9 x 15).

Deductions for overpayment of wages

In addition, referees under the former Employment Standards Act have held that the employer may deduct wages paid in error in the past from an employee's pay cheque. As the referee pointed out in All-Way Transportation Services Ltd v Fountain (June 6, 1979), ESC 627 (Brent) when an employee is overpaid, they were never entitled to the amount that the employer seeks to deduct, so it cannot be regarded as wages payable in the first place.

In some cases, an overpayment may have arisen from a failure to make an authorized deduction. For example, an employee may have provided the employer with a written authorization to deduct a specific sum from each pay cheque in respect of the company benefit plan. Where the employer inadvertently fails to make the deduction, resulting in an overpayment to the employee, the employer may recover the monies paid out in error without obtaining any additional authorization to do so.

In cases where the employer has made an overpayment, it can recover those monies from the employee's wages, whether they are regular wages, vacation pay or termination pay.

Note that although ESA Part XV, s. 60(1)(b) requires the employee to be paid no less than their regular wages during the notice period that this provision is intended to protect the employee's right to continue to earn their regular wages - it does not conflict with the employer’s right to recover an overpayment of wages.

Note, however, that where an employer intentionally pays an employee more than the Act entitles the employee to, this is not an overpayment but rather a payment that they are entitled to under their contract of employment. Such an amount would, therefore, fall within the definition of wages. The employer cannot deduct the amount of such a payment from subsequent earnings without a written authorization for deduction by the employee. Further, if there is a written authorization for deduction, but it refers only to deductions for overpayments, the authorization cannot be used, as the payment was not in fact an overpayment. See Ozorak v Econome and 802710 Ontario Inc. (April 20, 1999), 4320-97-ES (ON LRB) where the employer intentionally paid an employee for a public holiday that the employee was not entitled to under the former Employment Standards Act.

An advance payment of wages may be deducted. In 473321 Ontario Limited, c.o.b. Malkat Peking v Cohen (April 3, 1984), ESC 1602 (Swan)the referee noted that just as amounts that are due and actually paid by an employer before termination may be taken into account in determining the payment due on termination, so may amounts that were expressly paid as an advance on amounts to become due in the future. 431650 Ontario o/a Eglinton Fine Foods v Lombardo (April 9, 1985), ESC 1821 (Egan) should also be noted. The claimant was given four weeks' notice when he was entitled to eight weeks. He obtained another job immediately after this four-week period. The applicant argued that the earnings of the employee from the new employer during the second four-week period of notice to which he was entitled by statute should discharge his obligation for payment in lieu of notice to the extent of those earnings. Citing s. 8 of the former Employment Standards Act, the referee rejected this argument, holding that none of the enabling factors in the regulations applied.

Tips and other gratuities are excluded from the definition of wages. Therefore, s. 13(1) does not apply to deductions from tips and other gratuities. Please see the discussion at ESA Part V.1, s. 14.2(1) for information on deductions from tips and other gratuities.

Statute or Court Order - s. 13(2)

Section 13(2) sets out the exceptions to s. 13(1) that permit an employer to make deductions against an employee's wages where the deduction is authorized by a statute of Ontario or Canada, or a court order. Section 13(2) is subject to s. 13(4).

Tips and other gratuities are excluded from the definition of wages. Therefore, s. 13(2) does not apply to deductions from tips and other gratuities made pursuant to statute or court order. See the discussion on ESA Part V.1, s. 14.3 for more information on deductions from tips and other gratuities made pursuant to statute or court order.

Deductions authorized by statute

The most frequently encountered deductions authorized by statute are for income tax, Canada Pension Plan (“CPP”) contributions and employment insurance (“EI”) premiums.

In addition to authorizing deductions for EI premiums, the Employment Insurance Act, SC 1996, c 23, requires a deduction from wages payable to an employee as a result of a court order or arbitration award made against the employer where the employer has reason to believe that the employee received EI benefits for the same period to which the order or award relates. The deducted amount must be remitted to the Receiver General.

An employment standards officer should check with the Canada Revenue Agency if an employee alleges that deductions made by the employer in purported compliance with income tax, CPP or EI legislation were not authorized.

It sometimes occurs that an employer who failed to deduct amounts for income tax, CPP contributions or EI premiums (because, for example, the employer incorrectly treated the employee as an independent contractor), seeks to catch up by deducting the amounts that should have been deducted in the past all at once (sometimes going back several years) from the employee's current regular wages or termination pay. Both s. 21(4) of the Canada Pension Plan, RSC 1985, c C-8 and s. 82(6) of the Employment Insurance Act the EI legislation address this situation by limiting the catch-up to one additional deduction for each pay period (i.e., the deduction that would currently be required for the pay period plus one further pay period’s deductions) and prohibiting any catch-up for amounts that should have been deducted more than 12 months previously.

These limitations equally apply to the employee's final pay cheque at the end of an employment relationship, even though it means that there will be no further opportunity for the employer to make up for the missed deductions. See Firlotte v Angus operating as Blythe Farm (May 30, 1995), ESC 95-101 (Wacyk).

One question that might arise is whether a deduction authorized pursuant to a regulation would be permitted under s. 13(2). For example, in the context of the Employment Protection for Foreign Nationals Act, 2009, employers are generally prohibited from recovering or attempting to recover from a foreign national any cost incurred by the employer in the course of arranging to become or attempting to become an employer of the foreign national. This prohibition does not apply with respect to costs that are prescribed. Ontario Regulation 348/15 prescribes such costs; it permits employers who employ a foreign national in Ontario under an employment contact made pursuant to the federal government’s Seasonal Agricultural Worker Program (“SAWP”) to recover from the foreign national costs of air travel and of work permits, if the contract allows these deductions. If these permitted costs were deducted from wages, it would not constitute a violation of s. 13 since the regulation specifically authorizes the employer’s cost recovery.

Deductions authorized by court order

Section 13(2) allows deductions pursuant to a court order.

This provision states that an employer may make a deduction from an employee's wages if a . . . court order authorizes it. It is Program policy that a deduction is allowed under s. 13(2) only if a court order explicitly states that a deduction may be made from wages. This can include wages held in trust where an employer has filed an application for review under ESA Part XXIII, s. 116. It is not enough that the employer is in possession of a court judgment declaring that the employee owes a debt to their employer; there must be a court order specifically providing that the debt can be satisfied by way of a deduction from wages.

Note that Program policy previously provided that there was no requirement for the court to specifically authorize a deduction from wages; however, in accordance with more recent decisions, it is now Program policy that there must be a specific authorization. See for example, Minnema Farms Ltd v Demaat, 2014 CanLII 668 (ON LRB).

Many (though not all) deductions that are lawful under s. 13(2) involve court ordered garnishment of wages. Note however, that under s. 7 of the Wages Act, RSO 1990, c C.44, 80 per cent of an employee's net wages (i.e., gross wages less tax, EI and CPP) are exempt from garnishment. If the garnishment is for the enforcement of a support order, only 50 per cent of net wages are exempt. A judge issuing a garnishment order has discretion to decrease or decrease the percentage of the net wages that are exempt. Program staff should not attempt to provide advice concerning the Wages Act, which is administered by the Ministry of the Attorney General. Persons with enquiries about that Act should be directed to the Crown Law Office-Civil Division of that Ministry.

Employee Authorization - s. 13(3)

Section 13(3) permits an employer to withhold wages, make a deduction from wages or have an employee return wages if the employee has provided a written authorization to do so. Note that ss. 13(4) and 13(5) set out specific exceptions to s. 13(3).

As provided in s. 13(3), an authorization must be in writing to be valid; an oral authorization is not sufficient. The following decisions under the former Employment Standards Act are relevant: 509245 Ontario Ltd. c.o.b.a. Yates Electric v Groulx and Heighington (November 21, 1985), ESC 1987 (Brown)and Crick c.o.b. Keith’s Restaurant v Popko et al (December 14, 1982), ES 1344 (Egan).

However, in Consolidated Press Company Limited v Leko (November 10, 1983), ESC 1511 (Aggarwal), also a decision under the former Employment Standards Act, a deduction was allowed in the absence of a written authorization. The claimant had verbally agreed to a monthly deduction for parking, and had accepted cheques marked on that basis for three years. The referee noted that according to Black’s Law Dictionary, a written instrument is merely evidence of a contract. He found, therefore, that where a clear, express, bona fide contract establishing the employee's obligation to pay through payroll deductions existed, and had been implemented for a long time, the mere absence of a formal written authorization should not make such deductions illegal. Apparently, the referee was concerned that the claimant was attempting to use the section as an instrument of fraud, rather than as a shield against fraud by the employer, which is its intent. The case, however, is contrary to Program policy and should not be followed.

It should be noted that in another case under the former Employment Standards Act, Tavares and Sgromo c.o.b. Mr. Submarine, Thunder Bay, Ontario v Coppola et al (April 13, 1982), ESC 1197 (Aggarwal), the same referee held that the similar acceptance of a pay cheque every two weeks without objection with full knowledge and understanding that the deductions had been made for cash shortages did not amount to written authorization.

A written authorization must in fact specify that a deduction from wages is authorized. For example, in 555149 Ontario Limited c.o.b.a. Discount Car and Truck Rentals v Mason (March 20, 1985), ESC 1809 (Davis), the employee signed the following statement: I … agree to pay Discount Car Rentals the amount of 5,000.00 in monthly instalments of 200.00 … per month for the damage of the car. The referee held that while this document was an acknowledgement of a debt and an undertaking to liquidate it by monthly instalments, it did not authorize the employer to make a deduction from wages. A similar finding regarding an agreement to pay for damages done to the employer’s car was made in Windsor Wholesale Produce Limited v Donnelly et al (August 30, 1984), ESC 1712 (Gorsky). Both of these cases were decided under the former Employment Standards Act. Note that had the referees in either case concluded that there was an authorization to deduct from wages, the exception in s. 13(5) may have applied to prohibit the deduction in any event. That subsection makes an exception to allowing deductions that are authorized in writing if the wages are being deducted for faulty work.

Terms and conditions outlined in a policy manual do not constitute a written authorization. Such a manual might create a liability, but it is not an authorization by the employee to deduct from wages. See the following decisions under the former Employment Standards Act: Highbury Ford Sales Ltd. v Richards (May 5, 1986), ESC 2101 (Bryant) and 307855 Ontario Limited o/a the 54 Restaurant v Vlahovich (January 27, 1986), ESC 2031 (Adamson).

Employees sometimes enter into wage assignments in which the employee agrees that their wages may be paid over to another party. Such assignments are generally prohibited under the Wages Act. A wage assignment is therefore not generally considered a valid authorization to deduct wages under the ESA. However, there is an exception to this prohibition found in s. 7(8) of the Wages Act which provides that wage assignments by employees to credit unions to which the Credit Unions and Caisses Populaires Act, RSO 1990, c C.44, applies are valid. As a result, if an employee enters into an agreement with such a credit union, whereby the credit union is authorized in writing to garnish the employee's wages if they default on a loan, and the employee does default, the employer may honour the assignment to the credit union. The wage assignment will, in that case, be considered a valid written authorization and the employer will not be in contravention of s. 13(1) if it abides by the wage assignment and forwards a portion of the employee's wages to the credit union. Note, however, that the Wages Act provision that exempts 80% of an employee's net wages from garnishment also applies to wage assignments to credit unions. That percentage can be increased or decreased by court order.

A second exception to the prohibition against wage assignments arises where the assignee is the Crown because the Wages Act doesn't apply to the Crown. As a result, assignments made under the Ontario Disability Support Program Act, 1997, SO 1997, c 25, Sch B are not prohibited by the Wages Act because the payee under that Program is Her Majesty the Queen in right of Ontario as represented by the Minister of Community and Social Services (i.e., the Crown). An assignment made under that Program would therefore be considered a valid written authorization for a deduction from wages. Note that what is determinative is whether the Program is a provincial government program. For example, an assignment made under the Ontario Works Act, 1997, SO 1997, c 25, Sch A, in which the assignment is made in favour of either a municipality or another delivery agent, would be prohibited under the Wages Act because the assignee is not the Crown.

A written authorization from an employee allowing a deduction from wages if the employee quits would not be valid where the employee resigns but is regarded by law as having been constructively dismissed. Despite the fact that the employee has quit, the law treats such a quit as if it were a termination by the employer. A constructive dismissal may be found to have occurred where:

  1. The employer makes a substantial adverse change in the terms and conditions of employment without the employee's consent;
  2. The employer breaches a fundamental term of the employment contract;
  3. The employer tries to force the employee to quit by making life miserable for them; or
  4. The employer gives the employee an ultimatum, offering the choice of either quitting or being fired.

For the purposes of the Act, the employee in these circumstances would not be found to have quit, but rather to have been constructively dismissed. Thus, the situation is not covered by the terms of the deduction authorization.

Finally, under Program policy, such issues as inequality of bargaining power of the parties at the time the authorization was given, or the fact that the employer may be attempting to redress what they consider to be a shortcoming in the legislation as it is currently written, are not relevant to a consideration of the validity of a written authorization. Further, it is considered of no importance that:

  1. The authorization may require the employee to provide more notice of termination than the employer must give under the Act;
  2. The employee must give notice during the first three months of employment, when the employer is not required to do so under the Act;
  3. Some of the deduction to be made will come from vacation pay monies; or
  4. The employee may not receive at least minimum wage after the deduction: compliance with minimum wage must be determined by consideration of gross wages, prior to any deduction allowable under the Act.

Exception - s. 13(4)

Section 13(4) provides that where a deduction may be made from wages under s. 13(2) or s. 13(3) as required by statute, court order or as allowed by an employee's written authorization and such statute, order or authorization requires the employer to remit the wages deducted or withheld to a third person, and the employer fails to do so, the deduction will not be valid.

For example, an employer may make statutory deductions for income tax, CPP or EI, but fail to remit the funds on the employee's behalf to the Canada Revenue Agency. Where it is found that funds were withheld or deducted from the employee's wages but not remitted to the third party, this will be a violation of s. 13(4) and the officer may, in addition to other enforcement action under the Act, issue an order to pay under ESA Part XXII, s. 103, to effectively return the unremitted funds to the employee.

Exception - s. 13(5)

Section 13(5) prohibits an employer from withholding wages, making deductions from wages or causing an employee to return wages in certain circumstances, even though the employer has a written authorization from the employee to make the deduction in accordance with s. 13(3).

Written authorization does not refer to a specific amount or formula

Under s. 13(5)(a) the written authorization must set out either the specific amount to be withheld, deducted or returned, or provide a formula that enables the employee to calculate the specific amount.

In Superior Service Station Maintenance Ltd. v Edward et al (November 2, 1977), ESC 457 (Springate), a decision under the former Employment Standards Act, a job application form contained an authorization for deductions. However, the referee held that it constituted a blanket authorization for deduction of unliquidated damages obtained by the employer as a condition precedent to employment, and as such was unenforceable.

In fact, other referees have held, and it is consistent with the policy of the Program, that any blanket authorization under which an employee purports to authorize deductions of unspecified amounts is invalid. However, if the employee has affirmed the applicability of the authorization to a particular deduction, that is, when the employee can better appreciate its specific nature and order of magnitude, it may be valid for the purposes of s. 13(5)(b)(i) and (ii). See Georgetown Motors Ltd. v Coleman (December 12, 1986), ESC 2203 (Adamson) and Ronyx Corporation Limited v Ritenburg (March 19, 1984), ESC 1593 (Sheppard). For example, if an employee signs a blanket authorization for the deduction of the price of merchandise that the employee purchases from the employer, the authorization will be valid provided that the employee subsequently acknowledges purchasing merchandise for the amount in question.

Another issue is the validity of an authorization purporting to allow an amount to be deducted from wages if the employee does not provide the employer with notice in the event that they quit. Program policy is that if the authorization is specific as to the amount of notice required of the employee and as to the amount to be deducted if that notice is not provided, it will meet the requirements of the Act, and will be valid.

Accordingly, an authorization to deduct for failure to give sufficient notice or simply notice, without an actual amount of notice specified, will not be valid. Further, a reference to a deduction for damages or any amounts owing at the time of resignation will be insufficient for lack of specificity. Although an actual dollar figure is not required, the authorization must clearly demonstrate the employee's agreement to the deduction of a precise amount (e.g., one week's pay, the first week's pay or the last week's pay) would be sufficiently specific, as would final vacation pay, even if the amount is not precisely quantifiable when the authorization is signed.

Also, a written authorization respecting failure to give notice of resignation would be invalid if the amount to be deducted constituted a penalty rather than a genuine attempt to pre-estimate damages. For example, an amount that would be a penalty rather than a genuine pre-estimate is the following:

An employee works as a security guard. The employer has employees on-call to fill in for the employee when he is unable to work. The employee signs a written authorization that he will forfeit his last two weeks' wages and all his vacation pay if he resigns without giving four weeks' written notice. In that situation, the amount to be withheld is clearly all out of proportion with the damages that the employer might reasonably be expected to suffer if the employee resigned without notice or with less than four weeks' notice. The employer has an ample pool of employees on call from which it can quickly obtain a replacement.

Deduction is made for faulty work

Section 13(5)(b)(i) prevents employers from making deductions from an employee's wages because of the employee's mistakes, even if the employee has authorized the deduction in writing. Without such protection, an employee could be charged by way of wage deduction for every item or piece of work spoiled or rejected. Employers who want to recover damages due to employees' faulty work may choose to sue for damages in court, but they cannot make deductions from the employees' wages. Referees in decisions under the former Employment Standards Act have held that no deduction could be made in the following circumstances on grounds that they constituted faulty work:

  1. The claimant continued to drive a company car that was overheated, thus causing severe damage - see Hughended Holdings Limited o/a Metro Courier Express v Morrison et al (April 14, 1986), ESC 2090 (Adamson);
  2. The claimant damaged a vehicle when moving it at the employer’s place of business - see Cavalcade Ford Mercury Sales Ltd. v Crewson (June 7, 1979), ESC 628 (Johnston);
  3. A salesperson damaged a car while backing it into the showroom - see Georgetown Motors Ltd. v Coleman.

The Program has also taken the position that:

  • No deductions can be made from the wages of an employee who executes credit card transactions improperly, thus causing revenue loss to the employer. Bungled credit card transactions are considered faulty work rather than cash shortages.
  • No deductions can be made as part of a safety financial penalty system policy wherein a deduction is made - whether from the employee involved or from all employees - if an employee is injured in a workplace incident and as a result incurs medical aid expenses or a loss of work time.

The Program also takes the position that the prohibition against wage deductions for faulty work in s. 13(5)(b)(i) applies not to just past or present faulty work, but to anticipated future faulty work as well. For example, employers are prohibited from making a wage deduction and putting the amount of the deduction towards an indemnity fund to pay for any damages or deductible owing due to the employee's anticipated future mistakes.

Further, the Program takes the position that the prohibition extends to prohibit deductions from one employee for the faulty work of another employee. For example, employers are prohibited from making wage deductions and putting the amount of the deduction towards an indemnity fund to pay for damages arising from any employee's faulty work.

Deduction is for cash shortages/loss of property/property stolen

Under s. 13(5)(b)(ii), an employer is prohibited from withholding wages, making a deduction from wages or requiring an employee to return wages for cash shortages, loss of property or stolen property where any person other than the employee had access to the cash or property, even if the employee has authorized the deduction in writing. This could include situations where a customer leaves a restaurant without paying the bill or where a customer leaves a gas station without paying the bill after pumping gas for their car. The dine and dash or “gas and dash” can be considered a cash shortage and, in such cases, the customer, not the restaurant employee or gas station employee, had exclusive control over the cash in question.

If another employee had access to the cash register at the same time as a claimant, no withholding, deduction or return of wages can be made. Therefore, if another employee had access to the cash register at times other than the claimant's shift and only the claimant had access during their shift, a deduction can be made. As the referee in Fraser o/a Becker's Milk v Oliver (January 24, 1980), ESC 694 (Bigelow) explained, under the former Employment Standards Act, the phrase where a person other than the employee has access to the cash or property should be interpreted to mean where a person other than the employee has access to the cash or property during the employee's tour of duty as custodian of the cash or property. This intent has not changed under the ESA 2000.

Deduction was made under prescribed conditions

Section 13(5)(b)(iii) prohibits an employer from withholding wages, making deductions from wages, or requiring wages to be returned even with the employee's written authorization under any conditions prescribed by regulations. At the time of writing, no regulations prescribing conditions had been made.

Wages that were the subject of an order under the Act were required to be returned

Under s. 13(5)(c), a written authorization from an employee purporting to authorize the return to the employee's employer wages that were the subject of an order to pay would not be valid.

Section 14 - Priority of claims

Priority of claims - s. 14(1)

This provision is similar in effect to s. 14 of the former Employment Standards Act. It should be noted that the Employment Standards Act, 2000 increased the maximum amount of wages that are given priority from $2,000 to $10,000 per employee.

Section 14(1) prevails over other provincial acts to the extent that they purport to grant a different level of priority for the employee wages, or to grant priority over wages to some competing claim.

For example, s. 3 of the Wages Act, RSO 1990, c W.1, states that wages have priority over the claims of other execution creditors to the extent of three months' wages per employee. Section 14 prevails over that provision. It is important to note that wages under the Wages Act means wages or salary in a strict sense, as opposed to the broader definition of wages contained in s. 1 of the ESA 2000.

In matters of insolvency, s. 14(1) gives wages, as defined in s. 1, priority over all unsecured creditors of the employer (including the Crown) to the extent of $10,000 for each employee.

Section 14(1) does not give wages priority over the claims of secured creditors, such as trade creditors or suppliers. A secured creditor is one with an interest in the debtor’s property to secure payment or performance of an obligation. The instrument that creates the security may take the form of a debenture, mortgage, assignment of book debts or accounts receivable, or a general security agreement (GSA). See Re Campeau Corporation and Provincial Bank of Canada et al., 1975 CanLII 429 (ON SC), where the court held that it was not the intention of the legislature, in enacting s. 14 of the former Employment Standards Act, to interfere with the rights of secured creditors. This intention has not changed under the ESA 2000.

Section 14(1) does not, by itself, create any lien or charge upon an employer’s assets as do the deemed trust provisions for vacation pay contained in s. 40. The decision in Beecroft v. Watt (1986), 1 RFL 3(d) 231 (Ont Prov Ct), cited to support this principle, refers to ss. 14 and 15 of the former Employment Standards Act, the wording of which is very similar to s. 14(1) of the ESA 2000.

It should also be noted that because wages under the ESA 2000 includes vacation pay, the amount of vacation pay deemed to be held in trust under s. 40(1) will be included in the $10,000 amount that is given priority under s. 14(1). However, the deemed trust status under s. 40(1) confers a greater priority over other creditors with respect to the vacation pay component of the $10,000 than the priority afforded under s. 14(1). See ESA Part XI, s. 40(1) for a discussion of the deemed trust under s. 40(1).

Exception - s. 14(2)

Section 14(2) states that the priority of wage claims provided in s. 14(1) over claims of other unsecured creditors of an employer does not apply to distributions made under federal bankruptcy and insolvency legislation.