We are often asked by employers to provide direction about
payment of vacation pay to departing employees. What may seem like
a simple question, however, can in fact be quite complex.
When an employee is dismissed – whether with or without
just cause – the employer must pay the employee his or her
accrued wages to the date of termination, along with his or her
accrued but unpaid vacation pay, in accordance with applicable
employment standards legislation.1
While the rules above seem relatively straightforward, the issue
is complicated in the case of an employee who is dismissed without
cause and given pay in lieu of notice. The question then becomes
whether or not the employee continues to accrue vacation pay during
the applicable period of notice (whether under statute, contract or
common law). On this point, the law is somewhat divided.
Case Law Principles
In Cronk v Canadian General Insurance Co.,2
the Ontario Court of Appeal opined that vacation pay continues to
accrue during the statutory notice period only. Beyond that, the
Court held that vacation pay does not accrue where the employee is
"free from any obligations" to the employer. The Court
directed as follows:
Vacation pay arises as a result
of the contract of employment providing for a period of time during
the employment year when the employee is not required to
"work" but yet is entitled to pay ... The [employee] was
entitled to receive vacation pay upon the termination of her
employment. The statutory benefit must obviously be calculated in
accordance with the provisions of the statute and does not apply to
the period of notice to which the [employee] is entitled at common
law if that period exceeds to period to which the statutory benefit
The foregoing quote has been cited to support the proposition
that employees are only entitled to vacation pay with respect to
the statutory notice period. In one case, Garvin v Rockwell
International of Canada Ltd.,3 the Court went one
step further and held that vacation pay should not accrue beyond
the statutory notice period absent an employment agreement or
custom to the contrary.
On the other hand, however, the Court in Emery v Royal Oak
Mines Inc.4 held that an employee is entitled to
accrue vacation pay during the period of notice if the employee can
show that he or she has suffered a loss or deprivation.
Advice for Employers
In light of the decisions in Garvin and Emery,
employers would be wise to carefully draft employment agreements
and/or policies that either (a) limit an employee's entitlement
to vacation pay to the applicable statutory minimum, or (b)
expressly state that vacation pay entitlements which exceed
applicable statutory minimums do not continue to accrue beyond the
statutory notice period. Given that the law is arguably in a state
of flux, however, employers should be aware that they may be
ordered to open their wallets in the event that an employee brings
a complaint or action for vacation pay "accrued" beyond
the statutory notice period.
1 For Ontario jurisdiction employees, see
Employment Standards Act, 2000, SO 2000, c 41, ss. 11(5)
and 38. Of course, an employee dismissed without cause must also
receive notice of termination or pay in lieu thereof, severance pay
and benefit continuation (where applicable).
2 (1995), 25 OR (3d) 505 (ONCA).
3 1993 CarswellOnt 966 (Ct J (GD)).
4 1995 CarswellOnt 456 (Ct J (GD)).
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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