Canada: Quick Fixes: How To Avoid Prosecution Under The Employment Standards Act, 2000

Most of the time it only takes a couple of tweaks to ensure your company avoids getting fined for violating the Employment Standards Act, 2000 ("ESA").

What gets employers in trouble most often? According to the Ministry of Labour ("MOL"), most complaints and violations of the ESA relate to overtime pay, vacation time/vacation pay, deductions from wages, and payments due on termination. Between 2007-2013, the MOL investigated over 100,000 complaints and launched over 11,000 targeted inspections relating to these and other common violations.

If convicted of an offence under the ESA or its regulations, fines can range from a few hundred dollars to thousands and even hundreds of thousands of dollars. How can you make sure your company is compliant? Here are some quick tips and insight for some of the most common problems.

Overtime Pay

1. Salaried employees are entitled to overtime.

Two of the most common misconceptions regarding overtime pay are that salaried employees are not entitled to overtime pay and an employer can pay an employee a salary that is "inclusive of overtime". Both are false. Providing an employee with a "fixed salary" as opposed to an hourly wage does not eliminate the obligation to pay overtime for hours worked. More confusing to employers is that, even if an employee agrees in writing to a salary inclusive of overtime, the MOL will not allow it. An employee cannot contract out of his or her entitlement to overtime.

Notably, not all employees are entitled to overtime pay. Certain categories of employees are exempt. To avoid paying overtime unnecessarily, and more importantly, to avoid fines for the failure to pay it when owing, familiarization with the ESA is essential.

2. Most Employees are entitled to overtime pay after working 44 hours in one week.

While there are a few exceptions to this general entitlement under the ESA, the vast majority of employees in Ontario are entitled to overtime pay after 44 hours worked in one week.

A requirement or expectation to work more than 48 hours in a work week requires the employee's written consent and approval from the MOL. Regardless of such approval, all hours over 44 must be compensated at 1 ˝ times the employee's regular rate of pay.

3. There are two useful tools for employers to manage overtime costs.

The first is to enter into written agreements with employees to allow for paid time off instead of overtime pay. Such agreements allow employees to receive 1˝ hours of paid time off for each hour of overtime worked.

The second is averaging agreements. With the consent of the MOL, an employer and an employee can agree in writing to average the employee's hours of work over a specified period of two or more weeks for the purposes of calculating overtime pay. Under such an agreement, an employee would only qualify for overtime pay if the average hours worked per week during the averaging period exceeded 44 hours.

Vacation Time/Vacation Pay

Vacation time and vacation pay are two separate considerations and should be treated as such.

1. Vacation Time.

Vacation time is commonly understood as the obligation to provide employees with at least 2 weeks' paid time off after each 12 month period of employment, generally calculated from the first day of employment, and referred to as the vacation entitlement year.

Some employers establish an alternative vacation entitlement year, which does not start on the first day of employment. This is an acceptable practice. For example, an employee might be hired on July 1, but the employer has set up the entitlement year to begin each year on September 1. The interim period between July 1 and August 31, is referred to as the "stub period". If this is the case employers must ensure that employees are provided with:

(a) a minimum of 2 weeks' vacation time after each alternative vacation year; and

(b)  a pro-rated amount of vacation time for the stub period as prescribed by the ESA.

2. Vacation Pay.

Vacation pay is where many employers tend to make mistakes.

Vacation pay must be at least 4% of an employee's gross wages earned in the vacation entitlement year or stub period for which vacation is being given. Vacation pay is earned as an employee earns wages. Therefore, even if an employee does not complete his or her vacation entitlement year and therefore does not qualify for vacation time, the employee is entitled to vacation pay.

How does the ESA define "wages"?

Broadly. Under the ESA, the definition of wages includes, among other things, commissions, bonuses, and overtime pay. A common problem we see is the failure to include vacation pay on wages, aside from the employee's regular wages. The failure to provide vacation pay on all wages can render your organization vulnerable to conviction upon a complaint or an investigation.

To avoid this problem, employment agreements, bonus and commission plans must be carefully drafted so as not to defeat the intentions of the ESA. For example, language can be added to employment agreements to the effect that all bonus or commission and overtime payments are inclusive of vacation pay at the rate prescribed by the ESA.

Of course, in respect of both vacation time and vacation pay, the requirements noted here are the minimums established by the ESA and an employer can, and many do, provide more by agreement.


What can an employer do if an employee has damaged its property or is suspected of theft?

Many employers ask us whether it is legal to withhold money from an employee's wages for damage to property or shortage in a cash at the end of the day. While this may seem reasonable or be common, it is offside the ESA in most instances.

The ESA only allows an employer to make deductions from employee wages where the employer: (i) is required by statute or court order to make the deductions; or (ii) has obtained the employee's written consent. The written consent must refer to a specific amount of money to be deducted or must provide for a mechanism by which that amount will be determined. An agreement to deduct money from wages cannot be open-ended or uncertain. It must be clearly drafted.

Even with written consent, restrictions remain. The ESA prohibits deductions or withholdings for faulty work, cash shortages or stolen property where a person other than the employee had access to the cash or property.

Loss of property or shortages should be addressed more proactively, by investigating the issue and getting to the root of the problem. If the amount of damages warrant it, an employer always has the option of pursuing the matter through the courts.

Termination Pay and Severance Pay

To avoid some common traps with respect to termination and severance pay, employers should be familiar with how to determine when each is due and how much is owed. Severance pay is not the same as termination pay. It is a separate entitlement.

1. Termination Pay.

The ESA entitles an employee to statutory notice of termination or termination pay in lieu of notice where the employee has been continuously employed for at least 3 months. The ESA provides for prescribed notice periods in accordance with length of service.  

An employee does not have to be actively working to accumulate service for the purpose of calculating the notice period. Meaning, a person is still considered to be employed during leaves of absences.

What are an employee's rights during the statutory notice period?

An employee is entitled to all of his or her entitlements during the statutory notice period. This includes the employee's regular wage, vacation pay and the continuation of benefits. Vacation pay must therefore be calculated on the wages earned during the statutory notice period, not just up to the date of termination.

Are all employees entitled to statutory notice of termination or termination pay in lieu?

No. Certain categories of employees are specifically excluded under the ESA (e.g. "construction employees"). However, employers must take great care to understand the regulations under the ESA and the specific legal definitions used to determine possible exemptions. The fact that an employer operates a general construction company, does not necessarily mean it employs "construction employees" within the meaning of the ESA. Legal advice is often necessary when such decisions are being made or contemplated.

The ESA also provides that employees who engage in wilful misconduct or wilful neglect of duty can be terminated from their employment without notice or pay. Again, the law takes a strict interpretation of the meaning of these terms. It may seem easy for an employer to determine when an employee has neglected his or her duty, however, the MOL does not look kindly on any decisions made in haste which deprive an employee of his or her entitlements under the ESA.

Any decision to terminate an employee requires careful thought and analysis. Failure to do so, will likely result in a complaint, and possibly, a conviction.

2. Severance Pay

A dismissed employee may also be entitled to severance pay if his or her employment has been severed as contemplated by the ESA.

When does an employee qualify for severance pay?

An employee qualifies where his or her employment has been severed and: (i) the employee has worked for the employer for 5 years or more; and (ii) the employer has a payroll in Ontario of at least $2.5 million1 or the employer has severed the employment of 50 or more employees in a six month period because all or part of the business closed. There is a prescribed way to calculate severance pay owed, which essentially amounts to one week per year.

It should be noted that only statutory entitlements on termination are being addressed here and not notice at common law which is a separate issue. For the purposes of this article, we will only say that careful drafting of termination provisions in employment agreements is required to minimize costs associated with the termination of an employee's employment. Employers should review their employment agreements to ensure termination provisions refer to all statutory entitlements as outlined. Failure to do so could result in hefty termination pay-outs to employees on the basis of their common law entitlements.

The best advice we can offer to employers attempting to avoid these and other ESA pitfalls is to be proactive. Review your policies and your agreements and seek the assistance of experts where necessary. Doing so will ensure that upon inspection by the MOL or a complaint triggered by an employee, your company can successfully avoid conviction or other penalty.


1 There is a recent decision from the Ontario Superior Court of Justice,  Paquette c. Quadraspec Inc., which indicates that an employer's payroll outside of the province of Ontario should be taken into account when determining whether an employer has a payroll of at least 2.5 million. The decision has led to considerable debate and has not yet been appealed. While the prevailing view in Ontario remains that only the company's payroll in the province should be taken into account, employers need to be aware that this view may be shifting. As a result of the Quadraspec decision, there is some risk of a challenge from employees or the MOL regarding the manner in which an employer determines its severance pay obligation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.