Can an Employer Force an Employee to Bank Vacation Time?
Yes, but with some restrictions. Ontario employers can direct when employees take vacation, but employment standards legislation requires employers to at least let employees take their minimum vacation entitlement within ten months of it accruing.
Ontario employers do tend to have a great deal of general flexibility in directing when an employee can take vacation. However, an employer's treatment of vacation entitlements must always comply with the minimum requirements of the Employment Standards Act (the “ESA”).
The Minimum Requirements
Under the ESA, an employer can determine when an employee takes vacation so long as the minimum vacation entitlement is completed "no later than 10 months after the end of the vacation entitlement year."
The ESA requires employers to give employees minimum, annual vacation time, as follows:
Two weeks’ vacation for employees with less than five years tenure; or
Three weeks’ vacation for employees with more than five years tenure.
Taking the simplest example of a new employee hired on January 1, 2019, she becomes entitled to 2 weeks’ vacation only upon completing her first year on December 31, 2019. Her employer must let her take that time off before October 31, 2020 (10 months after the end of the vacation entitlement year).
So, this minimum vacation time cannot be “banked” or carried forward at all beyond that date.
Vacation Time and Vacation Pay
The ESA deals with “vacation time” and “vacation pay” separately.
Vacation time is the right to take time away from work. Vacation pay is a right to receive certain payments which accrue over time.
The combined effect of these two entitlements is that an employee will effectively receive paid-vacation. But these two entitlements actually accrue at different rates. Vacation pay accrues daily. Vacation time only accrues in chunks as soon as it is earned upon completing a “vacation entitlement year.”
For example, under the ESA, an employee with only six months’ tenure has no entitlement to vacation time but is entitled to six months’ worth of his vacation pay entitlement. Vacation pay must be given no later than the pay day for the pay period in which the employee took vacation time. But it can be paid earlier. Some employers pay it on each pay cheque as it accrues. Also, if an employee is terminated, any accrued vacation pay must be paid, even if the corresponding right to vacation time has never arisen.
Greater Contractual Entitlements
Employers can offer employees vacation entitlements that are better than the ESA minimums. For instance, someone might have “four weeks of vacation per year.”
The ESA deals with minimum entitlements only. So, essentially anything goes for these greater vacation entitlements created by contract. These vacation entitlements are governed by the terms of a written contract, terms of an applicable workplace vacation policy document, or terms implied by past workplace practices.
The practical reality is employees rarely have an opportunity to negotiate these details in contractual negotiations, and management may never appreciate the subtle ways the company vacation policy differs from the ESA scheme.
As such, the interplay between greater contractual vacation rights and the mandated minimum vacation rights can get awkward and confusing. This is partly because employers and employees are in the habit of dealing with “vacation” as a single entitlement to paid-time away from work, whereas the ESA differentiates between vacation time and vacation pay.
In theory, an employer can establish a vacation policy which permits indefinite carry-forward of any vacation time which exceeds the minimum ESA vacation time. But the employer cannot contract out of the minimum requirements of the ESA with respect to those minimum two or three weeks of vacation which must be given to the employee within the timelines set out in the ESA (within 10 months after the end of the vacation entitlement year).
Similarly, for any vacation entitlement that exceeds the ESA minimum, an employer can legally establish a use-it-or-lose-it policy which prevents vacation time from being carried forward.