To Pay Vacation Pay, Or Not Pay Vacation Pay: That Is The Question

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.

Legal Framework

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 applies. 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...

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