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We all love vacation, and for many people, it is a key point when negotiating the terms of their employment.

However, though most people know how many weeks of vacation they are entitled to, they don't fully understand the nuances, and many employers don't understand how vacation time and pay really works. Both sides typically make assumptions and, in some cases, encounter unpleasant surprises.

We have seen employees forgo vacation for years under the mistaken belief that they will "cash in" and take an extended sabbatical, only to find that their vacation time was lost owing to a "use-it-or-lose-it" policy. And we have seen employers run afoul of employment standards legislation and expose themselves to liability by failing to ensure that their employees take the minimum amount of vacation each year.

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The concept of the annual vacation may seem simple, but it's actually more complicated than you may think. Few employers or employees turn their minds to details such as:

  • Who gets to decide when someone takes vacation?
  • What happens if you don’t take all of your vacation time?
  • Does vacation still accrue if you are on leave?
  • What if there is a statutory holiday in the middle of your vacation?
  • How does vacation pay work?
  • What if your employment ends before you use all of your accrued vacation?
  • Do “contractors” get vacation?

We know that people have a lot of questions about vacation because a blog post at Canadian HR Law on the subject 3 1/2 years ago remains one of the most popular and continues to generate questions to this day.

Some facts that consistently surprise both employers and employees include:

  • Every jurisdiction has its own employment standards legislation, which sets out minimum vacation entitlements. For example, in Ontario, everyone is entitled to at least two weeks.
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  • Employees who refuse to take vacation time hoping to bank it should know that their employer can insist they take the time when it is accrued.

The above two points may seem to contradict each other, but the law is that the statutorily required leave [two weeks in Ontario] cannot be waived except as noted, but any entitlement beyond that can be.

  • There is no statutory entitlement to vacation time in the first year of employment, but it does accrue so vacation can be taken after one year of employment.
  • Employers are entitled to choose when employees take their vacation time.
  • By default, vacation must be given in one-week increments, unless the employee agrees in writing.
  • Vacation entitlement does not have to increase with seniority.
  • If an employee is on vacation when a statutory holiday arises, it does not count as a vacation day.
  • Vacation pay is based upon “wages,” which are defined to include more than just base salary or hourly wages.
  • Most leaves of absence count as time employed when it comes to accruing vacation time.
  • True contractors may pay less in taxes, but they do not enjoy the protection of employment standards legislation, which includes the right to vacation.

Organizations should review and update contracts and policies regularly to ensure they comply with legislation, and also for efficiency and cost-effectiveness. They should also ensure that their employees are clearly informed about the applicable rules and policies.

We work with many employees who were never advised of important details, and have been short-changed owing to their lack of knowledge. The key is clarity: Both parties should understand their rights and obligations when it comes to vacations, so that no one is surprised or disappointed.

Stuart Rudner, author of You're Fired! Just Cause for Dismissal in Canada, and Natalie MacDonald, author of Extraordinary Damages in Canadian Employment Law, are founding partners of Rudner MacDonald LLP.

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