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Deductions from wages

Employers should proceed cautiously before making any deductions

By Stuart Rudner

We are often contacted by employers that intend to, or already have, to recover losses by deducting amounts from employees’ wages. Some examples would include damage to property caused by an employee, losses due to employee mistakes or overpayment of wages.

In most cases, employers are not permitted to make deductions from employees’ wages, even when the employee legitimately owes them money, such as where the employer advanced a loan to the employee and the employee has refused to repay it. An employer would be entitled to pursue other legal avenues to collect the money owing to them, but cannot simply deduct the amount from the employee's wages.

Employment standards legislation generally precludes any deductions from wages or other amounts due to an employee other than where there is a law or court order that would allow such deductions (such as a garnishment order) or where the employee has agreed to such deductions in writing.

Not surprisingly, the second exception, being the written agreement of the employee, is the one most often utilized. It is possible to have an employee agree to have specific types of payments deducted from her wages or to provide a broader authorization.

There have been many cases over the years where this issue has been addressed. One example would be Synergy Trucking Ltd. and Chahal (deduction from wages), Re. In that case, the facts were not unusual: The employee driver was involved in an accident and caused damage to a company-owned trailer. The repair costs were just under $5,000 and the employer attempted to recoup these costs by deducting money from the employee's wages.

The employee filed a claim based on a breach of the employment standards legislation, and the referee hearing the caseafter referencing section 254 of the Canada Labour Code (which applied since it was a federally regulated operation)found that despite the fact the company produced a document that purported to be a written authorization, it was insufficient as there was no evidence the employee had signed it. The deductions were therefore found to be unlawful.

In Altman v. Steve's Music Store Inc., one of the oft-overlooked issues was the fact the employer alleged it had overpaid the plaintiff while she was receiving cancer treatment, and the employer sought to recover the salary payments it had agreed to continue while she underwent treatment. The court found the employer was not entitled to do so.

By way of contrast, in Roden v. Toronto Humane Society, the plaintiff employee attempted to argue that her contract of employment was unlawful in the sense that it included an authorization for the employer to set off outstanding payments against her wages. The court found that rather than being unlawful, the express permission to do so was entirely consistent with the legislation, which created an exception to the general rule where there was such written authorization.

The bottom line is that while it may be tempting for employers to simply take any amounts they feel they are owed by an employee off of the employee's wages, this is, in most cases, a significant mistake. Unless there is a law or a court order in place permitting such a deduction, or the employee has expressly consented to deductions from wages in writing, then the employer will be in breach of the applicable employment standards legislation.

The only other possible exception is where there was an overpayment due to a mistake. Although there is some controversy surrounding this issue, the prevailing view has been that since the employee received wages to which he was not entitled, deducting them would not be a breach of the legislation. In other words, mistaken overpayment can usually support a subsequent deduction to remedy the mistake. However, at least one case has taken the opposite view.

Any employee that has amounts taken off of her paycheck should ensure her employer is complying with the applicable legislation, as she may well have a legitimate claim to make. And employers should proceed cautiously before making any deductions from employees’ wages.

© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.

Stuart Rudner

Stuart Rudner is a founding partner of Rudner MacDonald LLP in Toronto. Follow him on Twitter @CanadianHRLaw. He can be reached at srudner@rudnermacdonald.com.
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