Statutory prohibition overrules worker's written authorization in Alberta
An employer was not entitled to deduct nearly $5,000 from a fired worker’s final pay to recover losses from the worker’s erroneous purchase of materials, a vacation pay overpayment, or for a reduced commission on a project that fell short of profit expectations, the Alberta Labour Relations Board has ruled.
The worker was an employee of Building Works Remediation & Restoration, a building restoration company in Calgary, starting on Sept. 1, 2020. He position was that of project manager, in which he assessed properties for what work needed to be done and quoted prices for the work to clients. He was also expected to sign up new clients and generate sales based on leads he was given.
His compensation included a base salary, vacation pay, commissions, and a quarterly bonus of two per cent of the target profit of any completed projects that reached their target plus 20 per cent of any profit in excess of the target.
In January 2023, Building Works discovered that some project managers, including the worker, had been paid 9.6 per cent of their wages as vacation pay. Tradespeople were paid 9.6 per cent of their wages as combined general holiday pay and vacation pay under employment standards legislation, but the company found out that it wasn’t required to provide salaried employees such as the worker with both 9.6 per cent vacation pay as well as paid vacation time. The worker banked his vacation pay.
Building Works advised the worker and other salaried employees that they would no longer receive the vacation pay. Employees who had banked vacation pay would be allowed to use it up through additional time off or have their vacation bank paid out. Going forward, they would no longer receive vacation pay over and above their statutory entitlement.
Reduced commissions for missed targets
Around the same time, the company also changed its project manager bonus program. Projects that didn’t achieve their target profit would result in a reduction from the normal five-per-cent commission to correspond to the percentage of the target achieved – for example, a 90 per cent profit would result in a 4.5 per cent commission. Project managers received the five-per-cent commission in biweekly payments, but if the final calculation of the profit fell short of the target, Building Works clawed back the difference in the revised commission.
In June 2023, the worker mistakenly purchased building materials valued at $4,981. The company terminated his employment on June 20 and deducted this amount from his final pay. It also requested that the worker sign an agreement confirming that he had received his final pay and the company had “no further obligations or payments due.”
The worker filed an employment standards complaint contesting the deduction. An employment standards officer found that the deduction wasn’t permitted by the Alberta Employment Standards Code (ESC), which prohibits employers from deducting any money from an employee’s earnings unless permitted by legislation, personally authorized in writing by the employee, for “a recovery of an overpayment of earnings paid to the employee resulting from a payroll calculation error” or for recovery of vacation pay paid in advance of the employee being entitled to it.
The employer appealed the decision, arguing that the deduction was authorized in writing by the worker in the release. It also argued that, in the alternative, it overpaid the worker’s vacation pay in error and that it should be allowed to deduct that overpayment under s. 12(2)(a.1) of the ESC, which provides for recovery of a payroll calculation error through deductions from an employee’s pay. Combined with the commission and bonus clawback on two projects that lost money, this would offset any repayment of the paycheque deduction for the wrongly purchased building materials, said the company.
Statutory prohibition on pay deductions
The vice-chair of the Alberta Labour Relations Board heard the appeal. The vice-chair noted that, s. 12(2)(c) of the ESC permitted written employee authorization for deductions, but s. 12(3)(a) prohibits deductions arising from “faulty work, as defined in the regulations, of the employee or damage caused by the employee” even with written permission. The vice-chair found that the worker’s error in ordering incorrect materials constituted “faulty work,” making the deduction impermissible despite the worker’s written authorization.
As for the vacation pay overpayment, the vice-chair found that the company’s providing both paid time off and 9.6% vacation pay in addition to the worker’s salary wasn’t a "payroll calculation error" under s. 12(2)(a.1) of the ESC but rather was a misunderstanding of the company’s obligations. Additionally, the six-month limitation for recovering such overpayments under the ESC had expired, so the worker was entitled to retain the accrued vacation pay, said the vice-chair.
The vice-chair also found that Building Works wasn’t entitled to claw back the worker’s commissions and bonus payments on projects that didn’t meet profit targets, as these related to “faulty work” or “cash shortages resulting from a failure to collect all or any part of the purchase price from a purchaser” for which deductions to recover employer losses are prohibited under ss. 12(3)(a) and (c) of the ESC. The employer's attempt to adjust payments post-termination was also found to lack contractual or statutory support, the vice-chair said.
The vice-chair dismissed the company’s appeal and confirmed the employment standards officer’s order for Building Works to pay the worker $4,981.69, plus an administrative fee of $498.17. See Building Works Ltd. o/a Building Works Remediation & Restoration v. Nagy, 2024 ABESAB 20.
