Can an employer withhold pay from an employee’s final paycheque?

Question: Our employees are subject to an employment contract that states, “upon termination, the employer is entitled to offset whatever amounts are owed by the employee to the employer from the employee’s final pay cheque or from any amount of notice or severance pay owing to the employee.” Our human resources manager has told me this provision is illegal. Is she right?

Answer: In Ontario an employer is not entitled to withhold payments due and payable to an employee unless the employer is authorized to do so by statute, is ordered to do so by a court (for example, a garnishment) or the employee provides a written authorization permitting such a withholding. The employee’s written authorization is only effective if the authorization refers to a “specific amount or provides a formula from which a specific amount may be calculated.” Therefore your blanket agreement that entitles you to withhold whatever amounts are owed would not be legally enforceable. In order to make the agreement enforceable you must refer to a specific amount or formula.

Therefore if a loan was made to an employee and repayment was to be offset by final pay or notice payments then the agreement should specifically indicate the amount to be offset will be the amount remaining on the loan, plus interest, less all payments of principal and interest that were made prior to the termination date.

In the case of something like the repayment of advances against commissions, once again a specific formula should be included which enables a simple quantification of the amount to be offset.

Peter Israel is counsel to Goodman and Carr LLP in Toronto and is head of the firm’s Human Resource Management Group. Peter can be reached at (416) 595-2323.

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