‘Use it or lose it’ vacation policies

Our company has a “use it or lose it” policy in regards to vacation time. Is this legal, assuming we give the employee her minimum entitlements under the employment standards act?

Brian Johnston

Question: Our company has a “use it or lose it” policy in regards to vacation time. Is this legal, assuming we give the employee her minimum entitlements under the employment standards act?

Answer: Yes, a “use it or lose it” policy is legal as long as it does not apply to minimum vacation entitlements under employments standards legislation. Employers who want to impose such a vacation policy should expressly provide in employment contracts that only vacation in excess of the minimum standards is at risk.

Geluch v. Rosedale Golf Assn., a 2004 case out of Ontario, underscores the financial liability on an employer where an employee does not use statutory vacation and accumulates it over a significant period of time. In that case, Michael Geluch was awarded $50,000, comprised of 21 weeks’ vacation pay accumulated over a 12-year period. The court confirmed that “use it or lose it” policies will contravene employment standards legislation where the policy affects statutory entitlements.

“Rosedale maintains that Mr. Geluch was bound by the ‘use it or lose it’ policy,” the court said. “However, there was evidence led that another employee had been paid for accrued vacation. Furthermore, the Employment Standards Act, R.S.O. 1990, c. E14 (since replaced by the Employment Standards Act, 2000) prohibits a ‘use it or lose it’ policy. In light of the statutory provisions, Mr. Geluch is entitled to be compensated for untaken accrued vacation pay for the 21 weeks.”

Although the Ontario legislation does not expressly say an employer cannot have a “use it or lose it” policy, it guarantees vacation pay protection through s. 40 that states:

“Every employer shall be deemed to hold vacation pay accruing due to an employee in trust for the employee whether or not the employer has kept the amount for it separate and apart.”

Many other Canadian jurisdictions have similarly worded sections or contain a different way of guaranteeing accrued vacation pay. Therefore, employers should consider the legislation applicable in their particular jurisdiction when considering a “use it or lose it” policy.

For more information see:

Geluch v. Rosedale Golf Assn., 2004 CarswellOnt 2621, 32 C.C.E.L. (3d) 177 (Ont. S.C.J.)

Brian Johnston is a partner with Stewart McKelvey Stirling Scales in Halifax. He can be reached at (902) 420-3374 or bjohnston@smss.com.

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