Back to compliance basics

5 Employment Standards Act compliance traps that commonly create risks

It may seem tough sometimes for employers to keep current with their legal responsibilities when it comes to things like just cause, human rights, and employment contracts. But when it comes to employment standards, things are fairly constant (other than when legislative changes happen). However, there are still common compliance mistakes employers make.

The source of many legal rights and obligations between employers and their employees in Ontario is the Employment Standards Act, 2000 (ESA), which serves as the backbone of the traditional employment relationship in Ontario. The ESA sets minimum compliance standards for all stages of the employment relationship, from hiring to termination.

The minimum employment standards set out in the ESA are sometimes viewed as obstacles to business success. However, that need not be the case. The ESA is a benchmark for an employer’s obligations to its employees. As such, it allows an employer to standardize workplace arrangements and demonstrate the areas where it provides its employees with entitlements that exceed the minimum requirements. This enables organizations to build stronger employer brands and attract, engage and retain their industry’s top performers.

However, employers must ensure that they consistently maintain compliance with the ESA. That’s an area where many employers fall short but shouldn’t, because compliance is relatively straightforward if the right systems are in place across an organization. With that in mind, here are five common ESA compliance traps, and how to overcome them:

Hours of work. In Ontario, most employees may work for a maximum of eight hours per 24-hour period up to 44 hours per week before the payment of overtime is required. Such employees are entitled to a 30-minute unpaid eating break after every five hours worked, as well as 11 consecutive hours off for every 24 hours worked. Employers are also required to track the hours their employees work. However, the hours of work rules set out above, do not apply to all employees. For example, employees in certain occupations or whose work is managerial are exempt from these rules.

Many organizations run afoul of these laws when they fail to track employee hours, provide adequate rest periods, or allow their employees to continue working when they say they don’t want to take lunch or a break. In other cases, managers might urge employees to keep working beyond normal hours during busy periods and fail to update their records to reflect the actual number of hours worked.

To overcome these compliance risks, employers can take obvious steps such as recording employees’ actual hours worked and requiring them to take breaks. But they can also apply for excess hours permits, allowing them to extend weekly work hours to more than 60 hours, in some cases. This requires an agreement with the employee and a commitment to enforcing rest periods, but can be an effective tactic to help maximize productivity when used in a limited way during particularly busy times of the year.

Overtime standards. Scotiabank’s recent $20.6 million settlement with more than 1,600 employees over unpaid overtime underscores the misconceptions and challenges that employers face when complying with overtime standards rules.

In Ontario, overtime is calculated weekly and generally comes into effect when an employee works more than 44 hours per week, although there are certain industries that have different overtime thresholds. The overtime rule only applies to non-exempt hourly and salaried employees. Qualifying employees are entitled to premium pay of 1.5 times an employee’s hourly wage.

Organizations can incur significant overtime liabilities if they fail to manage overtime eligible employees effectively. Some examples of where employers encounter compliance issues include:

• Failing to require that employees obtain approval before working overtime

• Failing to track their employees’ overtime entitlement

• Believing salaried employees are exempt from overtime

• Providing employees with lieu time without first securing the employees’ agreement in writing.

Employers can avoid these hurdles by taking a few key steps. First, by drafting employment agreements that establish a 44-hour work week and ensuring that employee pay meets all minimum wage requirements. Second, by implementing an overtime policy that mandates the tracking and pre-approval of all overtime hours. Further, by applying for overtime averaging agreements to provide additional scheduling flexibility and contain costs. Lastly, by leveraging exemptions and clauses such as the 50-per-cent rule — which mandates overtime payments only when employees work 50 per cent of their hours per week in a job covered by overtime pay rules.

Vacation standards. Under the ESA, vacation time and vacation pay are treated as distinct entitlements. Employees in Ontario begin accruing vacation pay from the time they start working and throughout their employment, to a total of 4 per cent of their wages. Vacation pay is added to their paycheques accordingly.

Employees are eligible to use their vacation time — a minimum of two weeks per year — after working for 12 months, but not all employers properly recognize that entitlement. Some unwittingly advance unearned vacation entitlement and don’t track vacation time, while others neglect to ensure employees take their vacation time at all. Others struggle to manage vacation requests against their operational needs.

To avoid running afoul of the ESA, employers should confirm entitlements and rules in their employment agreements and vacation policies, while also reserving the right to refuse vacation requests or implementing black-out periods to ensure ample staffing, especially during busy periods.

But it’s equally important to ensure that employees do take their allotted vacation, both from a compliance and productivity standpoint. Although employees can waive their vacation time (but not pay), remember that well-rested staffers tend to be stronger workplace contributors. In other words, insisting that employees take time to rest can help deliver significant bottom-line benefits.

Leaves of absence standards. Employees in Ontario have the right to reinstatement to the same or a comparable position (if the same one no longer exists) under 10 job protected leaves of absence:

• pregnancy

• parental leave

• personal emergency leave

• declared emergency leave

• reservist leave

• family medical leave

• family caregiver leave

• critically ill child care leave

• crime-related child death or disappearance leave

• organ donor leave.

Many employees are eligible for these statutory leaves of absence, although the entitlement may depend on the number of employees the employer regularly employs. There are also exceptions, such as for professionals such as lawyers or doctors, if their absence would pose the risk of professional misconduct or neglect of professional duty.

In many cases, employers don’t want to reinstate employees who have taken a protected leave to the same position, particularly when a replacement outperforms an incumbent, or when the returning employee requests a modified work schedule. If an employer fails to meet its legal obligation to reinstate, it could expose itself to legal risks, such as constructive dismissal or human rights claims.

That doesn’t mean that employers’ hands are tied when circumstances change and a workplace readjustment is required. When a replacement outperforms the incumbent, for example, the employer should consider moving the replacement to another role at the organization. Employers grappling with a schedule modification request should ask the employee to formalize that request in writing and attempt to arrive at an arrangement, to the extent possible. This is particularly the case when the request relates to a human rights ground for which the employee may be entitled to accommodation. What’s important to remember is that in a case where an incumbent returns to work but performs poorly, subsequent discipline must not be tied to the protected leave. Doing so could expose the organization to reprisal complaints and, in some cases, even human rights challenges.

Termination pay standards. Termination pay in Ontario ranges from one week for periods of employment from three months to one year, to eight weeks for service of eight years or more. This is in addition to any potential severance pay, which is paid to employees who have more than five years of service with an organization that has a payroll of $2.5 million or more. Severance pay is an additional one week of pay per year of service to a maximum of 26 weeks.

A common misconception is that an employer is only required to pay the ESA minimum upon termination without cause. Unless an employer has entered into a written agreement with the employee to limit termination pay to the ESA minimums, the employer is required to pay the employee common law reasonable notice. Common law reasonable notice is not calculated using a formula, but rather is based on a number of qualitative factors that are intended to estimate the amount of time it would take that particular employee to re-employ. It almost always amounts to an entitlement that is greater than the ESA minimums, and can be very difficult to predict.

An employer can easily mitigate the risks and contain liability associated with higher, unpredictable termination pay entitlements by entering into employment agreements with their employees that limit termination pay to, minimally, ESA entitlements.

Safina Lakhani is a lawyer with Williams HR Law in Markham, Ont., practicing management-side employment, labour, and human rights law. She can be reached at (905) 205-0496 ext. 222, or [email protected]

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