Can a Canadian company mandate direct deposit or is there a legal requirement to make it optional?
Question: Can a Canadian company mandate direct deposit or is there a legal requirement to make it optional?
Answer: Paying employees by direct deposit allows employers to save substantial administrative time and cost. Depending on the jurisdiction in which a Canadian company is located, an employer may be entitled to mandate direct deposit or may be required to obtain an employee’s consent before paying the employee by direct deposit.
For federally regulated employers, the Canada Labour Code allows an employer to pay its employees any wages to which they are entitled “as established by the practice of the employer.” As such, if the employer has an established practice of paying by direct deposit, an employee of a federally regulated employer cannot insist her wages be paid other than by direct deposit.
In British Columbia, Quebec and Newfoundland and Labrador, an employer must obtain an employee’s authorization in writing to pay an employee by direct deposit. In British Columbia, direct deposit is also permissible if it is provided for in a collective agreement between the employer and the employee’s union.
In Ontario, until 2000, the Employment Standards Act did not allow an employer to require an employee to be paid by direct deposit. Under the amended act, an employer may pay an employee’s wages by direct deposit into an account of a financial institution if:
•the account is in the employee’s name;
•no person other than the employee or person authorized by the employee has access to the account; and
•unless the employee agrees otherwise, an office or facility of the financial institution is located within a reasonable distance from the location where the employee works.
For all other provinces and territories, an employer may pay wages by direct deposit into the employee’s account at a bank, credit union, trust company or other company insured by the Canada Deposit Insurance Corporation Act. However, if an employer wants to change the way it pays wages – for example, from paying by cheque to paying by direct deposit, it may be prevented from unilaterally making the change if payment by cheque is a fundamental term of the employment contract (whether express or implied).
For example, in Pottelberg v. British Columbia Telephone Co., 1995 CarswellBC 466 (B.C. S.C.), the B.C. Supreme Court determined an employer could not unilaterally change the way in which an employee was paid from paying by cheque to paying by direct deposit, when the plaintiff insisted on being paid by cheque.
The court agreed payment by cheque was a fundamental implied term of his employment contract and ruled the employer was prohibited from insisting on paying the employee by direct deposit.
Thus employers wanting to pay employees by direct deposit should require new employees to participate in payroll direct deposit as a condition of their employment, obtaining written consent from the employee where required.
For existing employees, employers should obtain an employee’s consent to change the method of payment from cheque, or other means, to direct deposit, if previously the employee has always been paid by means other than direct deposit.
Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or [email protected].
Answer: Paying employees by direct deposit allows employers to save substantial administrative time and cost. Depending on the jurisdiction in which a Canadian company is located, an employer may be entitled to mandate direct deposit or may be required to obtain an employee’s consent before paying the employee by direct deposit.
For federally regulated employers, the Canada Labour Code allows an employer to pay its employees any wages to which they are entitled “as established by the practice of the employer.” As such, if the employer has an established practice of paying by direct deposit, an employee of a federally regulated employer cannot insist her wages be paid other than by direct deposit.
In British Columbia, Quebec and Newfoundland and Labrador, an employer must obtain an employee’s authorization in writing to pay an employee by direct deposit. In British Columbia, direct deposit is also permissible if it is provided for in a collective agreement between the employer and the employee’s union.
In Ontario, until 2000, the Employment Standards Act did not allow an employer to require an employee to be paid by direct deposit. Under the amended act, an employer may pay an employee’s wages by direct deposit into an account of a financial institution if:
•the account is in the employee’s name;
•no person other than the employee or person authorized by the employee has access to the account; and
•unless the employee agrees otherwise, an office or facility of the financial institution is located within a reasonable distance from the location where the employee works.
For all other provinces and territories, an employer may pay wages by direct deposit into the employee’s account at a bank, credit union, trust company or other company insured by the Canada Deposit Insurance Corporation Act. However, if an employer wants to change the way it pays wages – for example, from paying by cheque to paying by direct deposit, it may be prevented from unilaterally making the change if payment by cheque is a fundamental term of the employment contract (whether express or implied).
For example, in Pottelberg v. British Columbia Telephone Co., 1995 CarswellBC 466 (B.C. S.C.), the B.C. Supreme Court determined an employer could not unilaterally change the way in which an employee was paid from paying by cheque to paying by direct deposit, when the plaintiff insisted on being paid by cheque.
The court agreed payment by cheque was a fundamental implied term of his employment contract and ruled the employer was prohibited from insisting on paying the employee by direct deposit.
Thus employers wanting to pay employees by direct deposit should require new employees to participate in payroll direct deposit as a condition of their employment, obtaining written consent from the employee where required.
For existing employees, employers should obtain an employee’s consent to change the method of payment from cheque, or other means, to direct deposit, if previously the employee has always been paid by means other than direct deposit.
Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or [email protected].
