Employee demanding cheque over direct deposit

Can an employer dictate direct deposit as the method of payment?

Question: Our company uses direct deposit as the standard way of delivering paycheques. Does an employee have the right to demand a paper cheque or cash instead or can we refuse the request?

Answer: Depending on the jurisdiction, an employer may be entitled to mandate direct deposit or may be required to obtain an employee’s consent before paying by direct deposit. The employee’s rights relating to altering her method of payment will also depend upon the terms of her employment contract.

For federally regulated employers, there is no legislative provision outlining how wages are to be paid. The Canada Labour Code, however, does allow an employer to pay its employees wages to which they are entitled “as established by the practice of the employer.” If the employer has an established practice of paying by direct deposit, it could be inferred that 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 by direct deposit. In British Columbia, direct deposit is also permissible if it is provided for in a collective agreement. 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 where the employee works.

For all other jurisdictions, an employer may pay wages by direct deposit into the employee’s account at an institution insured by the Canada Deposit Insurance Corporation Act.

In Saskatchewan, The Labour Standards Act says all wages shall be paid by cash or cheque or deposited to the employee’s account in a bank or credit union. If an employment contract allows for payment in any other manner than specified in the act, it is illegal.

However, if an employer wants to change the way it pays wages — such as from cheque to 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. In Pottelberg v. British Columbia Telephone Co., the British Columbia Supreme Court determined an employer could not unilaterally change the payment method to direct deposit when an employee insisted on being paid by cheque. Payment by cheque was a fundamental implied term of his employment contract and the employer was prohibited from insisting on direct deposit.

Employers wanting to pay employees by direct deposit should require new hires to participate in direct deposit as a condition of employment and obtain written consent. For existing employees, employers should obtain consent to change the method of payment. In all cases, employers should ensure they are in compliance with the legislation in their jurisdiction.

For more information see:

Pottelberg v. British Columbia Telephone Co., 1995 CarswellBC 466 (B.C. S.C.).

Brian Kenny is a partner with MacPherson Leslie and Tyerman LLP in Regina. He can be reached at (306) 347-8421 or [email protected]

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