When are wage deductions from employees actually legal?

Can an employer charge an employee when a customer leaves without paying? A recent Winnipeg restaurant walkout is bringing that question to the forefront. 

Recently, 18 restaurant staff members walked out of Smitty’s, a restaurant franchise located in Winnipeg, alleging incidents of workplace discrimination, disrespect and a hostile work environment, according to CBC News. 

Some staff members alleged they were “routinely charged” when customers left without paying. It was not specified whether employees’ wages were deducted or whether staff were required to cover the shortfall. 

However, a Smitty’s co-owner told CBC News the situation was being “mischaracterized.” 

Krista Kais-Prial, partner at Israel Foulon Wong in Toronto, says while wage deductions are allowed in certain specific circumstances, however they come with strict legal guidelines around written authorization. 

What deductions are allowed? 

Each province’s wage deduction laws are different, Kais-Prial says. Under Manitoba’s ESA, pay deductions are normally prohibited except in circumstances where they are required by law, to recover pay advances, or for payroll error corrections. According to the Manitoba government’s website on the ESA, employees and employers must have an agreement in these cases, and employees must agree to pay for something that is a direct benefit to them.

The site also notes employers cannot deduct for cash shortages, customer theft or damage to property — the same rules that apply under Ontario’s ESA.

Under Ontario's ESA, employers are allowed to make deductions in three ways, Kais-Prial says. These include statutory deductions such as Canada Pension Plan (CPP), Employment Insurance (EI) and income tax; court-ordered deductions such as wage garnishment; and deductions made with proper written authorization from the employee. However, even with written pre-authorization, she says there is a bar for it. 

“So, if there’s something on the car that is fixed but the piece doesn’t work, then you couldn’t cover that. [If things] are broken, you can’t deduct that from employees’ wages — even with written authorization,” she says. 

The ESA notes employers are not allowed to deduct employees’ wages in situations such as cash shortages or stolen property if employees don’t have complete control or access. 

Before any decision to deduct wages, Kais-Prial says it’s important to follow the obligations set out in the ESA for the relevant province. 

“Even if the employee does fairly owe you the money, you still can’t do it,” she says. 

“Failing to follow the rules can lead employers to a Ministry of Labour complaint and scrutiny from inspectors.,” 

Pre-authorization for wage deductions 

The situations where pre-authorization for deduction of wages can apply include unreturned equipment, Kais-Prial says. 

“Let’s say somebody gets a laptop from work and then they opt to keep it after a period of time. And then the employer would have to still have a written authorization that X amount for that laptop would be deducted from the employee’s wages. They couldn’t just take it, even if it’s agreed upon that the employee is going to pay back to the employer,” she says. 

This can also apply to benefit premiums during maternity leave. For example, employers are legally required to continue an employee’s benefits while they’re on leave — but if the employee normally pays a portion of those premiums, that obligation doesn’t automatically shift to the employer. 

“It’s often the case that employers will want to deduct from wages, but you need to give a specific number or calculation,” Kais-Prial says. 

It’s about the written authorization

With deductions, the policy isn’t the most important factor, Kais-Prial says — it’s about the written authorization. 

Typically in these cases, ESA officers will be reviewing the written authorization and whether it had written consent from the employee. 

“It also has to give a specific amount of money that’s going to be deducted or a method of calculating the specific amount of money,” she says. 

“There can’t just be a blanket statement,”. 

If a policy is created, it needs to focus on whether it is applied internally and consistently, Kais-Prial says. 

Everyone on payroll should know they need something in writing with a specific amount from the employee, signed off on, before making any deduction, she says. 

“It’s more about the internal policy being used consistently than an employee-facing policy,”. 

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