1656-99-ES Rockwell Automation Canada Inc., Applicant v. Janet Smitjes and Ministry of Labour, Responding Parties.

Employment Practices Branch File No. 60007017

BEFORE: John Morgan Lewis, Vice-Chair.

APPEARANCES: Rick Baldwin, M. D. Contini and John Pickthorne for Rockwell Automation Canada Inc.; Janet Smitjes on her own behalf; Murray Klein for the Ministry of Labour.

DECISION OF THE BOARD; April 4, 2000

1. This is an application to review an Order to Pay issued by an Employment Standards Officer pursuant to section 68 of the Employment Standards Act, 1990, R.S.O. c. E.14, as amended (the “Act”).

2. At the commencement of the hearing in this matter, the parties agreed that the facts giving rise to the Order to Pay were not in dispute. Accordingly the limited evidence presented by the applicant was not challenged and was introduced on consent of the parties. The dispute pertains to the introduction by the applicant of an amended employment policy which required vacation entitlement to be calculated on a current year basis rather than on an accrual method and in particular, the “gap” that may have been created during the transitional period associated with the introduction of the new policy.

3. On February 20, 1998, Rockwell Automation Canada (“Rockwell”) announced to its salaried employees that it was changing how vacation benefits would be earned in future. The new vacation policy became effective as of May 1, 1999. Under the amended accounting method for vacation benefits, employees earn and take vacation during the same vacation year. Under the previous policy, employees earned vacation pay in one year but would be paid in the following year. The new policy initiative did not alter the vacation year, May1 to April 30, nor did it change the amount of vacation entitlement employees earn.

4. The claimant, Janet Smitjes, commenced her employment with Rockwell on April 2, 1990 and continues to be employed with Rockwell. Ms. Smitjes claims that she is entitled to vacation pay in the amount of 8% on wages earned by her from May 1, 1998 to April 30, 1999. She claims entitlement based on the “gap” in the accrual of vacation pay occasioned by the transition from an arrears based method to a current year based method of accounting for vacation pay purposes. In other words, Ms. Smitjes claims that she has lost her vacation pay entitlement which was earned by her from May 1, 1998 to April 30, 1999 and which would normally be paid to her in the vacation year of May 1, 1999 to April 30, 2000. Ms. Smitjes claims that she lost this vacation pay because the current year accounting method introduced on May 1, 1999 did not consider the vacation pay earned during the previous vacation year (May1, 1998 to April 30, 1999) in determining her entitlement for the vacation year of May 1, 1999 to April 30, 2000 but rather only determined entitlement based on the current year, which in this case was May 1, 1999 to April 30, 2000. Essentially, Ms. Smitjes claims that by disregarding the entitlement she earned during May 1, 1998 to April 30, 1999, Rockwell has not paid her the amount of vacation pay to which she is entitled. Ms. Smitjes’ complaint was upheld by an Employment Standards Officer resulting in the issuance of an Order to Pay in the amount of $1,835.42 which includes a 10% administrative fee.

5. Rockwell introduced a summary of Ms. Smitjes vacation days and vacation pay from her date of hire to the current vacation year. Neither Ms. Smitjes nor the Ministry of Labour (the “Ministry”) objected to the introduction of the summary nor did they dispute the information contained therein. For ease of reference, the summary is reproduced below:

Attachment A – Janet Smitjes – History of Vacation

Date Of Hire April 2, 1990

Annual Vacation Period

Vacation Entitlement

Actual Vacation Days Taken and Paid

Additional Vacation Pay Received for Days not taken

Vacation Pay

4% of Wages Earned During the 12 Months for Which The Vacation is Given

July 90 to June 91

3 days

Aug. 2,3,6/90

$185.52

$160.80

July 91 to Jun 92

10 days

June 7 – ½, Jul 15 – ½/91

Aug 8,12,13,14,15,16/91

Feb 17,18/92

June 17/92

$662.30

$681.37

July 92 to Jun 93

10 days

Jul 27,28,29,30,31/92

Nov 9,10,11,12,13/92

$745.38

$714.54

July 93 to Jun 94

10 days

Jul 19,20,21,22,23,30/93

Dec 14,15,16,17/93

$810.00

$788.07

July 94 to Jun 95

10 days

Jul 29 – ½/94

Aug 5,6,7,8/94

Aug 22/94 – ½

Mar 3/95

Apr 11,12,13/95

Jun 30/95

$828.23

$414.23

July 95 to Jun 96

15 days

Jul 10,11,12,13,14/95

Aug 15/95

Sept 1,15/95

Oct 20/95

Dec 15/95

5 days paid

Jan 24/96 but no vacation time taken

$1284.87

$414.23

July 96 to Jun 97

15 days

Nov 13,14,15/96

Feb 7/97

Mar 7,10,11,12,13,14/97

Apr 9/97

$983.38

$616.19

May 97 to Apr 98

16 days

Jun 6/97

Aug 15,18/97

Sep 2,3,4,5,19/97

Nov 5/97

Feb 18,19,20/98

Mar 18/98

Apr 1,9,13/98

$1465.59

$707.78

May 98 to Apr 99

17 days

May 8,9,20/98

Jun 11/98

Jul 31/98

Aug 11,12,13,19/98

Sep 11/98

Oct 22/98

Dec 10/98

Feb 15,16,17,18,19/99

$1598.93

$921.98

May 99 to Apr 00

20 days *1

Jun 17/99

Jul 19,20,21,22,23/99

Aug 9,10,11,12,13/99

$1914.46 *2

$995.52 *2

*1 Remaining 9 days vacation entitlement for May/99 – Apr/00 yet to be scheduled.

*2 Annualized amounts, assuming no change in current salary for remainder of period May 99 to Apr/00

6. Rockwell raised two arguments on appeal. First, the current year based vacation policy does not violate the vacation pay provisions of the Act. Secondly, and in the alternative, if its current year based vacation policy provides a greater right or benefit than what is provided under Part VIII of the Act, Rockwell is protected from liability on the basis that it has complied with its contractual obligations to the claimant during the period of her employment.

Does the current year based vacation policy violate the Act?

7. In order to answer this question it is necessary to set out the statutory requirements relating to vacations and vacation pay. Sections 28 and 29 of the Act read as follows:

28(1) Vacations. Every employer shall give a vacation of at least two weeks to each employee upon the completion of each 12 months of employment, whether or not the employment was active employment.

(2) Vacation pay. An employer shall pay vacation pay to an employee entitled to a vacation under subsection (1).

(3) Same. The vacation pay must be not less than 4 per cent of the wages (excluding vacation pay) earned by the employee during the 12 months for which the vacation is given. 1996, c. 23, s.6.

29. (1) When vacation to be taken. The employer shall determine the period when an employee may take the vacation to which he or she is entitled under section 28, which may be a two-week period or two periods of one week each, but in any case the employee shall be given his or her vacation not later than ten months after the end of the twelve-month period for which the vacation was given.

(2) Director may require employer to pay. Despite subsection (1) and subsection 7(3), the Director may require an employer to pay to an employee at any time the vacation pay to which the employee is entitled under section 28.

(3) Idem. Subsection (2) applies even if there is a strike or lock-out as a result of a labour dispute. R.S.O. 1980, c. 137, s. 30.

8. The current year method adopted by Rockwell is not contrary to section 28(3) of the Act. Section 28(3) of the Act does not require that vacation pay be calculated as a percentage of the prior year’s earnings, which would be the case in an accrual accounting method. What it does require is that vacation pay be not less than 4 percent of wages during the 12 months for which the vacation is given. I do not read section 28(3) as mandating the calculation be based on either a current year or an accrual basis. The “12 months for which the vacation is given” would be the current year in a current year method or would be the previous year in an accrual method.

9. As a further argument, counsel for the Ministry asserts that Rockwell should have sought the approval of the Director of Employment Standards before introducing the new vacation policy. Reference is made to section 31 of the Act which reads as follows:

Any agreement between an employer and an employee or employees or his, her or their agent respecting the method of providing funds for paying vacation pay, or payment in lieu of vacation, or of any arrangements for the taking of vacation, is subject to the approval of the Director.

10. I find that section 31 does not require the Director’s approval concerning an alteration in accounting methods by which an employer calculates vacation pay entitlement. As the wording of the section suggests, the arrangements contemplated by section 31 pertain more to alternatives in the payment or taking of vacation. In this case, Rockwell never contemplated anything other than an alteration in its accounting procedures and nothing with respect to the payment of vacation nor its funding. The Board relies upon the following excerpt from Eric W. Harrison Limited, [1987] Carswell Ont 1145, E.S.C. 2210 (Adamson) starting at paragraph 27:

27 The particular wording of this section should be noted. It does not require approval for the method of paying vacation pay but for the method of “providing funds for paying vacation pay”. Given the many thousands of employers in Ontario I am unable to construe Section 32 to mean that an employer’s method of paying vacation pay must be approved by the Director, or that in the normal course the employer’s vacation schedule would need approval.

28 The normal method of paying vacation pay I find to be through a payment directly from the employer to the employee in cash, cheque or as in the instant case through automatic bank deposit into the employee’s account. Methods other than this such as payment in kind rather than cash, payment through stock transfers or any one of a limitless number of methods to which an employer and an employee might agree, I find would require the approval of the Director. Similarly, contracts by which the employee would agree to take no vacation for periods longer than twelve months I find would require approval, as would agreements that the employee’s vacation pay be paid by another party such as a successor employer. I find however that, where the vacation pay is paid directly by the employer to the employee in cash or cheque in an amount at least equal to that specified in the Act and within the time limits set by the Act, that Section 32 has no application. Payment on a weekly basis is actually payment in advance and provided the payment meets the employment standard I find no need for approval.

11. Counsel for the Ministry referred to section 15 of the Act to suggest that a current year accounting method for determining vacation entitlement is contrary to the Act. Section 15 is set out as follows:

Every employer shall be deemed to hold vacation pay accruing due to an employee in trust for the employee whether or not the amount therefor has in fact been kept separate and apart by the employer and the vacation pay becomes a lien and charge upon the assets of the employer that in the ordinary course of business would be entered in books of account whether so entered or not. R.S.O. 1990, c. E. 14,s. 15

12. Counsel seems to suggest that all vacation pay schemes must be based on an accrual method in order for the deemed trust to attach in the manner contemplated by section 15. Counsel relies upon the following comments of Blair J.A. in Mills-Hughes v. Raynor 1988 CanLII 4660 (ON CA), 63 O.R. (2d) 343 (Ont. C.A.):

The E.S.A. also provides in s. 15 that vacation pay accruing due to employees shall be deemed to be held in trust by the employer. Section15 reads as follows:

15. Every employer shall be deemed to hold vacation pay accruing due to an employee in trust for the employee whether or not the amount therefor has in fact been kept separate and apart by the employer and the vacation pay becomes a lien and charge upon the assets of the employer that in the ordinary course of business would be entered in books of account whether so entered or not.

In Armstrong v. Coopers & Lybrand Ltd. (1986), 1986 CanLII 2621 (ON HCJ), 53 O.R. (2d) 468, 24 D.L.R. (4th) 516, 58 C.B.R. 209, another case arising from the Admiral debacle, Carruthers J. commented on s. 15 as follows at p. 474 O.R., p. 522 D.L.R.:

Of importance to me is that s. 15 specifically provides that this amount, which I conclude accrues due to the employee on each day of employment, is deemed to be held in trust for the employee by the employer whether or not it has, in fact, been kept separate.

13. I do not interpret section 15 nor the comments of Blair J.A. in the manner suggested by counsel for the Ministry. Section 15 deems vacation pay to be held in trust by an employer as it is accrued. By doing so, vacation pay is recognized as a debt as it is accrued and not an obligation which crystallizes upon termination of employment. The deemed trust created by section 15 does not, however, require that all vacation pay schemes must be based on an accrual method but rather if they are based on an accrual method then the amounts earned are deemed to be held in trust. Even if section 15 were to require vacation pay to be based on an accrual method, the current year accounting method accrues vacation pay in the manner contemplated by section 15, as vacation pay is still accrued “on each day of employment”.

14. In reviewing the summary of vacation entitlement for Ms. Smitjes, it is clear that Rockwell fulfilled its obligations as articulated in subsections 28(1) and 29(1) of the Act, pertaining to vacation time. For each vacation year from July 1991 to June 1995, Ms. Smitjes received two weeks vacation as stipulated in the Act. In the two subsequent years, July, 1995 to June 1997, Rockwell provided Ms. Smitjes with three weeks of vacation. In the period of May 1, 1997 to April 30, 1998, Ms. Smitjes received sixteen days of vacation. Ms. Smitjes’ entitlement to vacation reached seventeen days in the transitional period, which was from May 1, 1998 to April 30, 1999. Finally, Ms. Smitjes will receive twenty days for vacation in the current vacation year, May 1, 1999 to April 30, 2000. Accordingly, it would appear that the imposition of the current year accounting method did not prejudice Ms. Smitjes as she continued to receive vacation above the minimum requirements of the Act.

15. I reach the same conclusion in reviewing the respective vacation payments made to Ms. Smitjes over the course of her employment with Rockwell. With the exception of a slight discrepancy in the period July 1991 to June 1992, Ms. Smitjes received well above the statutory minimum of 4 per cent in vacation pay in each vacation year. For the period of May 1, 1997 to April 30, 1998, Ms. Smitjes received $1,465.59 in vacation pay. Her minimum statutory entitlement during that same period was $707.78. The same holds true in the transitional year, May 1, 1998 to April 30, 1999, in which Ms. Smitjes claims that she “lost” her vacation pay entitlement. In that period, Ms. Smitjes received $1,598.93 in vacation pay, well above her entitlement under the Act of $921.98. This trend continues in the current vacation year in which Ms. Smitjes is projected to earn $1914.46 in vacation pay. Her statutory entitlement would be $995.52.

16. Ms. Smitjes claims she lost something when Rockwell incorporated the current year accounting method for determining vacation entitlement. She perceives that by disregarding her earned entitlement in the period May 1, 1998 to April 30, 1999, for the purposes of calculating vacation under the current year method for May 1, 1999 to April 30, 2000 she has been deprived of those earnings. The focus of the Board’s inquiry, however, is not on the particular accounting method used to determine vacation but rather is on the amounts paid and time taken and whether they are in keeping with the statutory requirements imposed by the Act. Having reviewed the amounts paid and the time provided to Ms. Smitjes, clearly Rockwell has met its obligations under the Act. The changes have only impacted on the accounting system for vacation. Rockwell has not diminished the claimant’s vacation or vacation pay benefits. As such, there is no gap in the claimants’ entitlement to vacation. To uphold the Order to Pay would be akin to providing Ms. Smitjes with an unjust enrichment as she would be, in essence, paid twice for the one vacation period at an amount well above the statutory minimum. To do so would be counterintuitive and not in keeping with the purpose and scope of the Act.

17. Having found that the vacation pay policy of Rockwell did not violate the Act, I will now deal with the arguments relating to greater right or benefit.

Greater Right or Benefit

18. Counsel for Rockwell argued that if its current year based vacation policy provides a greater right or benefit than what is provided under Part VIII of the Act, Rockwell has complied with its contractual obligations to the claimant during the course of her employment including during the period of the transition to the current year accounting method.

19. Section 4 of the Act speaks to the issue of greater right or benefit and reads as follows:

20. (1) Employment standard deemed minimum -- An employment standard shall be deemed a minimum requirement only.

(2) Greater benefit to prevail – A right, benefit, term or condition of employment under a contract, oral or written, express or implied, or under any other Act or schedule, order or regulation made thereunder that provides in favour of an employee a higher renumeration in money, a greater right or benefit or lesser hours of work than the requirement imposed by an employment standard shall prevail over an employment standard.

20. The claimant has a contract of employment, which provides rights and benefits in relation to vacation benefits which are greater than what is provided under the Act as demonstrated by the summary set out at paragraph 5 of this decision. It was conceded by counsel for Rockwell, however, that the claimant did not accrue vacation pay during the period from May 1, 1998 to April 30, 1999 as a result of implementing the current accounting method save that she continued to receive vacation benefits.

21. The analysis under section 4 focuses on whether a bundle of contractual rights on balance provide better benefits than the relevant bundle of rights guaranteed by the Act. The courts have clearly stated that the composite of rights and benefits in question should be compared rather than a more narrow comparison of individual rights and benefits. In Queen’s University v. Fraser et al. (1985), 51 O.R. (2d) 141 (Div. Ct.) Van Camp, J. held as follows at page 144:

The parties may contract out of the Employment Standards Act by providing greater benefits respecting holidays than the provisions of Part VII of the Act. One must look at the entirety of the terms in the agreement respecting holidays and not compare each individual item.

22. When determining whether greater rights or benefits have been provided in the present case, it is the Board’s view that the proper analysis should cover the whole of the employment relationship and not just the one year period where a gap in entitlement may have occurred. Only by framing the analysis in this manner can a true comparison of the full bundle of rights and benefits received by the claimant be measured against her entitlement under the Act. This broad or inclusive form of rights analysis was approved of by White J. in a separate opinion in Queen’s University v. Fraser et al, supra at page 155:

In my opinion, the arbitrator erred in ruling that he could not compare all of the benefits apropos of holidays and holiday pay as found in art. 18 with the standard found in s. 26(4) [now s. 25(4)] of the Act. A proper comparison, which in my opinion involves the placing in one pan of a metaphorical scale the minimum standard set out in s. 26(4) and placing in the other pan the totality of rights or benefits or lesser hours of work provided for in art. 18, would fully preponderate the scale in favour of art. 18.

The Court therefore, finds that the operation of section 25 (holiday pay) is ousted by the scheme of, what are on balance, greater rights or benefits provided in the collective agreement. Thus specific requirements of the Act are ousted and the contractual scheme prevails.

23. In Dejordon Security Inc., [1997] O.E.S.A.D. No. 325 (Misra) the claimant did not receive wages or vacation pay over a nine week period and was owed $3,400. At a later date, the claimant received shares in a new company valued at $5,000 as compensation for the missing wages and vacation pay. Despite the presence of a gap in which the claimant had not received wages or vacation pay, the Board dismissed the claim on the basis that the claimant had received a greater right or benefit in the form of the shares. At page 4, Adjudicator Misra writes:

Mr. Tom was being paid $450.00 per week at that juncture, far in excess of the minimum wage standard outlined in the Act. While his vacation pay entitlement appears to have been the same as provided for in the Act, it is clear that in total Mr. Tom received at least a benefit of $5,000 when he was owed approximately $3,400… He therefore received a greater right or benefit and higher renumeration than he would have under the Act, and I am satisfied that his agreement with Mr. Whitely prevails over the minimum employment standards.

24. In Dejordon Security Inc., supra, Adjudicator Misra did not restrict her analysis to the nine weeks in which the claimant had not received wages and vacation pay but rather compared the total compensation received and in doing so found the claimant to have received a right or benefit greater than stipulated in the Act.

25. In Re Brown, [1997] O.E.S.A.D. No. 768, Adjudicator Muir considered a six month gap in which vacation pay was earned but not paid as a result of an employer’s accounting methods. For the entire year, however, the employer paid vacation pay in excess of the statutory minimum. In deciding in favour of the employer, Adjudicator Muir wrote as follows:

26. This is a troubling issue. There is no doubt there is a period of employment for which vacation pay was not paid. On the other hand there is no doubt that the Claimant in fact received more than the minimum entitlement for the relevant periods of employment. There is also no doubt that I can enforce the collective agreement, however the Ministry’s position that in these circumstances there is no violation of the Act seems to be correct. This is so because I do not think that the language of section 28 supports the position taken by the Trade Union on behalf of the Claimant. Section 28(2) does not, for example, provide that vacation pay be paid on “all earnings” as submitted by the Trade Union, it merely provides that vacation pay be “not less than an amount equal to 4 per cent of the wages of the employee in the twelve months of employment for which the vacation is given”. The effect of the collective agreement in these circumstances is not inconsistent with that language.

27. Throughout her employment with Rockwell, Ms. Smitjes received vacation benefits far in excess of the minimum standards set out in Part VIII of the Act (see the analysis in paragraphs 14 though 16). In reviewing the summary of vacation entitlement set out in paragraph 5, it is clear that the imposition of the current year accounting method for establishing vacation entitlement did not in any way diminish the level of vacation benefits Ms. Smitjes received from Rockwell pursuant to her employment contract. Accordingly, Rockwell did not breach its contractual obligations to Ms. Smitjes by amending its vacation policy on May 1, 1999.

Disposition

27. The Board finds that the current year accounting method introduced by Rockwell on May 1, 1999 is not contrary to the Act. The Board also finds that the claimant continued to receive benefits in relation to vacation under the current year accounting method which were greater than that provided under the Act and in keeping with her employment contract. Accordingly, the Board finds in favour of the applicant and sets aside Order to Pay No. 50187. The Board directs the Director of Employment Standards to reimburse Rockwell the monies it holds in trust in relation to this matter.

“John Morgan Lewis”

for the Board