Employment contracts need to be drafted carefully, as an Alberta law firm recently discovered. [1]The employer law firm had drafted a contract by which it intended that the income sum paid to one of its lawyers was to include vacation pay. The wording was fairly simple stating that the lawyer’s salary was to be set at 40% of his revenues and that this sum was to be “inclusive of vacation pay entitlement”.

Holiday Pay & Vacation Pay

As is the case with Ontario’s statute, the Alberta law deals with two entitlements, one being vacation pay and the second being holiday pay.[2] The argument made successfully by the employee lawyer was that the agreement did not address the issue of holiday pay and hence this claim remained live. It was then determined that the sum owing for holiday pay was roughly $20,000.

Record Keeping Yet Continue

On the discrete issue of vacation pay, it was determined that the law firm could not escape its obligation to keep vacation records that separately revealed each component of earnings. It needed to do so to prove that it had indeed compensated its employee for his vacation pay. The initial hearing before the Umpire[3] concluded that the contract, in effect, attempted to contract out of its record keeping obligation and hence was contrary to public policy in this respect.

The sum awarded for vacation pay was $33,000.

By a drafting mishap and the failure to keep accurate records, the law firm was hit for $53,000 in these two claims.

Employer’s View

One might have expected, as indeed the law firm did, that this agreement would avoid such a claim. These agreements clearly need to be drafted carefully and precisely. One might expect that this contract had been given to many other employees. The liability for such a drafting error could be severe. Employers should never use sample contracts obtained through internet searches or friendly references.

One More Thought

This issue can be more complex for employee bonuses and commissions. Such additional earnings are also subject to a vacation pay gross-up unless the agreement carefully deals with such additional sums as inclusive of vacation pay and holiday pay. This can lead to even more complications where the employment contract contains a termination provision which is intended to be in full satisfaction of all employment standards obligations, yet fails to account for such vacation pay claim on the incremental income. This potentially could violate the termination clause. An apparently simple issue is not quite as facile as one might expect.

Employee’s Side

From the employee’s perspective, legal advice may often lead to a claim that may not be intuitively apparent. Technical issues such as this require careful and prudent review.

Get Advice

Contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.

[1] R.G. Bisset PC v Stringam

[2] That is, for statutory holidays

[3] The first level of the administrative process. This was upheld on review by the Alberta Queen’s Bench.