At first glance, the Employment Standards Act appears to require employees in their sixth year of employment to take three weeks of vacation, while being paid only two weeks of vacation pay. In 2019 BCEST 10, the Employment Standards Tribunal follows previous Tribunal decisions in concluding that this cannot be what is intended by the Act.
Sections 57 and 58 of the Employment Standards Act create separate, but related, minimum entitlements regarding employees’ rights to paid vacation pay. Section 57 provides that employees are entitled to take annuals vacations; section 58 ensures that employees are entitled to vacation pay when they take those vacations.
Specifically, section 57(1) says that after 12 months of employment, employers must give their employees 2 weeks of vacation per year. In the sixth year of employment, the entitlement increases to 3 weeks:
57 (1) An employer must give an employee an annual vacation of
(a) at least 2 weeks, after 12 consecutive months of employment, or
(b) at least 3 weeks, after 5 consecutive years of employment.
Section 58(1) says that employees must earn vacation pay before they are entitled to it. Each year, an employee earns vacation pay. The following year, they are entitled to be paid that vacation pay when they take their vacation.
In the first year of employment, employees earn 4% of their total wages as vacation pay. In the second year of employment, the employee receives those wages when they take their vacation. This continues for the first five years of employment. In the sixth year of employment, an employee begins earning 6% of their total wages as vacation pay:
58 (1) An employer must pay an employee the following amount of vacation pay:
(a) after 5 calendar days of employment, at least 4% of the employee’s total wages during the year of employment entitling the employee to the vacation pay;
(b) after 5 consecutive years of employment, at least 6% of the employee’s total wages during the year of employment entitling the employee to the vacation pay.
The purpose of sections 57 and 58 is to ensure that employees can take their annual vacation without suffering any loss of income. If an employee earns vacation pay equal to 4% of their wages, this is enough pay to cover 2 weeks of vacation in the following year. If an employee earns vacation pay equal to 6% of their wages, this is enough pay to cover 3 weeks of vacation.
However, there is a problem with the way that these sections were drafted. If interpreted literally, an employee would be entitled to 3 weeks of vacation in the sixth year of employment, but would only be entitled to receive 4% vacation pay during the sixth year. In other words, employees would be required to take two weeks of paid vacation and one week of unpaid vacation in their sixth year of employment. The following graph illustrates the problem:
|Year||Vacation pay earned|
(to be paid in following year)
|Vacation pay received|
(earned in previous year)
|Weeks of vacation|
|1||4% of salary||0||0|
|2||4% of salary||4% of salary||2|
|3||4% of salary||4% of salary||2|
|4||4% of salary||4% of salary||2|
|5||4% of salary||4% of salary||2|
|6||6% of salary||4% of salary||3|
|7||6% of salary||6% of salary||3|
In this case, a delegate of the Director of Employment Standards had determined that an employee was entitled to earn vacation pay equal to 6% of salary during his fifth year of employment. Past Employment Standards Tribunal decisions supported the Director’s interpretation.
The employer appealed to the Employment Standards Tribunal. On appeal, indexed at 2018 BCEST 104, the Tribunal concluded that it was inconsistent with the clear wording of the Employment Standards Act to award vacation pay equal to 6% of salary during the employee’s fifth year of employment.
The Director of Employment Standards applied for reconsideration of the Employment Standards Tribunal’s decision. The application for reconsideration was allowed. The reconsideration panel agreed with the Director that employees earn vacation pay equal to 6% of salary during their fifth year of employment.
In reaching their decision, the reconsideration panel observed that the wording of the vacation pay sections in the Employment Standards Act is problematic: “the ESA could be worded more clearly to avoid the difficulties presented by these sections.” However, the Tribunal’s longstanding interpretation of the vacation pay sections is to allow an employee to earn vacation pay equal to 6% of wages during their fifth year of employment. The Tribunal cited a lengthy passage from Intercity Appraisals Ltd., BC EST # D151/97:
While there [are] elements of ambiguity in the law, the most logical interpretation of Sections 57 and 58 of the Act leads to a conclusion that vacation pay is based on the previous year’s earnings. The law entitles an employee to three weeks of vacation after the completion of the fifth year of employment, i.e. after the employee’s fifth anniversary of employment. Section 58(1)(b) states that the six per cent payment is based on the employee’s wages “during the year of employment entitling the employee to the vacation pay.” In other words, the basis for calculating entitlement to vacation pay is the previous year of employment. Sections 57 and 58 establish reliance on the previous year’s wages to calculate vacation pay consistently. An employee who completes one year of employment is entitled to four per cent vacation pay based on earnings during the first year of employment, for instance. In subsequent years, the four per cent is based on earning the year before. At the fifth anniversary, the entitlement becomes six per cent of the earnings the previous, i.e., the fifth year. . . .
As a result, the application for reconsideration was allowed, and it was determined that the employee was entitled to payment for vacation pay equal to 6% of his wages earned in his fifth year of employment.