Deductions from wages or other amounts – Canada Labour Code, Part III - 817-1-IPG-060

Disclaimer: This page has been prepared for reference only.

Effective date: April, 2019

Interpretation

1. Subject

The application of section 254.1 of the Canada Labour Code which covers deduction from wages and clarifies when an employer may deduct "amounts authorized in writing by the employee" from wages or other amounts due to an employee.

Subsections 254.1(1) and (2) state that:

  1. No employer shall make deductions from wages or other amounts due to an employee, except as permitted by or under this section.
  2. The permitted deductions are
    1. those required by a federal or provincial Act or regulations made thereunder;
    2. those authorized by a court order or a collective agreement or other document signed by a trade union on behalf of the employee;
    3. amounts authorized in writing by the employee;
    4. overpayments of wages by the employer; and
    5. other amounts prescribed by regulation.
  3. Notwithstanding paragraph (2)(c), no employer shall, pursuant to that paragraph, make a deduction in respect of damage to property, or loss of money or property, if any person other than the employee had access to the property or money in question.

2. Issue

There is a need to clarify:

  1. when a deduction is found to have been authorized in writing pursuant to paragraph 254.1(2)(c) of the Code;
  2. whether the timing of the authorization has an impact on the validity of the deduction; and
  3. what are the permitted deductions.

3. Question and answers

  1. When is a deduction found to have been authorized in writing pursuant to paragraph 254.1(2)(c) of the Code?

    Subsection 254.1(1) prohibits an employer from making deductions from wages or other amounts except under specific circumstances as set out in subsection 254.1(2). One of these specific circumstances (paragraph 254.1(2)(c)) is when the deductions are "amounts authorized in writing by the employee".

    Paragraph 254.1(2)(c), "amounts authorized in writing by the employee", requires a written authorization by the employee consenting to the deduction of a specific amount. For every deduction made, the authorization must be in writing, specify a particular amount, and be given in a way that is truly consensual.

    Where an inspector finds that the deduction of a particular amount has been authorized in writing by the employee, the inspector must also confirm whether the authorization was truly consented to by the employee.

  2. Does the timing of the authorization haves an impact on the validity of the deduction?

    General blanket authorizations in employment contracts, with or without specific amounts, may operate to assign responsibility or liability to the employee, but the corresponding deduction requires a specific authorization.

    Whether the authorization for deduction is signed before, at the time of, or after the deduction is made is not a relevant factor on its own. A consent for wage deduction made at the time of or after an occurrence is more likely to be accepted than one which is made a considerable period before the deduction. The more specific and timely the authorization is to the actual occurrence the more likely it would be considered valid.

  3. What are the permitted deductions?

    It should be noted that subsection 254.1(2) covers when an employer may make a deduction from wages or other amounts; it does not seek to regulate the items or costs for which an employee may be held responsible.

    Subsection 254.1(3) provides that where the deduction relates to damage to property, or loss of money or property, and any person other than the employee had access to the property or money in question, no deduction is permitted even in cases where the deduction has been specifically authorized in writing by the employee.

    Where a deduction is not permitted, the employer may seek recovery in the civil courts, appeal a payment order or pursue other means of redress, depending on the circumstances. One must differentiate between the employment contract, which spells out the responsibilities of the parties, and an authorization allowing a specific deduction. Whether the employee is responsible for an item or costs, and whether the amount thereof may be deducted from wages, are two separate issues.

4. Conclusion

In summary, an employer cannot deduct money, alleged to be owed by an employee to the employer, from an employee's wages without the employee agreeing to the deduction, in writing. Appendix A provides examples of authorized and unauthorized deductions.

Any further dispute between the employee and employer can be resolved by requesting a review of the inspector's decision to issue a Notice of Unfounded Complaint, a Notice of Voluntary Compliance or a Payment Order (section 251.1).

Note

Section 254.1 is not intended to preclude normal payroll deductions, sponsored by the employer and/or union, such as health, dental or disability group insurance plans and payroll savings plans. The funds deducted must have been used for the purposes authorized by the employee.

Appendix A

The following examples of authorizations are taken from referee and court decisions. These examples provide additional guidance on the application of the concepts stated in this IPG and do not directly reflect the specific details of the cases they are extracted from. Following these examples does not guarantee the same result.

Examples of authorized deductions

1. Deductions for training

An individual receives an employment offer as a cable technician. The offer includes a signing bonus of $2,000, payable if the individual is still employed after one year.

The employer provides several cable technician training courses in the first year of employment. The individual, when accepting the offer of employment, must agree to reimburse the cost of each course at a rate of $300 per course. This bonus offsets the cost of the training courses. At the time the offer of employment is signed, the employee signs separate agreements for each course to have the amount paid through payroll deduction, either from their first pay cheque or from the pay cheque immediately following their first year anniversary.

The prohibition under subsection 254.1(3) does not apply as the issue is not related to damage or loss. The written authorizations identified specific amounts to be taken as payroll deductions and are associated with the actual deductions. The employee was given ample opportunity to review the authorization documents and seek legal counsel if so desired. Even though the authorizations were signed as much as one year in advance, they are specific and benefit both the employer and employee.

See: Intek Communications Inc. v. Mohibur Rahman, [2015] YM2727-3561

2. Property not returned

An employer requires the employee to sign a written authorization requiring deduction of wages in the event of non-return of property, in this case a “Key Agreement” which sets a reasonable amount for return of the keys. Should the keys not be returned, the employer would have to replace the keys and change locks and other keys. In this instance, the referee made the statement “Where the requirement of a deduction is reasonable, the circumstances of signing may not require close scrutiny since consent may be reasonably inferred.”

See: MG Lund Trucking Inc. v. Daryl A. Petersen, [2008] FC 1093

Examples of unauthorized deductions

1. Property not returned

An employer requires the employee to sign a written authorization for deduction of wages in the event of non-return of property, in this case a “Key Agreement” which sets a reasonable amount for return of the keys. Should the keys not be returned, the employer would have to replace the keys and change locks and other keys.

In this example, however, the agreement reads “Failure to do so will automatically mean a $300.00 deduction from my pay cheque and my final pay will not be received until the keys have been handed in and signed off.” Withholding the final pay cheque is a drastic additional penalty. The requirement of withholding the final pay negates the fundamental benefit of payment of wages in an employment contract.

See: MG Lund Trucking Inc.. v. Daryl A. Petersen, [2008] FC 1093

2. Safe driving bonus

An employer sets out in a signed employment contract that truck drivers will receive a bonus of four cents per mile, known as a “safe driving bonus”. A series of infractions are listed along with associated bonus reductions, such as

  • “Log book infraction per month: 1 cent per mile”,
  • “Any complaint from customer or general public: $25 deduction”, and
  • “Incidents/accidents where driver at fault: $500”. The terms of the bonus agreement give the employer discretion as to whether to apply the infraction and does not require consultation with the employee.

The employee will only know whether they are receiving the monthly bonus, and how much, at the time they are paid. There is no benefit to the employee in authorizing these wage deductions.

Although specific amounts are identified for each “infraction”, this sort of infraction listing is in the form of a blanket authorization and is considered an unauthorized deduction. The employer’s discretionary application of the bonus system is the type of issue section 254.1 is intended to address. The employee should have the opportunity to dispute or agree to the decisions before authorizing wage deduction. The employer is able to pursue civil remedies to recover monies they feel they are owed when the employee does not authorize wage deduction in any specific case. The authorization for deduction of wage issue is not with the list of infractions itself, but with the means of payment and timing of the authorization when the infraction is said to have occurred.

See: Employment Management & Services, Dowling, Ontario v. Alex Geauvreau, [2001] YM2727-1014

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