What’s Weird About Vacation In 2021?

Raise your hand if you went on a fun vacation last year!!

*crickets*

Nobody?

That’s the feeling around a lot of workplaces these days. For many of us, there was nowhere to go and not much to do. Even a “staycation” didn’t feel restful, so many employees decided to forego using their vacation time altogether.

On the flip side, a huge number of employees have been on a prolonged temporary layoff (a.k.a. in Ontario, a “deemed Infectious Disease Emergency Leave (IDEL)”), without active work from which to take a vacation.[1]

As we emerge from the pandemic, employers will have to reckon with the fact that vacation accrual and usage for the last year-and-a-half has not been normal. On top of that, things likely won’t go back to normal anytime soon. 

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Ontario Vacation Entitlements - The Basics

Before we get into what’s weird, a brief refresher about vacation time and vacation pay in Ontario:

Under Ontario’s Employment Standards Act (“ESA”), vacation time and vacation pay are distinct entitlements. They’re calculated differently, they accrue differently, and they can be drawn down separately. The ESA requires that employers provide a minimum of:

• 2 weeks’ vacation time and 4% vacation pay on Wages[2] earned for employees with less than 5 years’ service; and

• 3 weeks’ vacation time and 6% vacation pay on Wages earned for employees with 5 years or more of service.

Under the ESA, vacation time and pay are earned in a “vacation entitlement year” and must be used/paid within 10 months after the end of the year in which they were earned (i.e. by October 31).

While the ESA prohibits providing less than these minimum entitlements, lots of workplaces contract for greater entitlements than are set out in the ESA. For example, most employees are allowed to take vacation time and receive pay in the same year they earn it; they may also receive more time/pay than the minimum required under the ESA.

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What’s Weird About Vacation in 2021?

1.     Unused, Accrued Vacation Time and Pay

If employees haven’t been booking vacations or drawing vacation pay at their normal rate, employers may have accrued liabilities that need to be dealt with.

ESA Entitlements

Remember, under the ESA, vacation time/pay are earned in one year and used in the first 10 months of the next year – i.e. vacation time/pay earned in 2019 should have been taken by October 31, 2020. If they weren’t, what happens?

• Vacation pay: ESA vacation pay can’t be forfeited. It’s an accrued entitlement that must be paid out by October 31 of the year after it was earned.[3]

• Vacation time: Unlike vacation pay, under the ESA employees can choose to forfeit vacation time, with approval.

Going forward, ESA vacation time/pay earned in 2020 must be used by October 31, 2021. If employees still aren’t drawing down their vacation entitlements this year, employers should consider giving staff a direction to submit their vacation requests, failing which the employer  can unilaterally schedule it. Under the ESA, it’s the employer’s responsibility to make sure vacation time is used before the 10-month deadline, and vacation pay is paid accordingly.

Greater Entitlements

Employers may have a policy that unused vacation time or vacation pay in excess of the ESA minimum entitlements are forfeited if they not used by the applicable deadline – i.e. a “use-it-or-lose-it” policy.

Here’s an example: Imagine an employee who is entitled to 5 weeks’ annual vacation time and 10% vacation pay (vs. their 2-week/4% ESA entitlement) and takes vacation time and draws vacation pay in the same year it’s earned. If this employee did not use any of their vacation allotment in 2020, a properly-worded and implemented “use-it-or-lose-it” policy could apply to the excess (i.e. above-ESA) vacation time and pay, which would be forfeited.[4]  However, their ESA vacation time and ESA vacation pay would carry over into the first 10 months of 2021, after which time their ESA vacation pay would be required to be paid out.

Options to Consider

Employers with significant accrued vacation time and vacation pay liabilities after last year might want to consider the following for 2021:

(i)               Reviewing policies/agreements for carryover caps or other limitations (and if not, consider updating the policies for the future);

(ii)              Giving employees a direction to submit requests for vacation time, failing which the employer will schedule it for them to make sure it gets used;

(iii)            Paying out accrued vacation pay, to avoid carrying the liability forward. If the employee has passed the 10-month deadline under the ESA for taking vacation time, the pay must be paid out.

The right move will depend on the circumstances, including the extent of the liability, the number of employees affected, and the terms of the relevant policies and employment contracts. There may be other options/considerations in addition to the three listed above.  

2.     Vacation Accrued During an IDEL

Under the ESA, vacation time accrues during periods of inactive employment, such as an IDEL.

Vacation pay, by contrast, is calculated on Wages.2 During periods in which there are no Wages being earned, such as an unpaid IDEL, no vacation pay accrues under the ESA.

That means that employees who have been on IDEL may have accrued a bank of unpaid vacation time with respect to the 2020 vacation year. Employers should be aware of this entitlement – even if there is no pay associated with vacation time earned during inactive periods (because no wages were earned), it is a statutory obligation to provide the time unless the employer voluntarily forfeits it in accordance with the ESA. 

Also, be mindful of any “paid vacation” contracted for – see below.

3.     Beware of “Paid Vacation”

Instead of contracting for vacation time and vacation pay as distinct entitlements, some employers contract to provide a certain amount of “paid vacation” per year.

These employers may face claims from employees who believe they are entitled to their full paid vacation for the year, even if they were inactive for a length of time. For example, an employee on IDEL from April to October 2020 may nevertheless attempt to claim their full contractual paid vacation entitlement notwithstanding the IDEL period. Employers could have employees returning to work believing they have several weeks of “paid vacation” stored up.

If this issue arises, employers should seek specific advice. Obligations and options will depend on the circumstances, and the terms of any policy/agreement. 

4.     Other Weirdness?

The full gamut of vacation weirdness isn’t known yet, and we don’t know what the rest of 2021 has in store. Other weird things to prepare for may include:

• Increased remote working could blur what constitutes a “vacation”, or a “working vacation”, including expectations of employees while they are on vacation;

• There may be different concerns regarding travel within or outside Canada for vaccinated vs. unvaccinated workers;

• Government travel advisories may remain in effect for certain regions of the world due to inequitable vaccine access and a slower emergence from the pandemic. Can or should employers prohibit travel against government advice, or to certain areas?;

• Policies may need to be updated address post-travel return to work, including whether a quarantine period is required before coming back to the workplace in person post-travel;

• Employees may ask for extra time off this year to recover from the effects of the pandemic, or for a variety of other reasons. Consider whether this is truly a request for more “vacation”, or whether there is a duty to accommodate.

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The pandemic has shaken up so many facets of the workplace. Employers and employees have kept adapting and pivoting throughout all of the uncertainty. Only now, as we’re starting to catch glimpses of the end of the pandemic, is the full scope of the pandemic’s impacts on Ontario’s workplaces becoming clearer.

Vacation time and pay is another area where employers need to continue to “expect the unexpected” in 2021. It remains to be seen which of the impacts are fleeting, and whether the pandemic will have any more permanent effects on the way we approach vacation in Ontario.

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[1] This blog deals with vacation time and pay from an Ontario-centric perspective.

[2] See section 1(1) for the ESA’s definition of “wages.”

[3] This is the default timing. Note, however, that in some circumstances the ESA permits a different payment time to be established.

[4] Without such a policy in place, wiping out unused vacation time or pay may violate the employment contract.