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| Ellen Low |
Many organizations have been moving to unlimited PTO in recent years. To no surprise, it has proven to be an effective recruitment tool.
Unlimited PTO offers freedom of choice to employees and is generally considered to be a goodwill gesture by employers to foster worker well-being while promoting a culture of accountability and trust.
However, it would be a mistake not to examine how its potential impact on the organization and its employees.
Before taking the leap, employers and employees should seriously consider the pratfalls of unlimited paid time off policies. Unlimited PTO may prioritize healthy and happy workplaces, keeping people engaged while potentially leading to higher retention; however, employers are advised to ensure their contracts are meeting or exceeding Employment Standards Act, 2000 (ESA) minimums.
Organizations must also clearly articulate what happens to any unused “vacation time” when an employee exits. They also still need a robust accounting system to record used PTO time.
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While a structured policy dictates when an employee can take a vacation and how many days they are entitled to, workers under the limitless PTO scheme essentially decide for themselves and may be inclined to wait for a slowdown in their routine that never comes. They may still take time off, but it could end up being less than they would have taken in a traditional structure.
On the employer side, companies are permitted to offer whatever vacation pay plan best serves their operational needs as long as it meets the minimum standards of the ESA.
It should also be noted an amendment to the Act contained in Bill 149 that took effect in June 2024 changes the language of vacation pay provisions to clarify that a written agreement is necessary if vacation pay is paid any other way than a lump sum.
What should be of particular concern to employers is their duty to accurately record vacation pay even in light of an “unlimited” PTO policy. An employer bears the record-keeping obligations pursuant to s. 12 of the ESA and must be able to demonstrate that the employee has had a greater right or benefit than what is prescribed by the Act for both vacation time and vacation pay.
It can get tricky because, at minimum, each employee in each year must get at least four or six per cent vacation pay, regardless of the amount of time that they take off.
Where problems may arise under a limitless PTO plan is if the employer assumes the traditional record-keeping obligation no longer exists because there is no set amount of vacation to be used by employees.
An administrative nightmare can await those who fail to do their due diligence. Remember, while vacation time can be waived, vacation pay cannot. As a result, employers should worry about unlimited PTO leading to Ministry of Labour complaints or possibly litigation.
When an employee resigns or is terminated, they are entitled to all earned unpaid vacation when they leave. With an employer offering unlimited PTO, it can be challenging to determine with any accuracy what is owed.
Failure to properly document vacation time could land an employer on the wrong end of a lawsuit. For example, an employee can claim they never took their vacation entitlement. What happens if there is no record that they did? If it was supposed to be paid time, what was the rate? Is it base salary? Is it all wages? How is it even calculating, and then how far back in time can you go?
A court could well draw an adverse inference from the employer’s failure to comply with ESA record-keeping obligations and accept or prefer the plaintiff’s evidence.
The recent Ontario Superior Court ruling in Boyer v. Callidus, 2024 ONSC 20, illustrates the danger of failing to properly document vacation time and pay.
Craig Boyer, a vice-president of underwriting and portfolio management, was entitled to four weeks of vacation per year, the court was told.
Boyer argued that during his employment his company knew he had been unable to take all his vacation due to his heavy workload and that the organization allowed him to carry his unused time forward.
The company countered it had a “use it or lose it” policy, and all unused vacation was forfeited at the end of each calendar year unless the employee had written approval. However, Callidus did not have a written contract with Boyer or any other communication to support its claim.
Ultimately the court found in favour of Boyer, awarding him more than $93,000 in vacation pay.
The court effectively talks about an employee’s entitlement to vacation or pay in lieu as being a fundamental part of an employment contract. Basically, the judge found the onus is on the employer to make it a condition of the contract of employment that Boyer must take his vacation days or that he was precluded from carrying them over and make that clear to him.
What should grab the attention of employers with unlimited PTO policies is that in Boyer’s case, it was clear how much vacation he was entitled to each year when determining his compensation.
How do you calculate what that might look like if you have an unlimited paid time off policy? That’s why employers need to be extremely cautious and think critically about what limitless PTO might look like in. Not just in theory but in practice.
Ellen Low has been working exclusively in employment and human rights for over a decade. She obtained her law degree from the University of Ottawa, articled at Gowlings and practised as a partner with a boutique Toronto employment law firm and founded her own firm, Ellen Low & Co. Employment Law, in 2018.
The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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