Were deductions improper payroll deductions?Leggat Chevrolet Buick Cadillac GMC Ltd v Calvert, 2014 CanLII 23389 (ON LRB)
In Leggat Chevrolet Cadillac Buick GMC Ltd v Calvert, the employer appealed an order to pay arising from the Employment Standard Officer's finding of improper payroll deductions. The employees had signed a payroll deduction authorization form which included a $25 bi-weekly deduction for a “demonstration vehicle insurance deductible.” Was this an improper payroll deduction?
Facts of the case
The employer (Leggat Chevrolet Cadillac Buick GMC Ltd) was a car dealership that employed about 25 sales representatives. It offered its sales representatives and management staff a demonstration vehicle for their personal use in order to bolster marketing.
The demonstration vehicle was a taxable benefit for the sales representative, and, as such, the sales representatives signed a payroll deduction authorization form allowing for $25 bi-weekly for a “demonstration vehicle insurance deductible”.
In the employer's opinion, the $25 payroll deduction was clearly for the benefit of the sales team in the case where the vehicle sustained damage when it was being driven for personal use. This deduction was deposited into a general operating account to cover repairs to the demonstrator fleet. Leggat's own collision centre made necessary repairs.
Furthermore, the employer believed that the $25 provided it with some limited indemnity, and also made sure that all of its employees exercised care when using their personal demonstrator vehicles.
To address damage to vehicles, the vehicles were covered by Leggat's insurance policy that had a deductible of $5,000. It was important to note that Leggat did not deduct the cost of the premiums or any deductibles from employees' wages.
After conducting an inspection, an employment standards officer decided that the bi-weekly $25 deduction was an improper payroll deduction contrary to section 13(5)(b)(i) of the Employment Standards Act.
Section 13 of the Act provides:
13. (1) An employer shall not withhold wages payable to an employee, make a deduction from an employee's wages or cause the employee to return his or her wages to the employer unless authorized to do so under this section.
(2) An employer may withhold or make a deduction from an employee's wages or cause the employee to return them if a statute of Ontario or Canada or a court order authorizes it.
(3) An employer may withhold or make a deduction from an employee's wages or cause the employee to return them with the employee's written authorization.
(4) Subsections (2) and (3) do not apply if the statute, order or written authorization from the employee requires the employer to remit the withheld or deducted wages to a third person and the employer fails to do so.
(5) Subsection (3) does not apply if,
(a) the employee's authorization does not refer to a specific amount or provide a formula from which a specific amount may be calculated;
(b) the employee's wages were withheld, deducted or required to be returned,
(i) because of faulty work,
(ii) because the employer had a cash shortage, lost property or had property stolen and a person other than the employee had access to the cash or property, or
(iii) under any prescribed conditions; or
(c) the employee's wages were required to be returned and those wages were the subject of an order under this Act.
The inspector noted that the deduction was improper even though an authorization had been signed. The deductions could not be made for faulty work and employers were prevented from making deductions from an employee's wages for driving errors, regardless of whether an authorization was signed. According to section 13 of the Act, there was a prohibition against wage deductions for faulty work regarding past, present or anticipated faulty work.
Accordingly, Leggat was given an order to pay.
In response, Leggat appealed the order to pay and insisted that the sales representatives signed an authorization form to allow this deduction and that the deduction is for the benefit of the sales team should the vehicle sustain damage when it is being driven for personal use.
The Labour Relations Board found that the $25 deducted from employee wages was not for an employee's driving error made at work or for faulty work; it was indeed a benefit to the employee and provided personal use coverage for any damage a demonstrator vehicle may sustain.
In addition, the use of the demonstrator vehicle and the $25 deduction for personal use coverage were benefits to the employees, like payroll deductions for employer health and dental plans.
The authorization form clearly set out the specific amount of the deduction in accordance with section 13(5)(a) and provided that it was for “demonstration vehicle insurance”. This meant that the deduction was allowed because it was not for faulty work, but rather an authorized deduction that fell within the exemption provided under section 13(3) of the Act.
Therefore, the deduction was authorized because it was framed in a different way. It was not really about faulty work, but just a deduction that required authorization as long as it met the requirements of setting out a specific amount to be deducted.
What can we take from this case?
As can be seen from this case, how you look at a deduction makes all the difference when analyzing section 13 of the Act. When a deduction can be viewed as an employee benefit and not a deduction because of faulty work, we see that the deduction is likely to be authorized as long as it meets the requirements of setting out a specific amount to be deducted.