Deductions from wages or other amounts due to an employee - 817-1-IPG-060

Deductions from wages or other amounts due to an employee - Canada Labour Code - Part III - Interpretation of paragraph 254.1(2)(c) - often referred to as "set-offs"

Effective Date: November 5, 1998

1. Subject

The application of paragraph 254.1(2)(c) of the Canada Labour Code which permits an employer to deduct "amounts authorized in writing by the employee" from wages or other amounts due to an employee.

2. Issue

There is a need for a national consistent approach in the application of paragraph 254.1(2)(c) of the Canada Labour Code, which can be applied in a uniform manner and will clarify the rights and obligations of employers and employees in accordance with the intention of section 254.1.

3. Question

When can a deduction be said to have been authorized pursuant to paragraph 254.1(2)(c) of the Canada Labour Code?

4. Conclusion

Subsection 254.1(1) presents the general rule: "No employer may make deductions from wages or other amounts due to an employee, except as permitted by or under this section".

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 assenting to the deduction of a specific amount. For every deduction made, the authorization must be in writing, specify a particular sum, and be given in a way that is truly consensual. 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. In order to meet these requirements, the written authorization must be obtained after the fact, i.e., after the incident or transaction to which it is related has occurred.

Where an inspector has determined that the deduction of a particular sum has been authorized in writing by the employee, the inspector must also ascertain from the circumstances whether the authorization was truly consented to by the employee.

Whatever his or her decision, any further dispute between the employee and employer can be resolved through the wage recovery process by the inspector issuing a notice of unfounded complaint or by issuing a payment order (section 251.1).

It should be noted that the relevant provisions of the Canada Labour Code only concern themselves with the issue of 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. 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.

In sum, it is the department's position that employers 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, at the time of the deduction.

Notes

  1. 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.
  2. 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. Provided that the funds deducted were used for the purposes authorized by the employee, the proper response to a complaint that such a deduction was made in violation of paragraph 254.1(2)(c) is the letter in Appendix G to OPD 700-9, Complaints Handling, which advises that the employer has complied with the requirements of the Code.