Recently, Canadian Celebrity chef Susur Lee, and his Toronto restaurants, have come under fire for allegedly making improper deductions from employees’ tips. According to the allegations of former employees, the restaurants had in place an “IOU” program, where employees would have amounts deducted from their tips for spilled drinks, punching in an incorrect order, customers skipping out on a bill and other similar incidents. The CBC News article can be found here.

The question that may enter the mind of anyone reading the article may be “is this practice legal?” The answer, as pointed out in the article is no.

Section 13 of the Employment Standards Act, 2000, prohibits an employer from withholding wages, making deductions from an employee’s wages or causing the employee to return their wages unless it is authorized to do so under that section. The section authorizes withholding deductions or forcing an employee to return wages where a “statute of Ontario or Canada or a court order authorizes it.” Simply put, if there is provincial or federal legislation that allows the deduction, or a court has told the employer to deduct, the employer can deduct. A common example would be a wage garnishment, which is permitted under the provincial Wages Act.

Another situation where the employer would be permitted to withhold, deduct from or force an employee to return wages would be if the employee has provided their written authorization. However, the written authorization must refer to a specific amount or provide a formula for the calculation of a specific amount. Importantly, wages cannot be withheld, deducted from or required to be returned because of an employer cash shortage, lost or stolen property where a person other than the employee had access to the property.

Since tips and gratuities are excluded from the definition of “wages” in the Employment Standards Act, 2000, the legislature has enacted section 14.1. Section 14.1 contains similar rules that are applicable specifically to tips and gratuities. As with the previous section, an employer cannot withhold tips, deduct from tips or force an employee to pay back tips unless authorized by the section.

Section 14.1 provides much more limited authorization for deductions from tips or gratuities. An employer can still withhold, deduct from or force the repayment of tips if a statute or court order authorizes it to do so. Another exception is if an employer has instituted a tip pool, where the tips and gratuities are shared between some or all employees. Section 14.1 does not authorize deductions if written authorization is obtained by the employer.

As it is not authorized by the Employment Standards Act, 2000, an employer cannot deduct from an employee’s tips for spilled drinks, damaged glassware, customers who walk out on their bill or other similar situations. Outside of explicit statutory or court authorization, an employer can only withhold, deduct from, or force repayment of tips or gratuities for the purpose of tip sharing.
Regardless of your job or industry, an employer is limited in the situations in which it can make deductions from your wages or tips. If your employer has made deductions from your wages or tips, or is proposing to do so, contact one of our experienced employment lawyers to ensure that the deductions are not prohibited by the Employment Standards Act, 2000.

If you are an employer who wishes to deduct amounts from the wages of your employees, please feel free to contact our experienced employment lawyers to ensure that any deductions made do not run afoul of the Employment Standards Act, 2000.

Blog post was written by Associate Lawyer Brent Harasym.

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