Studies have shown that during a recession, workers take less vacation leave. The unused days might accumulate until the employee literally cannot afford to take as much time off as they’ve earned. When it comes to holidays, the general rule is: Use it or lose it. There is another option — buy it and sell it.

The law guarantees every employee who has worked for at least 220 days in any year (not necessarily a calendar year) at least two normal working weeks of vacation. Except in the case of the first year, the ability to accrue vacation leave from one year to the next is subject to there being an agreement in place between the employer and employee that allows for such accrual. The law only provides for vacation leave to be accrued for up to three years, but there’s no penalty if an employer allows it to be accrued over a longer period. How many days can be accumulated or carried over from one year to the next is also subject to agreement between the parties. Whether there is an agreement to that effect or not, employers are obliged to pay their employees in respect of all accrued vacation leave that is unused at the time that the employment contract comes to an end. This is the case regardless of whether the employee resigns, is dismissed or made redundant. In organizations that require vacation leave to be taken within a specific period, employees are incentivized to take vacation that they may not really desire simply to avoid losing days off that they’ve earned. The employee may then seek to take leave at a time when it’s inconvenient to the business. On the other hand, employers who allow unlimited accrual of vacation leave must always bear in mind that the day may come when the employee is fired or resigns and will call on the employer to pay up for all the unused vacation. Clearly a balance needs to be struck and the buying and selling of vacation leave is one way to achieve that.

Technically, the right to take vacation leave is protected by law and cannot be bought or sold, regardless of the parties’ wishes. The actual vacation days, however, have a definite value which can be converted to the mutual benefit of employer and employee. Instead of actually ‘selling’ the vacation days, the employee would actually apply for and obtain permission to take those days off. Then, the employee would enter into a separate contract with the same employer to work for the same number of days at the same rate that applied under the original employment contract. The result is that the employee remains at work earning twice the normal salary but with fewer vacation days to his or her credit. Essentially, the organization would have re-hired the worker during the vacation period.

The benefits to employees are obvious. What readily comes to mind is that there would be more money in their hands to meet unusual or seasonal expenses, such as back-to- school costs, medical bills, Christmastime or even Valentine’s Day. An employee with too many days and not enough cash for that dream vacation could rebalance the equation. As vacation days are not earned based on performance, even employees who’ve had less than spectacular years can still participate. Similarly, whereas staff bonuses are often only paid out of profit, a vacation buy-back can be implemented even where the business has been profit-challenged.

Businesses can benefit from buying holidays too. Unused vacation leave often accounts for millions of dollars of liability being carried on a company’s balance sheet. This liability grows whenever salaries are increased as, at the end of the employment contract, the employer is required to pay for the unused time at the contractual rate applicable at the time the contract ended, not when the vacation days were earned. Thus, buying unused vacation time before granting a wage increase could potentially result in significant savings to the business. Organizations such as law firms, accounting firms or business consultants stand to profit the most from vacation buy-backs as they usually bill clients on an hourly basis at a rate much higher than what is paid to the employee for the same hour. All types of businesses stand to benefit from the reduced risk of employees working for a competing business during their vacations.

Employers considering a vacation leave buy-back program ought to be careful not to run afoul of the Holidays with Pay Act, which was designed for the protection of employees. The policies that are implemented in connection with the buy-back will determine whether it stays within the confines of the law. Thus, an employer cannot directly or indirectly contract with an employee that the latter will not take vacation leave. Neither is it permissible to penalize an employee for taking earned leave or for refusing to participate in a vacation leave buy-back. The program must be completely voluntary from the employee’s perspective, provide a real benefit and not put the employee in a vulnerable position. Some businesses might therefore only offer to buy vacation leave that is about to expire, or only those days that exceed the statutory minimum. Where unionized employees are involved, discussions with the union representatives should precede the introduction of such a program.

Gavin Goffe is an Associate at Myers, Fletcher & Gordon and is a member of the firm’s Litigation Department and Labour Practice Group. Gavin may be contacted via gavin.goffet@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.