Vacation pay after a layoff can still be based on an Ontario employee’s full period of employment if the layoff did not end the employment relationship. In a September 2026 decision, the Ontario Labour Relations Board treated a worker as having roughly 12 years of employment and applied the 6% vacation pay rate, rather than the 4% rate used in the original employment standards calculation.
The distinction matters beyond one case. Under Ontario’s Employment Standards Act, 2000, employees with less than five years of employment are generally entitled to vacation pay of at least 4% of qualifying wages. Once the period of employment reaches five years, the minimum rises to 6%. The Act also says active and inactive employment count when determining vacation entitlement.
For workers who have been temporarily laid off and later recalled, the important question is therefore not simply whether there was a gap in active work. It is whether the employment relationship actually ended.
What happened in the Ontario vacation pay case
The case involved a worker who had been employed by Graham Siding Inc. since around 2012. According to a report on the Ontario Labour Relations Board decision, he was laid off on November 29, 2024 and later pursued unpaid vacation pay through Ontario’s employment standards process.
An employment standards officer initially calculated the vacation pay using a 4% rate. The worker challenged that result. The dispute eventually reached the Ontario Labour Relations Board, where the employer argued that periods of layoff over the years had interrupted the worker’s continuous employment.
The problem with that argument was the absence of evidence that those earlier layoffs had actually ended the employment relationship. The Board accepted the worker’s approximately 12-year period of employment and recalculated the vacation pay at 6%.
The result was $2,042.39 in total vacation pay. After accounting for money already paid to the Director of Employment Standards, the employer was ordered to pay a remaining $1,582.78, plus a $158.27 administrative fee. The decision was issued September 17, 2026, following a hearing the previous day.
Ontario vacation pay after a layoff depends on whether employment ended
Ontario’s own interpretation guidance is unusually clear on this point. The province’s Employment Standards Act Policy and Interpretation Manual says a period of employment is not affected by inactive periods such as a leave or layoff. If there is a genuine break in the employment relationship, however, the period of employment is generally measured from the most recent period beginning after that break.
That distinction can change both vacation time and vacation pay.
| Ontario period of employment | Minimum vacation time | Minimum vacation pay |
|---|---|---|
| Less than 5 years | 2 weeks | 4% of qualifying gross wages |
| 5 years or more | 3 weeks | 6% of qualifying gross wages |
The province’s vacation guide also confirms that an employee who reaches the five-year threshold partway through a vacation entitlement year is entitled to 6% on all qualifying wages earned during that entitlement year. If 4% has already been paid on earlier paycheques in the year, an additional 2% top-up may be required.
The difference between 4% and 6% can be substantial
Consider an Ontario employee with $60,000 of qualifying wages in a vacation entitlement year. This is a PaycheckGuru calculation for illustration, not a figure from the Board case.
| Vacation pay rate | Calculation | Vacation pay |
|---|---|---|
| 4% | $60,000 × 4% | $2,400 |
| 6% | $60,000 × 6% | $3,600 |
| Difference | $60,000 × 2% | $1,200 |
A payroll system that incorrectly restarts the service clock after a temporary layoff could therefore underpay vacation pay year after year. The exact amount depends on the employee’s qualifying wages and whether the employment relationship remained intact.
These percentages determine the gross vacation pay entitlement. If the payment is added to a regular cheque or paid as a lump sum, our Canadian payroll calculator can help estimate the income tax, CPP and EI deductions on the payment.
Our province-by-province vacation pay guide explains which earnings Ontario includes in the calculation and how the rules compare with other provinces and territories.
A layoff and a termination are not the same thing
The Board’s decision should not be read as saying every gap between periods of work must always count toward service. The narrower point is that a layoff does not automatically establish that employment ended.
Ontario’s policy manual says inactive employment, including a layoff, does not affect the period of employment. A genuine break in the employment relationship can change the calculation. That makes the underlying records important: termination documents, recall notices, Records of Employment, payroll records and communications between the employer and employee can all help establish what happened.
The Board also did not resolve every issue surrounding the end of this worker’s employment. According to the reported decision, the worker did not claim termination pay, and the evidence did not allow the Board to determine whether he eventually resigned by not returning after recall or whether the employment ended another way. The vacation pay issue could still be decided without resolving that separate question.
Employees should check more than the percentage on the pay stub
If you have worked for the same Ontario employer for around five years and there have been temporary layoffs, seasonal gaps or other inactive periods, check the service date your employer is using for vacation purposes. A pay stub showing 4% does not by itself tell you whether the calculation is correct.
Start with three checks:
- Confirm your original hire date and whether there was ever a formal end to the employment relationship.
- Check whether you have reached five years of employment under the ESA rules, including applicable inactive periods.
- Compare the vacation pay actually received with 6% of the qualifying wages for the relevant vacation entitlement period if the five-year threshold applies.
Ontario’s vacation rules cover more than base salary. Qualifying wages can include regular earnings, overtime, commissions, public holiday pay and certain non-discretionary bonuses. Vacation pay itself is excluded from the wages on which Ontario vacation pay is calculated.
There is also a time limit for recovering unpaid vacation pay
Finding an old payroll error does not necessarily mean every historical dollar can be recovered through an Employment Standards Act claim. Ontario says an employee generally must file an ESA claim within two years of the alleged violation. For unpaid wages, the wages generally must have become due within the two years before the claim was filed.
That rule appears in section 111 of the Employment Standards Act and is summarized in Ontario’s guide to filing an employment standards claim.
In the Graham Siding case, that limitation mattered. Although the worker’s employment went back to about 2012, the vacation pay recovery at issue was limited to the period that fell within the applicable claim window.
What to check if you were temporarily laid off
The practical lesson is simple: do not assume that a temporary layoff reset your vacation service date. Ontario law counts inactive employment when determining vacation entitlement, and the province’s interpretation guidance specifically identifies layoffs as an example of inactive employment that does not, by itself, break the period of employment.
If your vacation pay dropped to 4% after a layoff, or your employer restarted your service date when you returned, ask payroll how it determined that the employment relationship had ended. Keep copies of pay stubs, Records of Employment, layoff and recall notices, and any correspondence about your employment status.
If the numbers still do not reconcile, Ontario’s employment standards claim process can address unpaid vacation pay, subject to the applicable time limits.
Sources: Ontario Employment Standards Act, 2000; Ontario Employment Standards Act Policy and Interpretation Manual, Part XI; Ontario guide to vacation; Ontario guide to filing an ESA claim; reporting on Lascelles Lawrence v. Graham Siding Inc. o/a Graham Siding, 2026 CanLII 103175 (ON LRB). Last verified October 6, 2026.