Desjardins’ $7-Million Vacation-Pay Settlement Shakes Up an Everyday HR Practice

Desjardins’ $7-Million Vacation-Pay Settlement Shakes Up an Everyday HR Practice By Tahir Khorasanee, LL.M. Senior Associate, Steinbergs LLP For years, Desjardins Group allowed new hires across its non-Quebec operations to book holidays before they had technically “earned” them. The arrangement felt like a perk—until employment ended and the company clawed back those advance hours from departing workers’ final paycheques. That routine payroll adjustment has now spawned a country-wide class action, a proposed $7-million settlement, and a pointed warning for any employer that thinks negative vacation banks are harmless bookkeeping. How a friendly perk became a legal flash-point Under Ontario’s Employment Standards Act (ESA) and comparable statutes in other provinces, employees accrue the legal right to paid vacation only after completing one full year of service. Yet many businesses, keen to compete for talent, front-load vacation so newcomers can recharge during that crucial first year. The unspoken catch: if the worker leaves before their accrual catches up, the employer deducts the “negative balance” from final wages. That is exactly what Desjardins—Canada’s largest federation of credit unions—did as a matter of course, according to the statement of claim filed in June 2021. Employment-law boutique Monkhouse Law argued that the practice breached section 13 of the ESA, which bars all wage deductions unless the employee signs a document that (a) expressly authorizes the deduction and (b) spells out either the amount or a precise formula. Many ex-employees, the lawsuit said, had never seen—let alone signed—such paperwork. The road to a seven-figure deal The representative plaintiff, a former Desjardins employee with a negative vacation balance, launched the class action on behalf of colleagues dating back to 2011. The lawsuit ballooned to cover workers at 13 Desjardins entities, from Desjardins Financial Services to The Personal Insurance Company, everywhere in Canada except Quebec (which has its own labour code and civil-law system). After nearly four years of litigation and a postponed summary-judgment motion, the parties reached a tentative settlement on April 24, 2025. Key milestones followed in rapid succession: May 28, 2025 – The Ontario Superior Court of Justice certified the action on consent for settlement purposes. June 9, 2025 – HR Law Canada broke the story, revealing the headline figure: “more than $7 million.” July 14 & 27, 2025 – Deadlines for class members to file objections or opt out of the deal. September 29, 2025 – A settlement-approval hearing slated before Justice Belobaba (by Zoom, if past class-action practice is any guide). If the court approves, funds will flow to former employees whose pay was docked, while current employees will see their negative vacation balances wiped out—or receive time-bank credits to offset any repayments already made. Administration duties will fall to Verita, a class-action claims administrator with a track record in employment cases. No admission of guilt—but a major policy reversal Desjardins “denies liability and any wrongdoing,” a boilerplate phrase that appears in both the HR Law Canada report and Monkhouse Law’s dedicated settlement page. Even so, the company has agreed to eliminate negative vacation balances for thousands of current staff. That concession alone signals a corporate course-correction that HR professionals everywhere will notice: effectively, Desjardins is scrapping the very policy under dispute. Why the case matters beyond Desjardins Common practice, uncommon scrutiny. Negative vacation banks are ubiquitous in finance, tech, retail—you name it. Until now, few questioned whether the post-employment claw-back complied with wage-deduction rules. The Desjardins settlement thrusts that quiet assumption into the spotlight. The ESA’s exacting paperwork. Section 13 does not outlaw deductions entirely; it simply demands crystal-clear, signed authority for each one. In fast-moving HR departments, that step is easily missed. Failing to obtain a tailored authorization—rather than burying a one-liner in a staff handbook—can turn an everyday payroll correction into a six- or seven-figure liability. Class-action momentum in employment law. Monkhouse Law alone is steering class actions against Allstate, BMO, Medcan and others, using the opt-out model that automatically sweeps in hundreds or thousands of employees. The Desjardins pact adds another proof-point that wage-and-hour class actions can settle for real money, even without a merits ruling. Opt-out costs. Courts look closely at whether a settlement fairly compensates each class member. With $7 million in the pot, lawyers on both sides will have modelled average payouts. Employers considering similar settlements should remember that the bigger the class, the larger the fund needed to secure court approval. Policy hygiene beats damage control. Fixing authorization forms—and auditing whether they are actually signed—costs pennies compared to litigating a class action. Desjardins’ post-deal promise to zero out negative balances is a stark, expensive reminder to resolve compliance gaps proactively. Practical take-aways for HR and payroll teams Audit vacation and deduction policies now. Identify every situation where money comes off a paycheque—uniform deposits, training costs, parking infractions, equipment losses, negative vacation, salary advances. For each, locate the employee-signed authorization. If you cannot find it, assume it does not exist. Use event-specific consent forms. Courts have frowned on blanket clauses buried in offer letters. The safest approach is a standalone form, signed at the moment the deduction is contemplated, stating exactly how the amount is calculated. Communicate policy changes clearly. If you decide to claw back a negative vacation balance, explain the amount, the statutory authority, and the employee’s right to refuse. Transparency not only builds trust; it forms part of the evidentiary trail if litigation looms. Track provincial differences. Quebec’s civil-law regime was carved out of the Desjardins settlement. Other provinces have similar but not identical rules. National employers should resist one-size-fits-all documentation. Monitor the September 29 approval hearing. Judges sometimes tweak settlement allocations or notice plans. The final order will likely become required reading for in-house counsel updating vacation policies this fall. A cautionary tale wrapped in a compliance checklist Class actions rarely grab the public’s imagination in the way blockbuster personal-injury lawsuits do, but payroll-deduction cases cut closer to home for millions of Canadians who trade their labour for a paycheque every two weeks. Desjardins’ proposed settlement may appear modest next to nine-figure securities or product-liability deals, yet its resonance in HR offices could be far greater. It reframes a benign-seeming perk—early access to vacation—into a potential ESA minefield. Whether Justice Belobaba ultimately approves $7 million or pares it down, the litigation has already achieved what every class action purports to deliver: behavioural change. Desjardins has rewritten its policy, and rival employers are—quietly, hastily—reviewing theirs. For workers who lost hundreds or thousands of dollars to a negative vacation claw-back, a cheque from the settlement fund may soon land in the mail. For the broader HR community, the louder message is preventive: get your deduction paperwork right, or risk paying dearly for an “advance” that was never supposed to cost a dime.