Quebec, Canada – Leave Bank Errors: Can An Employer Correct Them Years Later?

A recent Quebec arbitration decision provides important guidance on an issue that occasionally arises in the workplace: when an employer discovers that an employee received a benefit to which they were not entitled, is the employer barred from taking action by the six-month prescription period set out in the Quebec Labour Code? The answer is not always what one might expect.

The Facts in Brief

The underlying case arose from an employer’s synchronization problem between internal systems that prevented certain employee absences from being deducted from vacation and sick leave banks. As a result, leave balances were artificially inflated for several years. Once the issue was discovered in 2024, the employer adjusted the affected leave banks.

According to the arbitrator, where an employer is merely correcting a leave bank so that it reflects the employee’s actual entitlements under the collective agreement, the employer is not necessarily exercising a remedy that is subject to the six-month prescription period under section 71 of the Quebec Labour Code.¹ Rather, it is simply restoring the leave banks to their proper state.

Leave Banks: Limits on an Employer’s Right to Correct Errors

The decision is not only about an employer’s right to correct an administrative error, but also about the way that correction may be carried out. Although an employer may adjust a leave bank so that it accurately reflects the rights conferred by the collective agreement, any correction must remain consistent with the collective agreement itself.

More specifically, the arbitrator emphasized that correcting an error cannot come at the expense of rights granted to employees under the collective agreement. As a result, an employer may not:

• deprive an employee of vacation time to which they are entitled for the current year in order to correct errors made in previous years;
• deduct time from one leave bank to correct an error affecting a different leave bank;
• recover newly credited leave at a later date where the leave bank affected by the error had already been exhausted at the time of the correction.

In the latter situation, the arbitrator concluded that the employer cannot effectively take matters into its own hands by appropriating leave credits to which employees are otherwise entitled under the collective agreement. If the employer wishes to recover amounts corresponding to leave that has already been used, it must instead rely on the appropriate legal mechanisms, including an employer grievance or set-off where legally available.

Key Takeaways for Employers

The decision is beneficial for employers because it helps establish:

• The prescription period applicable to the recovery of an overpayment does not necessarily apply to the correction of an administrative error.
• An administrative error does not give an employer carte blanche to recover leave credits in any manner it chooses.
• Even where a correction is permissible, the manner in which it is implemented must comply with the collective agreement, including the employee’s leave entitlements, the specific leave banks involved, and any contractual recovery mechanisms.
• Where leave banks are insufficient or exhausted, the analysis increasingly resembles a recovery of overpaid amounts rather than a simple administrative correction.

This decision serves as a reminder that it is important to distinguish between correcting an administrative error and recovering an overpayment. That characterization may determine both the mechanisms available to the employer and whether the six-month prescription period under section 71 of the Labour Code applies.

Footnote

1. A “prescription period” is broadly comparable to the concept of a statute of limitations found in the U.S. and Canadian common law jurisdictions in that it establishes the time within which a party must assert a legal right or pursue a remedy.

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