top of page
Search

Merit Increases and Maternity Leave: What Employers Need to Know

  • Writer: Rika Sawatsky
    Rika Sawatsky
  • Jan 6
  • 3 min read
black and white photo of five-star review checklist with coloured branded icon overlay

Do you know how to handle merit increases for an employee returning from maternity leave?


It’s a deceptively common issue, and one that can quickly engage collective agreement interpretation, management rights, employment standards, and human rights law.


A recent New Brunswick arbitration decision, International Brotherhood of Electrical Workers, Local 37 v New Brunswick Power Corporation, 2026 CanLII 23, offers useful guidance, particularly for unionized workplaces. The principles, however, are equally instructive for non-union employers.


The Case: A New Merit Policy Meets Maternity Leave


The employer introduced a new policy requiring employees to work at least four months during a performance evaluation year to be eligible for a merit increase.


As a result, some employees returning from maternity leave did not receive a merit increase in the year they returned to work.


The union grieved, arguing that:


  • The policy violated the collective agreement; and

  • The policy discriminated against employees on maternity leave.


The Arbitrator’s Decision


1. Management rights permitted the policy


The arbitrator agreed that nothing in the collective agreement prevented the employer from requiring a minimum period of service to meaningfully assess performance.


Consistent with management rights principles (per the seminal case, KVP Co. v. Lumber and Sawmill Workers’ Union Local 2537 (Veronneau Grievance), [1965] OLAA No. 2), the employer was entitled to introduce a policy governing merit eligibility.


2. The policy was not inherently discriminatory


The arbitrator also rejected the discrimination argument.


All employees—regardless of the reason for their leave—were required to work a minimum period before becoming eligible for a merit increase. On its face, the policy did not single out employees on maternity leave.


3. But the four-month threshold was unreasonable


Where the employer lost was reasonableness.


Elsewhere in the collective agreement, employees with unsatisfactory performance were subject to a three-month review period. The arbitrator found it inconsistent—and therefore unreasonable—for the employer to require a longer four-month period to assess performance for merit eligibility.


The policy itself was permissible; the specific threshold chosen was not.


Key Takeaways for Unionized Employers


  • Employers can generally require a minimum period of service to assess performance for merit increases.

  • That requirement must be reasonable and internally consistent with the collective agreement.

  • Even neutral policies can fail if they are arbitrary or misaligned with existing contractual standards.


What About Non-Union Workplaces?


In non-union environments, the analysis shifts, but the risks remain.


In Ontario, for example, employers must consider the Employment Standards Act (ESA) reinstatement provisions and how they are interpreted by the Ministry of Labour.


Under the ESA, an employee returning from maternity leave is entitled to be reinstated to their position with seniority (and other entitlements) accrued during the leave. This, of course, creates some confusion around how to handle performance-based increases when no performance occurred during the leave.


Practical Options for Handling Merit Increases After Leave


Consider a common scenario:


  • Your standard performance review cycle is 12 months.

  • An employee goes on pregnancy/parental leave four months into a new review period.


You generally have two defensible options:


Option 1: Extend the review period


Require the employee to work the remaining eight months after returning from leave to complete a full 12-month performance period.


  • The performance review occurs after those eight months.

  • That date becomes the new anniversary date for future reviews.


Option 2: Prorate the review


Conduct a performance review upon the employee’s return based on the four months worked, and provide a 4/12 prorated merit increase.


  • The original review anniversary date remains unchanged.


The Human Rights Lens: Consistency Is Key


Whichever approach you choose, consistency is critical.

T

o avoid human rights risk:


  • The same approach must apply to all employees returning from leave, regardless of the reason for the leave.

  • Decisions should not be influenced by assumptions about commitment, availability, or future caregiving responsibilities.


What often creates liability is not the policy itself, but inconsistent application or discretionary exceptions that disadvantage employees on protected leaves.


Final Thought


Merit increases may seem like a compensation issue, but they are often where human rights, employment standards, and workplace design intersect.


Clear rules, applied consistently, reduce risk, support fairness, and prevent well-intentioned decisions from becoming legal problems.


References


bottom of page