Severance Pay Threshold under the Employment Standards Act, 2000 Limited to Ontario Payroll

Under section 64 of the Employment Standards Act, 2000, S.O. 2000, c. 41 (“ESA”), employees who are terminated without cause are entitled severance pay. Under the ESA, an employer who has a payroll in excess of 2.5 million must pay additional severance pay to employees with more than five (5) years of service upon termination of employment. Generally speaking, this amounts to a week of salary up to a maximum of 26 weeks’ pay.

In a recent decision from the Ontario Labour Relations Board, Doug Hawkes v. Max Aicher (North America) Limited (“MANA”) raised the question of whether the 2.5 million payroll threshold should include Ontario payroll only or alternatively, should it include international payroll.  MANA was a steel company incorporated in the province of Ontario and was a wholly owned subsidiary of a German company headquartered in Bavaria (“MAG”). The employee had been working for the company (or its predecessors) since 1977. Its payroll in Ontario was below 2.5 million.

The argument made by the employee was that the total payroll of MANA and international payroll including the payroll of MAG should be used in order to determine whether the 2.5 million payroll threshold was met.

Prior to the release of a decision the Ontario Court in 2014, Paquette v. Quadraspec Inc., the calculation was limited to Ontario payroll and there were many cases supporting the position that only Ontario payroll ought to be included since the reach of the ESA is limited to Ontario as provincial legislation. In Paquette, the Court ruled that the employer’s national payroll should be included because the ESA did not limit the calculation specifically to Ontario payroll. It did not consider international payroll.  MANA argued that Paquette was wrongly decided. MANA relied on previous cases that illustrated that the payroll calculation was limited to Ontario.

The Board distinguished Paquette, and indicated that the decision did not consider section 3(1) which provides that the employment standards only applies to employers and employees for work performed in Ontario, or if it is performed outside of Ontario, is a continuation of work performed in Ontario. The Board concluded that the ESA is directed at Ontario-based employment, and that it would be inconsistent with the scope of the legislation to include payroll from outside of Ontario. The Board stated that it agreed with the pre-Paquette line of reasoning and refused to follow Paquette because it did not consider the interrelationship between section 3(1) and the severance pay provisions. The Board stated that “it is only Ontario-based employment and operations that is captured by section 3 and therefore, section 64 of the Act.”  As a result, only MANA’s Ontario payroll could be considered in the 2.5 million payroll calculation.

The case is good news for employers who may have businesses located across the country or who are global. A more narrow view of the 2.5 million threshold limited to Ontario payroll is logical given the scope and jurisdiction of the ESA. Having said this, due to the conflicting case law (between the Ontario Court and the Ontario Labour Relations Board), there is a possibility of judicial review of the decision. We will continue to monitor the case and provide updates on any important decision.