Requirement to Pay Severance Pay not Limited to Payroll in Ontario

Under the Ontario Employment Standards Act, S.O. 2000, c.41. (“ESA”), an employee with more than five (5) years of service and where the employer has a payroll in excess of 2.5 million dollars, that employee is entitled to severance pay upon termination from employment without cause.  An issue that often arises is how to calculate the 2.5 million payroll and in particular, whether payroll for employees outside of Ontario should be included in the calculations.

In a recent decision Hawkes v. Max Aicher (North American) Ltd., the Divisional Court heard an application for judicial review of an Ontario Labour Relations Board (“OLRB”) decision related to this issue.  The OLRB had determined the employee was not entitled to severance pay from his former employer under the ESA, ruling that only payroll for Ontario employees should be included in the calculation, given the scope and jurisdiction of the ESA which only applies to employees working in Ontario.  Notably, had the Employer’s global payroll been applied, it was well over 2.5 million. The employee had been employed by the employer, and its predecessors for a period for over 30 years.

On judicial review, the Ontario Divisional Court set aside the decision from the OLRB. In a scathing rebuke of the Board’s decision, the Court held that the Board “…reached a conclusion that is inconsistent with the text, context, and purpose of the provision” and described the Board’s findings as devoid of any coherent or rational analysis. The Court noted that the specific wording of section 64(2) of the ESA does not restrict the calculation of an employer’s payroll to its payroll in Ontario. Had the legislature intended that result, the legislature could have explicitly excluded payroll outside of Ontario. The Court stated that there is no jurisdiction impediment to Ontario legislating that an assessment of payroll for the purposes of severance pay should include national or international payroll.

The Court cited the Paquette decision from the Ontario Superior Court of Justice. In that case, the Court determined that total payroll, including payroll outside of Ontario, should be included in the calculation. The judge in that decision reviewed other legislation in Ontario that imposed obligations related to payroll and that if the Ontario legislature intended to exclude payroll, it has done so explicitly and clearly.  The Court said that while the OLRB was not bound by the Superior Court decision, it should have given it careful consideration, “particularly in light of its careful analysis.”

The Supreme Court of Canada has stated that when interpreting the ESA, the protections afforded to employees should be given a broad and generous interpretation in order to extend its protections to as many employees as possible. The Divisional Court ruled that the OLRB’s interpretation of the severance pay provisions, excluding payroll outside of Ontario, directly undermined that direction from the Supreme Court of Canada and that the interpretation it applied was wrong.  The Divisional Court stated that the payroll exemption is to be interpreted narrowly, exempting only truly small enterprises, and that it should not to be used by larger national or multinational corporations to avoid paying severance pay to long-service employees.

For employers, the combination of the Paquette decision and this Ontario Divisional Court decision means that when making determinations regarding severance pay entitlements, employers should factor in all payroll for the company, including payroll outside of Ontario.