Severance Pay under the ESA - The $2.5 Million Threshold

Each province and territory in Canada has employment standards legislation which sets out the minimum entitlements for employees on termination. In Ontario, the Employment Standards Act (the "ESA") provides for two types of compensation on termination: (1) termination pay; and (2) severance. This article is on recent caselaw about severance.

An employee terminated from employment without cause may be entitled to severance under s. 64 of the ESA if the following conditions are met:

  1. The employee has worked for the employer for five years or more; and
  2. The employer has a payroll of $2.5 million or more.

Until recently, however, there had been uncertainty as to whether an employer's payroll for the purposes of s. 64 was calculated based only on the employer's Ontario payroll or based on the employer's total payroll across all jurisdictions. Some helpful clarity on this issue was recently provided by the Divisional Court in Hawkes v. Max Aicher (North America), Limited, 2021 ONSC 4290.


Background Facts:

The employee, Doug Hawkes, was terminated from his employment with Max Aicher (North America) Limited ("Aicher") after 18 years of employment. Aicher is a wholly owned subsidiary of Max Aicher GmBH & Co KG ("MAG"). MAG and Aicher were considered to be Mr. Hawkes common employer for ESA purposes.

Following his termination, Mr. Hawks filed a complaint with the Ministry of Labour alleging that he was entitled to termination, vacation, and severance pay. The Employment Standards Officer found he was entitled to termination and vacation pay, but not severance. This was because Aicher did not have an Ontario payroll of $2.5 million.

Mr. Hawks applied to have the decision reviewed by the Ontario Labour Board (the "Board"). He argued that that MAG's and Aicher's global payroll far exceeded the $2.5 million threshold, and that global payroll should be considered when determining his entitlement to severance.
For its part, Aicher conceded that Aicher's and MAG's global payroll exceeded $2.5 million. However, Aicher argued that because s. 3(1) of the ESA provides that the ESA only applies to work performed by an employee in Ontario or as a continuation of work performed in Ontario, s. 3(1) also means that only Ontario payroll should be considered for severance purposes. This position was supported by past Board jurisprudence on the topic.

The Board sided with Aicher. It held that only Aicher's Ontario payroll should be taken into account under s. 64 ESA.

Mr. Hawkes appealed once again, this time in the form of a judicial review of the decision to the Divisional Court. The sole issue before the Court was whether the calculation of payroll for severance purposes is restricted to Ontario wages.


Decision:

The Divisional Court found that the Board's interpretation of the severance provision was not reasonable. It held that the Board had reached a conclusion that was inconsistent with the text, context, and purpose of the severance provision.

In reaching its decision, the Court made note of the following:

  1. S. 64 does not contain any language which limits "payroll" to Ontario only. This is in contrast to s. 3(1) which specifically includes words which limit the scope of the ESA to Ontario based employees only.
  2. This case is not distinguishable from the previous Ontario Superior Court of Justice decision in Paquette v. Quadraspec Inc., 2014 ONSC 2431, wherein the Court concluded that the employer's Canada-wide payroll should be considered under s. 64.
  3. The ESA is benefits-conferring legislation and severance pay is intended to compensate long-serving employees for their years of service. As a result, the severance provisions should be read in a broad and generous manner, which extends their protections to as many employees as possible.
  4. An Employment Standards Office has ample power to collect information regarding the foreign payroll of an employer in Ontario in order to make a decision regarding severance.

The Court concluded that "The calculation of payroll under s. 64 of the ESA is not restricted to Ontario employment; employment outside of Ontario, including employment outside of Canada, must be included."

The Court remitted the matter back to the Board to determine Mr. Hawkes entitlement to severance on the basis that the calculation of payroll is not limited to either Ontario payroll or Canadian payroll.

At the time of writing this article, there is no appeal yet on the decision.


Key Takeaways:

This decision provides clarity on how payroll is calculated for the purpose of determining severance entitlements. Employers should be careful to take into account their global payroll when figuring out their severance obligations. Importantly, this may also include the payroll of related or affiliated businesses, even if those businesses are based in another jurisdiction. On the flipside, employees are encouraged to investigate their severance entitlements even if their direct employer only has a small operation in Ontario.

In either case, Lee Workplace Law would be happy to answer any questions you may have about severance or termination of employment.