Canada: Employment Update: Termination Provisions And The Definition Of Severance

The Ontario Superior Court of Justice's decision in Paquette v. Quadraspec Inc. addresses two important issues that employers face: (1) how to properly draft an employment agreement in accordance with the notice provisions in Ontario's employment standards legislation (the Employment Standards Act, 2000, ("ESA")); and (2) whether an employee is entitled to severance pay in addition to termination pay upon termination under the ESA.

The interpretation of the wording of termination provisions in employment agreements is not a novel issue. The Supreme Court of Canada and the Ontario Superior Court of Justice have both previously held that employment agreements that do not provide the minimum notice requirements under the ESA are null and void and therefore entitle the employee to common law notice (see the Supreme Court of Canada's 1992 decision in Machtinger v. HOJ Industries and the more recent Ontario Superior Court of Justice decisions in Stevens v. Sifton Properties Ltd., Miller v. A.B.M. Canada Inc. and Howard v. The Benson Group Inc.).

The issue of entitlement to severance pay addressed by the court in Paquette v. Quadraspec Inc., however, is a novel one and changes the game in the sense that it runs against the traditional understanding of the definition of payroll under the ESA.

The Case

In Paquette v. Quadraspec Inc., Mr. Paquette made two claims against his former employer: (1) he claimed that the termination provision in his employment agreement with Quadraspec Inc. ("Quadraspec") did not provide for the minimum benefit entitlements under the ESA and was therefore null and void; and (2) he claimed that he was entitled to severance pay in accordance with the ESA, despite the fact that his employer's payroll in Ontario was not over $2.5 million.

Termination Provisions in the Employment Agreement

Under the ESA, an employer may terminate the employment of an employee and provide pay in lieu of notice if it continues to maintain whatever benefit plan contributions it provided to the employee, had he or she continued to be employed during the notice period.

Mr. Paquette had been employed by Quadraspec and its predecessor since 1983. In 1998, the parties entered into a new employment contract which provided for a maximum termination payment of 6 months' salary. The termination clause expressly stated that the employee waived the right to claim any other amounts, excluding salary, vacation pay and other benefits accrued and unpaid at the time of termination.

Mr. Paquette was dismissed without cause in 2011. At that time, he was covered by Quadraspec's group insurance plan. Upon the termination of his employment, Quadraspec paid Mr. Paquette six months' salary, as well as an amount for benefits earned and unpaid at the time of termination.

Mr. Paquette sued, arguing that the termination clause was null and void because it did not comply with the ESA's minimum requirements. The Court agreed and held that the termination clause was inconsistent with the requirements in the ESA that the employer maintain all benefits until the end of the notice period. In this way, the Court held that Mr. Paquette – an employee with over 24 years' service – was entitled to common law damages (although the Court did not quantify the amount of common law notice in its decision).

Severance Pay

Under the ESA, employees with more than five years' service are entitled to severance pay if their employer has a payroll of over $2.5 million. Severance pay entitlement is in addition to any notice required under the ESA and is calculated as one weeks' pay per year of service to a maximum of 26 weeks.

Mr. Paquette had been employed by Quadraspec and its predecessor since 1983 and had worked in Ontario since 1987. While Quadraspec had a payroll of less than $2.5 million in Ontario, it had a payroll of more than $2.5 million in Ontario and Quebec together at all relevant times.

In its decision, the Ontario Superior Court held that the calculation of an employer's payroll for the purposes of an employee's entitlement to severance pay under the ESA is not restricted to the employer's payroll in Ontario. The Court held that Mr. Paquette was therefore entitled to severance pay.

Importance for Employers

  • Be careful when drafting employment agreements:

    • Quadraspec argued that although the termination provision in the employment agreement did not explicitly mention benefit plan contributions, its obligation to continue such contributions was implicit. In rejecting this argument, the Court focused on the entire employment contract (a comprehensive 15- page document), and held that it was not up to the Court to infer terms that were absent from the agreement.
    • Because of the drafting of the termination provision in the employment agreement, the employer lost its ability to pay Mr. Paquette only six months' termination pay and was required to instead pay the employee common law notice. This meant that Quadraspec lost the benefit of the bargain and, specifically, its agreement with Paquette to provide minimum ESA payments on termination and not common law damages.
  • Know the scope of your business:

    • With respect to the calculation of severance pay, the Court's decision has potentially significant repercussions for both national and international businesses with a smaller presence in Ontario. As the Court's decision may increase the number of employers liable for severance pay entitlements in Ontario, employers should be mindful of this, especially when planning sales or significant business reorganizations. It will be interesting to note how other courts interpret this decision going forward, due to the implications for larger national and international firms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions