Canada: There's No Place Like Home…Unless You Are Calculating ESA Severance Pay!

In a decision that seems – at first blush – counterintuitive, Ontario's Divisional Court recently decided that the severance provisions of Ontario's Employment Standards Act, 2000  ("ESA") have to be considered globally.   Section 64 of the ESA entitles an employee with at least 5 years of service to receive severance pay if:

(a) the severance occurred because of a permanent discontinuance of all or part of the employer's business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result; or

(b) the employer has a payroll of $2.5 million or more. 

The controversy with the recent decision of the Divisional Court – on appeal from a decision of the Ontario Labour Relations Board ("OLRB") – in Hawkes v. Max Aicher (North America) Limited is that part (b) above has widely been regarded as being applicable only to Ontario.  In other words, in assessing whether severance pay is owed to employees at termination, it was only the payroll of those employees in Ontario that needed to be considered in determining the threshold for entitlement.  This was based on the language of Section 3(1) of the ESA that says the ESA only applies to employees who work in Ontario.¹

Consistent with this widely-held view, the employee in this case was denied entitlement to severance pay by first an Employment Standards Officer, and then the Ontario Labour Relations Board based on that very reasoning.  However, the Divisional Court saw things differently when the employee appealed. The Court, in large part, relied on  historical Supreme Court of Canada  decisions that held that the ESA is intended to be "benefits-conferring legislation" and should be "interpreted in a broad and generous manner" in order to "extend its protections to as many employees as possible".  With that in mind, the Divisional Court found that although the ESA applies only to employees working in Ontario, the calculation of payroll under s. 64 of the ESA is not restricted to Ontario employees. Rather, employment outside of Ontario, including employment outside of Canada, must be included.

Moreover, the Divisional Court took it upon itself in this case to "definitively pronounce upon the interpretation of a provision entrusted to an administrative decision-maker."  In other words, its finding with respect to the payroll considerations for entitlement to severance pay under Section 64 of the ESA is meant to be the final, and only, word on the subject.

While the employer may seek leave to appeal the Divisional Court's decision to the Ontario Court of Appeal – and we will of course keep you apprised of any further legal processes associated with this case – the effect of this decision is to upend traditional thinking with respect to severance pay entitlements.  Instead of considering only Ontario payroll, employers must now take consider their global payroll for the purpose of determining entitlement to severance pay under the ESA. 

Footnote

1 Section 3(1) of the ESA  states:

3 (1) Subject to subsections (2) to (5), the employment standards set out in this Act apply with respect to an employee and his or her employer if,

(a) the employee's work is to be performed in Ontario; or

(b) the employee's work is to be performed in Ontario and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario. 

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