Ontario's Employment Standards Act, 2000 ("ESA") entitles an employee to severance pay upon severance of employment if the employee was employed by the employer for five years or more and the employer has a payroll of $2.5 million or more.
There have been conflicting decisions over the years around the calculation of the $2.5 million payroll threshold under the ESA and whether an employer's payroll outside of Ontario is included. The recent decision of Hawkes v. Max Aicher (North America) Limited says that an employer's global payroll must be used in the severance threshold calculation.
Background
The employee was employed by an Ontario-based subsidiary of a European-based company. Following his termination, the employee filed a complaint with the Ministry of Labour alleging that he was entitled to termination pay, vacation pay, and severance pay. The Employment Standards Officer ("ESO") determined that the employee was not entitled to severance pay because his Ontario-based employer did not have a payroll of $2.5 million or more. In that regard, only payroll in Ontario factored into the calculation of the $2.5 million payroll threshold.
The employee applied to have the ESO's decision reviewed by the Ontario Labour Relations Board ("OLRB"), arguing the employer's global payroll exceeded the $2.5 million threshold. The OLRB rejected this argument and confirmed that global payroll is excluded from determining the $2.5 million payroll threshold for severance entitlement. The OLRB relied on section 3 of the ESA, which provides that the ESA applies to an employee and an employer if the employee's work is performed in Ontario or the employee's work is performed in and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario.
The employee brought an application for judicial review of the OLRB's decision.
What Did the Court Decide?
The court disagreed with the ESO and the OLRB and decided that the calculation of payroll under the severance provision of the ESA is not restricted to Ontario. Instead, employment outside of Ontario, including outside Canada, must be included in the calculation.
Citing previous decisions by the Supreme Court of Canada that the ESA should be characterized as benefits-conferring legislation and interpreted in a broad and generous manner in order to extend its protection to as many employees as possible, the court found no intention by the legislature to limit the severance provision of the ESA to just an employer's Ontario payroll.
Key Takeaways
This decision seems to dispel the uncertainty with regard to the calculation of the $2.5 million payroll threshold for severance pay. Unless the decision is successfully appealed, employers must now take note of their global payroll for the purpose of determining entitlement to severance pay under the ESA.
Originally published June 21, 2021
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.
