Under section 64 of the Employment Standards Act, 2000 (“ESA”) an employee is qualified to receive severance pay if their employment is severed and a) they worked for the employer for five years or more, and b) the employer has a payroll of at least $2.5 million or the employer severed the employment of 50 or more employees in a six-month period because all or part of the business permanently closed.

Background

In December 2018 the Ontario Labour Relations Board (OLRB) ruled in Doug Hawkes v. Max Aicher (North America) Limited, (“Hawkes”) that an Ontario employer will not be liable for severance payments under the ESA if the company’s Ontario payroll is less than $2.5 million. The OLRB found this is the case even if there is a parent company that has a global payroll exceeding $2.5 million.

Decision

On June 15, 2021 The Divisional Court overturned the OLRB decision and ruled that an employer’s global payroll will be considered in order to decide if an employer meets the $2.5 million threshold for ESA severance pay. The Court found that there is no jurisdictional impediment to legislation that an employer’s ability to pay should take into account the size of the employer outside Ontario. Furthermore, severance pay provisions ought to be interpreted in a broad and generous manner, bearing in mind the overall purpose of severance pay.

Implications for Employers

This interpretation of the severance obligations under the ESA requires employers who have operations outside of Ontario to consider their global payroll when severing employee’s employment in the future. While this case may be subject to an appeal, employers need to take this decision into consideration to determine the potential liability they may face when severing any employee’s employment at this time.

The foregoing is for informational purposes only and should in no way be relied upon as legal advice. For legal advice tailored to your circumstances and business, please contact any of SOM LLP’s lawyers by email or telephone.