February 27, 2019
In a recent Ontario Labour Relations Board (“OLRB”) decision, Hawkes v Max Aicher (North America) Limited (“Hawkes”), the OLRB confirmed that when calculating the quantum of a company’s payroll for the purpose of determining an employee’s entitlement to severance pay, only the company’s Ontario payroll should be considered.
By way of background, generally when an employee is dismissed without cause in Ontario, they are entitled to receive severance pay in accordance with section 64(1) of the Employment Standards Act (“ESA”) if they have worked for their employer for five (5) years or more and:
- their dismissal is the result of a permanent discontinuance of all or part of their employer’s business at an establishment and the employee is one of 50 or more employees who have been dismissed within a six-month period as a result; OR
- their employer has a payroll of $2.5 million or more.
Per section 64(2) of the ESA, an employer has a payroll of $2.5 million or more if:
- the total wages earned by all of the employer’s employees in the last four weeks that ended on the last day of the last pay period before the employee was dismissed, multiplied by 13, is $2.5 million or more; or,
- the total wages earned by all of the employer’s employees in the last or second last fiscal year before the employee’s dismissal was $2.5 million or more.
If, using either of these methods, the employer has a payroll of over $2.5 million, the employer will be a severance paying employer under the ESA.
While the above formulae appear relatively straightforward, there has been some confusion and disagreement amongst decision-makers about whether employers with operations both within and outside Ontario are supposed to consider only their Ontario payroll in determining whether they have a payroll of $2.5 million or more, or whether they are meant to also consider their payroll for operations outside of Ontario.
For example, in Paquette v Quadraspec Inc, (“Paquette”), a 2014 decision of the Ontario Superior Court of Justice, the court held that the company’s payroll for both its Quebec and Ontario operations should be used to determine whether Quadraspec was a severance pay employer in accordance with the ESA. In reaching this decision, the court declined to follow previous case law which held that only the payroll relating to the Ontario operations of an employer should be included for the purpose of calculating whether the payroll is $2.5 million or more.
In Hawkes, the OLRB considered the court’s decision in Paquette and declined to follow it. The employee in Hawkes had worked for a company that was based solely in Ontario but had a parent company based in Germany. When he was dismissed, he applied to the Ministry of Labour for severance pay. An Employment Standards Officer (“ESO”) decided that he was not entitled to severance pay, as his employer did not have a payroll of $2.5 million or more. The employee applied to the OLRB for a review of the ESO’s decision, relying in part on Paquette to argue that the parent company’s global payroll should be considered in determining whether the company had a payroll of $2.5 million or more. Both the employer and the Director of Employment Standards disagreed with the employee’s position, and argued that it was only the company’s Ontario operations that ought to be considered for the purposes of determining whether it had a payroll of $2.5 million.
In declining to follow Paquette, the OLRB noted that not only was Paquette factually different than the instant case, as it considered a company’s own operations both within and outside Ontario (i.e. not those of a parent company), it also failed to address the interaction between sections 3(1) and 64 of the ESA. Section 3(1) of the ESA outlines that the employment standards included in the ESA will apply to an employee and his or her employer if the work is performed in Ontario, or if work performed outside Ontario is a continuation of work performed in Ontario.
While the OLRB acknowledged that the words “in Ontario” are not included in section 64 of the ESA, an issue the court considered in reaching its decision in Paquette, the OLRB noted that the words “in Ontario” are found in section 3 of the ESA and that their effect is to apply to employers whose employees perform work in Ontario (or whose work is a continuation of work performed in Ontario). Considering the ESA as a whole, the OLRB found that it would not make sense to presume that provincial legislation could affect employment or operations anywhere but in Ontario.
In the result, the OLRB held that only the company’s payroll for its Ontario operations should be considered when calculating whether it has a payroll of $2.5 million or more for the purpose of determining the employee’s entitlement to severance pay.
It remains to be seen whether the OLRB has finally laid the debate on this issue to rest with its decision in Hawkes. Considering Ontario’s Director of Employment Standards advocated for the approach the OLRB endorsed in Hawkes, it would be reasonable to expect that ESOs will adopt the OLRB’s approach when calculating an employer’s payroll for the purpose of determining entitlement to severance pay. However, with the OLRB and at least one Justice of the Ontario Superior Court disagreeing on the issue, we may have to wait for an appellate level authority to weigh in before this issue is finally put to bed.
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 lawyer’s by email or telephone.