Labour Board Finds: Statutory Severance Pay to be Based on Ontario Payroll Only

April 9, 2019

In Ontario, under the Employment Standards Act, 2000 (the "ESA"), an employer is required to provide an employee whose employment has been severed with statutory severance pay, if certain conditions are met.

Severance pay is only payable if the employer has a payroll of $2.5 million or more. However, for many employers in an increasingly globalized world, this condition inevitably leads to questions of – Which payroll and where?

Background

In 2014, the Superior Court of Justice in Paquette v Quadraspec Inc. (“Paquette”) rejected the prevailing method of calculating statutory severance pay, which restricted the calculation of an employer’s payroll to only those employees employed in Ontario. The Superior Court noted that, had the legislature wished to exclude extra-provincial payroll, it could have done so explicitly. The fact that the legislature chose not to do so, coupled with the purpose of statutory severance pay (i.e. to compensate long-service employees), resulted in the employer's national payroll being considered for the purposes of meeting the payroll threshold.

In contrast to the Superior Court's ruling in Paquette, the Ontario Labour Relations Board ("OLRB") in Doug Hawkes v Max Aicher (North America) Limited, 2018 CanLII 125999 (ON LRB) (“Max Aicher”) has recently concluded that the calculation of payroll should be provincially-restricted.

Facts

The applicant in this case (“DH”) was a former employee of Max Aicher (North America) Limited (“MANA”), whose employment was severed on October 7, 2015, after five years of service. MANA is a wholly owned subsidiary of Max Aicher GmbH & Co KG (“MAG”).

Following the termination of his employment, DH filed a complaint with the Ministry of Labour. The Employment Standards Officer ("ESO") concluded that, since MANA did not have a payroll of $2.5 million or more in Ontario, the employee was not entitled to statutory severance pay. This decision was appealed.

Arguments

DH argued that the payrolls of both MANA and MAG ought to be considered together in determining MANA’s total payroll for the purposes of calculating the threshold for entitlement to severance pay. DH relied on Paquette, submitting that its reasoning, which resulted in a finding that an employer’s national payroll should be considered, should similarly apply to a global payroll.

Decision

The OLRB refused to adopt the reasoning in Paquette for three reasons:

  1. Paquette was factually different from the facts in Max Aicher. In Paquette, the employer had operations in both Ontario and Quebec; in this case, the parent company did not have any employees in Ontario;
  2. The OLRB found that Paquette was not correctly reasoned. Unlike cases prior to Paquette, Paquette did not address the interaction between section 3(1) and section 64 of the ESA. Section 3(1) provides that the ESA applies only to “an employee and his or her employer” if: (i) the work is performed in Ontario; or (ii) if the work is performed outside Ontario is a continuation of work performed in Ontario. The legislature’s inclusion of Section 3(1) was an explicit exclusion of the extra-provincial application of the ESA; and
  3. There was no reason to depart from the reasoning in the pre-Paquette line of cases.

Impact

At first blush, the decision in Max Aicher appears to provide employers with clarity: even if a parent company has a global payroll in excess of $2.5 million, a company will not be liable for severance payments if the Ontario company’s payroll is under $2.5 million. However, given the tension between Paquette (a decision of the Superior Court) and Max Aicher (a decision of the OLRB), as well as the possibility that the OLRB decision could be subject to judicial review, the future remains uncertain.

We will continue to monitor the status of this decision on our blog.

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