Global, Not Ontario, Payroll to Be Assessed in Severance Entitlement

Under section 64 of the Employment Standards Act, 2000 (ESA), employees in Ontario with more than five years of service are entitled to severance pay in addition to termination pay if their employer has a payroll of at least $2.5 million at the time of termination.

A new ruling from Ontario’s Divisional Court has clarified how to calculate payroll for the purposes of determining which employees will be entitled to severance pay. While the case law has been inconsistent, it was generally the case that the $2.5 million payroll threshold for the purposes of calculating severance pay applied to Ontario payroll only. The Divisional Court has now ruled that global payroll should be considered.

Prior to 2014, decisions by the Ontario Labour Relations Board (“OLRB”) indicated that the employer’s payroll in Ontario was to be used for determining entitlement to severance, guidance which is still reflected in the ESA Policy and Interpretation Manual. In 2014, that scope was expanded in the case of Paquette v Qaudraspec Inc., 2014 ONCS 2431 (“Paquette”) to include an employer’s national payroll in Canada.

In its recently released decision, Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290 (“Hawkes”), the Ontario Divisional Court affirmed the reasoning in Paquette finding that the employer’s global payroll is assessed when calculating severance entitlements, and not just its payroll in Ontario.

Mr. Hawkes was terminated from Max Aicher in October 2015. He filed a complaint to the Ministry of Labour, alleging that he was owed termination, severance and vacation pay. In 2017, the Employment Standards Officer ruled he was not entitled to severance pay because Max Aicher did not have an Ontario payroll of at least $2.5 million. He appealed this decision to the Ontario Labour Relations Board, who in 2018, determined that because s.3 of the ESA specifies that the ESA applies to “only Ontario-based employment and operations” so too is the payroll calculation for the purposes of severance pay restricted to Ontario.

Mr. Hawkes appealed this decision to the Divisional Court, who disagreed with the OLRB and ruled that global payroll should be considered when determining an employee’s entitlement to severance.

In overturning the OLRB decision, the Divisional Court made several notable findings:

• that while section 3 of the ESA explicitly limits its jurisdiction to Ontario based employment, there is no such restrictive language in section 64 [entitlement to severance pay] which would limit the calculation of payroll to just Ontario for calculating severance entitlements for individuals covered by the ESA. 
• confirming the remedial and benefit-conferring nature of the ESA and that it “ought to be interpreted in a broad and generous manner, and any doubt arising from difficulties of language should be resolved in favour of the claimant.”
• that previous decisions prior to 2014 which had limited payroll to Ontario had erred in law and had been incorrectly decided.
• that an Employment Standards Officer has the power to obtain information regarding the foreign payroll of an employer in Ontario under section 91 of the ESA, and as such, there were no procedural issues which would arise which would impede consideration of a global payroll.

This decision has significant implications for national or international employers with small operations within Ontario, who may have previously determined that no severance pay entitlements arose for their Ontario employees.

It is likely that higher courts will provide some finality with respect to this issue, but in the meantime, employers should consider their global payroll and be prepared to provide global payroll information when determining severance entitlements for their Ontario employees.