ESA Severance – Global Payroll Pushes Employer over the $2.5 Million Threshold

June 28, 2021

In recent years, and in particular over the course of the last 18 months or so, courts have varied and/or clarified their position on a number of key employment law issues. In Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290, the employee successfully brought an application for judicial review of a decision of the Ontario Labour Relations Board (the “Board”), determining that he was not eligible for severance pay upon termination of his employment, under the Employment Standards Act, 2000 (ESA).  In short, the court found that for the purpose of calculating an employer’s payroll to determine an employee’s statutory severance entitlement, the payrolls of the employer’s Ontario entity and its global parent company should be used.

Section 64(1)(b) of the ESA requires an employer, upon termination of employment without cause, to pay an employee severance pay if two conditions are met: 1) if the employee was employed for five years or more; and 2) if the employer has a payroll of $2.5 million or more.  The Board held that although the employer’s global entity had a payroll in excess of $2.5 million, because the Ontario entity for which the employee worked for did not, there was no statutory severance pay owed.

The employee in this case worked for an entity which is a wholly owned subsidiary of a German-based company.  At the time of termination of employment, he had been employed with the company for over 5 years but was not paid statutory severance pay because his Ontario employer’s payroll was under $2.5 million.  The employee filed a complaint with the Ministry of Labour who found in favour of the employer.  The employee appealed the decision to the Board, who for the purposes of its review assumed the two entities were related businesses pursuant to section 4 of the ESA.

However, the Board reasoned that section 64 had to be read in light of section 3 of the ESA, which states the act applies where (a) the employee’s work is performed in Ontario; or (b) the employee’s work is performed in and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario.  In doing so, the Board held that only an employer’s Ontario payroll is captured by section 3 of the ESA, and noted that the absence of the words “in Ontario” in section 64 does not make the provision unrestricted.  The Board factually distinguished the case before it from the decision in Paquette v Quadraspec Inc, [2014] OJ No 5484, which held that the employer’s national payroll must be considered in determining severance.

The Divisional Court, however, held that the Board’s decision was illogical and flawed. In the court’s view, the Board’s decision “fell short of the mandate of the modern principle of statutory construction namely that the interpretation be “consistent with the text, context, and purpose of the provision.”  In considering various principles of statutory interpretation, the court noted that “when interpreting a statute, ordinarily the inclusion of words of limitation in one part of the act and not in another is seen as deliberate and meaningful.”  As such, the court found that the Board’s approach of importing limiting meaning from section 3 to section 64 rendered the legislature’s use of the words “in Ontario” in section 3 and the exclusion of the words in section 64 as meaningless.

The court went on to state that:

[27] In addition, the Board’s view that it does not make sense to presume that provincial legislation would define payroll to include wages outside Ontario is itself illogical. On the contrary, it makes perfect sense for the legislature to limit the right to severance pay to employees who perform work in Ontario, while exempting small employers from paying severance on the basis of their overall payroll, in and outside Ontario. It is hard to imagine how Ontario could, or why Ontario would, legislate entitlement to severance with respect to work performed outside Ontario; but it is easy to understand why Ontario would base the requirement to pay severance on the size of the payroll of an employer both within and outside the province.

[28] Furthermore, the suggestion in the Board’s reasons that Ontario has no authority to legislate concerning payrolls outside Ontario is simply wrong. There is no jurisdictional impediment to Ontario legislating that an assessment of an employer’s ability to pay severance should take into account the size of the employer outside Ontario. If authority is needed for this self-evident proposition, I refer to P.W. Hogg, Constitutional Law of Canada, 4th ed. (Toronto: Carswell, 1996) 13.3(d) n. 47.

This case is a reminder to all of the importance of a clear understanding of not only the rules of statutory interpretation but also the guiding principles behind how the provisions of the ESA are to be interpreted in a manner that is most likely to give the broadest protection to the rights of workers in Ontario.  It is also important to remember that when determining if your payroll falls above the $2.5 million dollar threshold that the ESA considers the last or second last total payroll at the time of the employee’s termination of employment.

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