Liability for severance pay depends on company pay roll size

by Rhonda B. Levy, Knowledge Management Counsel, and Barry Kuretzky, Partner at Littler

The recent Ontario decision, Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290 (Max Aicher), establishes that global employment is factored into the calculation of an employer’s payroll under s. 64 of the Employment Standards Act, 2000 (ESA); the calculation is not restricted to employment in Ontario.

Background

The employee was employed in Ontario by a wholly owned subsidiary of a parent company headquartered in Germany.  His employment was terminated in 2015.  The global payroll of the parent company exceeded $2.5 million but the subsidiary’s payroll was below $2.5 million.  Following his termination, the employee argued that he was entitled to severance pay.   

Relevant ESA Provisions

Section 64 of the Employment Standards Act, 2000 (ESA) requires an employer that terminates an employment relationship with an employee to pay severance to the employee if the employee was employed by the employer for five years or more, and the employer has a payroll of $2.5 million or more. 

Section 3 of the ESA provides that the ESA’s employment standards apply to an employee and an employer if the employee’s work is performed in Ontario, or the employee’s work is performed in and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario.

Decision of the Ontario Labour Relations Board (OLRB)

The OLRB decided that the global payroll of the global payroll was excluded from the calculation of severance under s. 64 of the ESA, which should be restricted to employment in Ontario.  The OLRB based its decision on the following:

• Because s. 3 of the ESA is directed at Ontario-based employment, the reference to the employer’s payroll in s. 64 is to the employer’s payroll in Ontario. 

• Paquette v. Quadraspec Inc., 2014 ONCS 2431 (Paquette), which held that an employer’s national payroll must be considered under s. 64, may be distinguished on the facts.  Also, Paquette did not address the interaction of s. 3 and s. 64 of the ESA. 

Decision of the Divisional Court

The Divisional Court concluded that the OLRB’s analysis was “illogical,” “flawed” and “reached a conclusion that is inconsistent with the text, context, and purpose of the provision.”  It remitted the matter to the OLRB for a determination of entitlement, with the direction that the calculation of payroll under s. 64 of the ESA not be restricted to Ontario, and include employment outside Ontario, including employment outside Canada.

In coming to this conclusion, the court stated:

…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.  The Board’s approach turns this commonsense proposition on its head.  It treats the inclusion of the words ‘in Ontario’ in s. 3 in relation to work and their exclusion in s. 64 in reference to payroll as meaningless.  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.  (para. 27)

With respect to the OLRB’s distinction of Paquette on the facts, the court stated:

While the Board was not bound by Paquette, it should have given it serious consideration, particularly in light of its careful analysis. Instead, the Board distinguished it on two grounds, one trivial and the other erroneous. (para. 33)

Bottom Line for Employers

In view of the recent decision in Max Aicher, in order to determine whether they will be liable for severance under the ESA, employers must consider the size of their global payroll; if an employer’s payroll in Ontario is less than $2.5 million but its global payroll is $2.5 million or more, the employer will be liable for severance under the ESA.

Rhonda B. Levy, Knowledge Management Counsel at Littler is responsible for satisfying the firm's Canadian knowledge management needs, for monitoring legislative, regulatory and caselaw developments, and for drafting and editing publications.

 Barry Kuretzky, Partner at Littler counsels clients in the labour relations area, which includes collective bargaining, union organizing drives, certification and decertification of unions, grievances and arbitrations.