Severance pay rules legal precedent: only Ontario payroll factors into the $2.5 million payroll threshold for severance

The Hawkes Decision sets some clarifying precedent for severance payments for Ontario payrolls, with a clear differentiation between companies with payrolls of more or less than $2.5 million — regardless of global payroll of the company.

The important takeaway from the December 2018 decision, according to legal consultants at BLG, is “that an Ontario employer will not be liable for severance payments if the company’s Ontario payroll is less than $2.5 million, even if the Ontario employer’s parent company has a global payroll in excess of $2.5 million. This interpretation of the severance obligations under the ESA is favourable for employers who have operations outside of Ontario. What remains to be seen is whether future adjudicators will follow the OLRB’s reasoning in Hawkes when confronted with a fact scenario outside of the related employer context similar to that in Paquette.”

Section 64 of ESA on severance

As employers and payroll managers should be aware, Section 64 of the Employment Standards Act, 2000 (ESA) requires that an employer who terminates an employee without cause must provide the employee with severance — where the employee had more than five years of employment and the company has a payroll of more than $2.5 million. This is well established. However, the Hawkes case focused in on whether payroll outside of Ontario is a factor. The decision appears to clarify that only the Ontario payroll portion is a factor in deciding severance. One of the downsides of this type of rule is it might create a de facto incentive for national or global companies to minimize local Ontario payroll.

 

 

The specific cited case, which rose to an Ontario Superior Court decision (Paquette v Quadraspec Inc.(Paquette)), does specifically establish that only the Ontario payroll is a factor in Section 64.

According to Borden Ladner Gervais: “Paquette had held that the severance pay obligation set out at section 64 of the ESA required a consideration of the employer’s national payroll and not just its Ontario payroll in determining whether the employer had met the $2.5 million threshold. This finding was contrary to a well-established line of case law which had interpreted the $2.5 million threshold to apply only to an employer’s Ontario payroll.”

In the specific case, which began in 2015, the applicant was formerly employed by Max Alcher (North America) Limited (MANA), which had operations in Ontario. Complicating matters, MANA was a wholly owned subsidiary of a German company, Max Alcher GmbH & Co. KG (MAG). The employee had more than five years of service and was terminated without cause. In Ontario, MANA had payroll less than $2.5 million. The Employment Standards Officer determined the employee was due both holiday and termination pay — but not severance pay — based on the Ontario threshold rules in Section 64 of the ESA.

The applicant appealed to the OLRB. According to BLG: “The applicant relied upon the Ontario Superior Court’s decision in Paquette, to argue that the OLRB should not restrict the computation of his former employer’s total payroll to only its Ontario operations. The applicant argued that the employer in Paquette had operations in both Ontario and Québec and that the Court had determined that it was appropriate to consider the combined payroll in both provinces in determining whether or not the employer had met the $2.5 million threshold.”

The OLRB rejected the argument, and noted: “[W]hile an employer may have operations and payrolls outside Ontario, it is only Ontario-based employment and operations that is captured by section 3 and therefore section 64 of the Act.”

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NOTES
[1] Border Ladner Gervais case study>>

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