National Payroll or Provincial Payroll when Determining Severance Pay Eligibility?

Maryanne, July 22, 2019

In Ontario, the Employment Standards Act, 2000 (“ESA”) provides employer guidance as to the statutory entitlements an employee is entitled to at termination. The two payments of importance are:

  • termination pay: the employer must provide the employee with the appropriate notice or pay in lieu of notice, based on the employee’s years of service with the employer; and
  • severance pay: in order for an employee to be entitled to severance pay, certain conditions must be met, including:
    • the employer must have a payroll of $2.5 million; and
    • the employee must have either worked for 5 years or more with the employer, or they must have worked for three months or more and be a part of a mass termination (50 plus employees in a period of 6 months or less).

Termination pay is relatively simple to determine. Severance pay is a bit more convoluted. While the severance pay requirements seem fairly straight forward, in an increasing globalized world, these requirements can be challenging to determine. Unfortunately, although the ESA provides some guidance on calculating severance pay, it does not provide direction as to the geographical scope of these requirements. Traditionally, it was held that since the legislation is provincial, its application should be as well, thus interpreting section 64 (severance pay criteria) of the ESA in light of section 3(1) (provision restricting the ESA’s application to work performed in Ontario or work performed outside of Ontario as a continuation of work performed in Ontario) of the ESA.

However, in 2014, the Superior Court of Justice in Paquette v Quadraspec Inc. (“Paquette”) changed the legal landscape of the requirements of severance pay. Justice Kane held that Mr. Paquette was entitled to severance pay based on his employer’s national payroll, which was over $2.5 million dollars, despite the fact that the work he performed was in Ontario. Justice Kane departed from the traditional approach where section 64 of the ESA was read in light of section 3(1) of the ESA. Instead, Justice Kane held that if the legislature intended to limit the employer’s payroll to Ontario alone, they would have done so.

While it appears that employers had received direction from Paquette, the legal landscape with respect to severance pay seems to have reverted back to the pre-Paquette approach to severance pay in the 2018 Ontario Labour Relations Board’s decision in Doug Hawkes v Max Aicher (North America) Limited (“Max Aicher”). In this decision, Vice-Chair Anand concluded that the payroll of the employer should be provincially restricted and refused to follow the reasoning in Paquette for the following reasons:

  • the facts in Max Aicher were different from Paquette, in that the parent company of Max Aicher did not have any employees in Ontario and the employee performed work in Ontario for the subsidiary company;
  • the OLRB disagreed with the reasoning in Paquette because it did not address the interaction of section 3(1) and section 64 of the ESA and Vice-Chair Anand agreed with the line of cases that interprets section 64 in light of section 3(1) of the ESA; and
  • there is no reason to depart from the reasoning in the pre-Paquette line of cases.

The decision in Max Aicher is significant because while the issue of payroll seemed to be settled in Paquette by the Superior Court of Justice, the OLRB provided employers with a more recent decision questioning the law in Paquette. While the Max Aicher decision is more favourable to employers, the law regarding payroll calculations relating to severance pay is unsettled and tension exists between the Superior Court of Justice decision and the OLRB decision. Whether the OLRB decision will be judicially reviewed remains to be seen. What employers need to know is that the legal landscape regarding this issue remains uncertain.

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