Employers’ Total Payroll Determines Severance Entitlement in Ontario

Employers’ Total Payroll Determines Severance Entitlement in Ontario

In a significant win for workers in Ontario, the Divisional Court held that the obligation to provide severance pay under the Employment Standards Act (ESA) applies to all employers with a global payroll of $2.5 million, even if their payroll in Ontario is below that threshold. The landmark decision in Hawkes v. Max Aicher (North America) Limited means that multinational companies with small Ontario payrolls cannot use the small Ontario payroll to avoid providing severance pay upon termination to workers with a long service record. 

Severance Pay Under the ESA

Section 64 of the ESA states that employers must provide severance to dismissed employees with five years of service “if the employer has a payroll of $2.5 million or more.”  Previous decisions have been divided on the question of how to calculate the employer’s payroll under this provision — namely, whether a company’s global payroll or only its Ontario payroll is used to determine if the threshold of $2.5 million is met. 

In a 2014 decision, Paquette, the Ontario Divisional Court considered this issue with respect to a corporation with a total payroll in Quebec and Ontario exceeding $2.5 million, but an Ontario payroll below $2.5 million. The court held that the ESA should be interpreted to provide protection to as many workers as possible, and that severance should be provided to all Ontario employees who work for companies with $2.5 million or more in total payroll. 

Mr. Hawkes at the OLRB

In October of 2017, Doug Hawkes was terminated from his employment with Max Aicher (North America) Limited, a subsidiary of Max Aicher GmbH & Co KG, a steel company located in Bavaria, Germany. After being terminated, Mr. Hawkes filed a complaint to the Ministry of Labour for his severance pay under section 64, as he had worked for the company for over five years. However, the Ministry denied Mr. Hawkes’ claim because Max Aicher (North America) Limited’s payroll in Ontario was below $2.5 million. The German parent company, on the other hand, had a payroll far exceeding $2.5 million. 

Mr. Hawkes filed an application with the Ontario Labour Relations Board (OLRB) to review the Ministry’s decision. Unfortunately, the OLRB declined to follow Paquette, relying instead on a line of prior cases that interpreted section 64 as including only Ontario payroll. The OLRB found that Paquette was distinguishable in that it only extended payroll to another province rather than another country.  

The Divisional Court Affirms the Importance of Severance for Long-Time Employees 

The Divisional Court disagreed with the OLRB and, following Paquette, held that it was clear that “payroll” under section 64 of the ESA was not limited to a company’s provincial payroll. Writing for a unanimous court, Justice Dambrot affirmed the broad, worker-friendly interpretation of the ESA’s severance pay provisions: 

“It is apparent that the underlying policy of the 1987 amendment to the severance pay provisions, and specifically to the calculation of payroll, was to better recognize the dignity and value of the people who work in this province by extending the protection of severance pay to as many employees as possible.”

Hawkes is an important victory for workers across Ontario. Severance pay under the ESA is intended to recognize the long service that an employee has provided to the employer and, as confirmed by the Court, should be extended to as many long service employees as possible. The exception to this obligation based on payroll was always intended to provide relief to small employers — if the payroll were calculated solely based on a company’s Ontario workforce, many large multinational companies would be able to avoid this obligation. The Court’s decision prevents big corporations from evading their obligations to long-time employees.

For further details and/or assistance regarding employment law, it is in your best interests to discuss such matters with an experienced and reputable legal professional. Our team at RavenLaw is happy to address your concerns in these and other areas of law. Contact us today to request an initial consultation.

Andrew Astritis and Amanda Montague-Reinholdt were co-counsel representing Mr. Hawkes before the Divisional Court.

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