Canada: Rules for Statutory Severance Pay are Clarified by the Ontario Labour Relations Board

In Hawkes v Max Aicher (North America) Limited, 2018 CanLII 125999, the Ontario Labour Relations Board (the “Board”) recently clarified that only an employer’s Ontario payroll is considered when calculating severance pay under the Ontario Employment Standards Act, 2000 (the “ESA”).

The applicant had brought an employment standards claim against his former employer for termination pay, severance pay, and vacation pay. His claim was denied in respect of severance pay on the basis that his former employer did not have a payroll of $2.5 million or more as required by the severance pay entitlement provisions in the ESA. The applicant sought a review of the decision to deny his entitlement to statutory severance pay.

The employer was an Ontario corporation operating in the steel industry and a subsidiary of a German corporation. The company’s payroll in Ontario did not exceed $2.5 million; however, the international payroll of the company did exceed that amount. The applicant argued that the company’s international payroll ought to be considered when determining his entitlement to severance pay under the ESA. He relied on jurisprudence from the Ontario Superior Court of Justice, which held that an employer’s national payroll could be considered for the purposes of determining if the employer’s payroll exceeded $2.5 million.

The Board rejected the applicant’s argument and held that the $2.5 million payroll threshold in the ESA was limited to the employer’s payroll in Ontario. Although companies could have operations outside of Ontario, the Board stated that it would be nonsensical to presume that the ESA could affect employment or operations anywhere outside of Ontario. Thus, only Ontario-based employment and operations are captured when considering severance pay entitlements and, in particular, if an employer’s payroll exceeds $2.5 million.

This case reconciles prior conflicting case law on the interpretation of the ESA severance pay provisions. Applying this decision, employers with international operations may be exempt from the requirement to provide statutory severance pay if their Ontario payrolls are less than $2.5 million.