ONTARIO’S DIVISIONAL COURT CLARIFIES EMPLOYERS’ SEVERANCE PAY OBLIGATIONS
Section 64(1)(b) of the Employment Standards Act, 2000 (“ESA”) requires an employer, with a payroll of $2.5 million or more, who severs an employment relationship with an employee, to pay severance pay to that employee. The severance aspect of the ESA increases the legal minimums employers are required to pay to long service employees significantly. Under the ESA, notice of termination goes up to a maximum of 8 weeks’ pay, whereas severance pay goes up to as much as 26 weeks’ pay.
In practice generally, section 64(1)(b) ESA has been applied to Ontario payroll only. However, in Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290 (CanLII) (“Hawkes”), the Ontario Divisional Court ruled that global payroll should be considered.
Doug Hawkes (“Mr. Hawkes”) was employed by Max Eicher (North America), a wholly owned subsidiary of Max Aicher GmbH & CO KG, a steel company headquartered in Germany. Mr. Hawkes worked as a maintenance manager with US Steel (previously Stelco) from 1977 to 2010 and the company was acquired by Max Aicher in 2010. Mr. Hawkes was terminated on October 7, 2015.
He filed a complaint with the Ministry of Labour (MoL) alleging that he should have received termination pay, vacation pay and severance from his former employer. The MoL determined that although Mr. Hawkes was entitled to termination pay and vacation pay, he was not entitled to severance pay due to the fact that the requirements outlined in section 64 of the ESA had not been met. The MoL considered the salaries of employees within Ontario solely, and concluded that the employer did not have a payroll of $2.5 million or more.
Mr. Hawkes applied for review of this decision by the OLRB on the basis that the employer’s global payroll exceeded $2.5 million. The OLRB determined that:
- The section 64 ESA calculation does not include an employer’s global payroll. Although the employer’s global payroll exceeded $2.5 million, it was not obliged to pay severance pay because it’s payroll in Ontario did not;
- Section 64 ESA was to be interpreted within the limited of section 3(1) ESA which provides:
To whom Act applies
3(1) Subject to subsections (2) to (5), the employment standards set out in this Act apply with respect to an employee and his or her employer if,
- the employee’s work is to be performed in Ontario; or
(b) the employee’s work is to be performed in Ontario and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario;
(iii) In addition, the OLRB determined that the Paquette v. Quadraspec Inc. (2014 ONSC 2431) decision, which held that an employer’s national payroll must be considered under section 64 ESA, was factually distinguishable, and instead relied on pre-Paquette decisions.
Decision of the Ontario Superior Court of Justice Divisional Court
Mr. Hawkes applied to the Divisional Court for judicial review of the OLRB’s decision. He submitted that both the employer’s global payroll and Ontario payroll should both be considered under the ESA, and he relied on the Paquette decision which held that an employer’s national payroll must be considered.
The Divisional Court agreed with Mr. Hawkes and determined that the OLRB’s decision was “illogical”, as follows:
- The Court stated, at para. 27,
“[…] 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. […] 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.”
- With regard to the Paquette decision and how the OLRB distinguished it from Hawkes, the Divisional Court surmised that the OLRB saw ambiguity in Paquette where there was none, and also interpreted the ESA in a way that conflicts with the Supreme Court’s intention in Paquette. Instead of protections being extended to as many employees as possible, the OLRB’s interpretation would see large national and multinational corporations avoiding paying severance pay to long-service employees. The Divisional Court, at paras 33-34, 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. As I noted, the Board first said that Paquette was factually different. By this, the Board could only have been referring to the fact that the total payroll of the employer in Paquette included wages paid in Quebec, while here the total payroll includes wages paid in Europe. This distinction does not rise to the level of principle. Ontario has no greater legislative authority outside Ontario but within Canada than it does in Europe […]
 Second, the Board’s assertion that Paquette did not address the interaction of s. 3(1) and s. 64 of the ESA is wrong. Kane J. set out the language of s. 3(1), noted that it is directed to Ontario-based employment, and agreed that the Board is only given authority to award severance pay for employment in Ontario. Nonetheless, he said, “this does not address the matter covered by s. 64 … [which] does not concern, nor is it directed at, requirements placed upon employers by and in other jurisdictions.”…As Kane J. explained, s. 64 does not place requirements on employers in other jurisdictions.”
- The Supreme Court’s decisions in Machtinger v. HOJ Industries Ltd.,  1 S.C.R. 986 and Rizzo & Rizzo Shoes Ltd. (Re),  1 S.C.R. 27 were reviewed by the Divisional Court which considered the purpose and intent of the ESA as “benefits-conferring legislation” that should be interpreted in a broad and generous manner. Any interpretative difficulties should be resolved in the claimant’s favour. It concluded, at paras 51-52, that the calculation of payroll under section 64 of the ESA includes employment outside of Ontario, and employment outside of Canada, and is not limited to either Ontario payroll or Canadian payroll.
The Hawkes decision brings some much-needed clarity to the question of severance obligations of employers operating in Ontario with regard to the payroll totalling upwards of $2.5 million. The Paquette decision should be heeded by employers.
When addressing calculations for the purpose of determining severance pay, employers should bear in mind their global payroll and not solely their Ontario payroll. In particular, large multi-national employers that may have a handful of workers in Ontario and the majority of their staff outside of Canada should be concerned by the Hawkes decision as they may now be subject to severance pay obligations due to having employees in other provinces or other countries.
It is strongly recommended that employers ensure that the termination provisions of their employment contracts are carefully drafted, and include the ESA rights, including where severance pay is addressed.