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A new ruling from Ontario’s Divisional Court has changed which employees will be entitled to severance pay. While the law has been mixed, it was generally the case that the $2.5 million payroll threshold for the purposes of calculating severance pay applied to Ontario payroll only. The Divisional Court has now ruled that global payroll should be considered. 

What’s Severance Pay?

In Ontario, employers with a payroll of more than $2.5 million must, upon termination or severance of employment, pay severance pay to employees with five or more years of service. This aspect of the Ontario Employment Standards Act, 2000 (ESA) increases the legal minimums employers are required to pay to long service employees significantly. Under the ESA, notice of termination caps out at 8 weeks, whereas severance pay can be up to 26 weeks. 

The $2.5 Million Payroll Threshold

While there have been conflicting decisions about how to determine if an employer’s payroll is more than $2.5 million, the Ontario Ministry of Labour’s own guidance suggests that the employer must consider their Ontario payroll only. For example, the Ontario Your Guide to the Employment Standards Act currently states that an employee is entitled to severance pay if the employer “has a payroll in Ontario of at least $2.5 million.” Similarly, the Ministry of Labour’s Severance Pay Calculator asks: “Does the company have an annual payroll in Ontario of at least $2.5 million?” 

The Hawkes v. Max Aicher (North America) Limited Decision Changes Everything

In Hawkes v. Max Aicher (North America) Limited, 2021 ONSC (Hawkes), the Ontario Divisional Court overturned a ruling of the Ontario Labour Relations Board that ruled that Mr. Hawkes was not entitled to severance pay because his former employer, Max Aicher, did not have a payroll of at least $2.5 million IN ONTARIO. Max Aicher is a European company with a global payroll that far exceeds $2.5 million. 

The road to this decision was long. Mr. Hawkes was terminated from Max Aicher in October 2015. He filed a complaint to the Ministry of Labour, alleging that he was owed termination, severance and vacation pay. In 2017, the Employment Standards Officer ruled he was not entitled to severance pay because Max Aicher did not have an Ontario payroll of at least $2.5 million. He appealed this decision to the Ontario Labour Relations Board, who in 2018 determined that because s.3 of the ESA specifies that the ESA applies to “only Ontario-based employment and operations” so too is the payroll calculation for the purposes of severance pay restricted to Ontario.

Mr. Hawkes appealed this decision to the Divisional Court, who disagreed with the lower decision makers and ruled that global payroll should be considered for determining an employee’s entitlement to severance. 

Interpretative Difficulties Should Be Resolved in Favour of the Claimant

The court noted that the ESA is a benefits-conferring legislation that should be interpreted in a broad and generous manner and “any doubt arising from difficulties of language should be resolved in favour of the claimant.” They noted the purpose of severance pay, “to compensate long-serving employees for their years of service and investment in the employer’s business, and for the special losses they suffer when their employment terminates” namely the loss of this investment. 

Takeaways

As a result of the Divisional Courts ruling in Hawkes decision, employers will now have to consider their global payroll for the purposes of determining an employee’s entitlement to severance pay under the ESA. As with many things in law, this could change, but this is the law for now. If you have questions about your termination exposure get in touch for a consultation.