Curated Content Canada: Ontario Divisional Court: Statutory Severance Pay Threshold Includes Global Payroll

In Ontario, if an employer has a payroll of $2.5 million or more, they are required to provide an employee who has been terminated from employment without cause with statutory severance pay pursuant to Section 64 of the Employment Standards Act, 2000 (the "ESA"), provided the employee has five or more years of service at the date of termination. In Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290 (Canlii) ("Max Aicher"), the Divisional Court held that the calculation of payroll is not limited to an employer's Ontario payroll, but must include the payroll of related companies outside of Ontario, including outside of Canada. 

This decision overturns the Ontario Labour Relations Board's ("OLRB") decision, Doug Hawkes v. Max Aicher (North America) Limited, 2018 CanLII 125999 (ON LRB), following its judicial review, and arguably provides clearer direction to employers on this issue.

Facts in Max Aicher

The applicant in this case ("DH") was a former employee of Max Aicher (North America) Limited ("MANA"). DH was severed from employment with MANA in October, 2015 after five years of service. MANA is a wholly owned subsidiary of Max Aicher GmbH & Co KG, a company headquartered in Germany.

Following the termination of his employment, DH filed a complaint with the Ministry of Labour. The Employment Standards Officer ("ESO") concluded that, although MANA's global payroll exceeded $2.5 million, since it did not have a payroll of $2.5 million or more in Ontario, DH was not entitled to statutory severance pay. This decision was appealed to the OLRB.

Legal Uncertainty

In 2014, Justice Kane determined in Paquette v. Quadraspec Inc., 2014 ONSC 2431 (CanLii) ("Paquette") that the absence of the express exclusion of extra-provincial payroll within Section 64 of the ESA coupled with the purpose of statutory severance pay (i.e. to ensure compensation to as many employees as possible, including those employed at a smaller company that is part of a larger enterprise) meant that the provision should be read to consider the employer's national payroll for the purposes of meeting the $2.5 million payroll threshold. 

In contrast, in 2018, the OLRB found that the facts in Paquette were factually distinguishable from those in Max Aicher and that only Ontario-based employment was captured by Section 64 of the ESA. As a result, the OLRB chose not to rely on Paquette finding instead that the calculation of payroll under Section 64 of the ESA should be provincially restricted. The tension between these decisions left uncertainty in the law, particularly given that the OLRB's Max Aicher decision was (at the time) still open to judicial review.

Paquette and the OLRB's Max Aicher decision are discussed in more detail here on our blog.

The Divisional Court Decision

The Divisional Court found that the OLRB's earlier decision was unreasonable, and that the calculation of payroll for the purposes of Section 64 of the ESA should have a global scope. In reaching this conclusion, the Divisional Court took the following into account (among other considerations):

• The OLRB assumed that Max Aicher and MANA were related businesses pursuant to Section 4 of the ESA, which provides that related business will be treated as one employer for the purposes of the ESA (such that their payroll should be considered as one for the purposes of Section 64). This assumption was accepted by the Divisional Court and cited in consideration of the policy rationale of Section 64 (discussed further below).
• The OLRB's finding that Section 3(1) of the ESA was an explicit exclusion of the extra-provincial application of the ESA, including in respect of Section 64 was "inconsistent with the text, context, and purpose of the provision". Section 3(1) provides that the ESA standards apply only to "an employee and his or her employer" if: (i) the work is performed in Ontario; or (ii) the work is performed outside Ontario but is a continuation of work performed in Ontario. The Divisional Court noted that if the legislature wanted to limit the calculation of payroll for the purposes of statutory severance to Ontario employers, only, it could have made this explicit in Section 64.
• The OLRB took into account factual differences in Paquette and Max Aicher that were trivial – that the employer's payroll in Paquette included wages paid in Québec whereas in Max Aicher the payroll included wages paid in Europe was a distinction that "did not rise to the level of principle."
• They disagreed with the OLRB that there was no reason to depart from the pre-Paquetteline of cases, finding that these earlier decisions did not assert that only Ontario payroll was relevant for the purposes of calculating ESA severance pay.
• Recognizing a global payroll threshold for the purposes of calculating ESA severance pay was consistent with the underlying policy rationale of Section 64 – i.e. extending the protection of severance pay to as many employees as possible.
• The ESA effectively addresses any concerns about potential practical and procedural difficulties of factoring global payroll into severance considerations, including that an ESO has the authority to obtain information regarding foreign payrolls for investigations and inspections.

Impact & Action

Max Aicher casts a wide net around statutory severance pay liability to include any Ontario employer whose global payroll surpasses $2.5 million irrespective of the size of their provincial payroll.

Employers in Ontario with related businesses outside the province and country will now need to ensure that they are taking external payroll into account when determining whether a severed employee is entitled to statutory severance pay. For large employers who meet the Section 64 payroll threshold based on Ontario payroll alone, this assessment will not be an issue. However, it may result in additional cost, and administrative burden, for smaller Ontario employers with related operations outside Ontario and/or Canada.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.