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ONTARIO COURT RULES THAT AN EMPLOYER’S GLOBAL PAYROLL IS RELEVANT TO SEVERANCE PAY OBLIGATIONS

July 8, 2021

The Ontario Divisional Court (the “Court”) has changed which employees will be entitled to severance pay. In the recent decision of Hawkes v Max Aicher (North America) Limited [Hawkes], the Court ruled that when calculating whether an employer owes a dismissed employee severance pay based on the employer’s payroll, this calculation must take into account the employer’s global payroll. It is not limited to the employer’s payroll in Ontario as some decisions have previously held. This shift in the law will result in many employers with relatively small Ontario-based operations, but with employees outside of Ontario, owing far more by way of statutory termination entitlements to employees than they would have previously owed.

Background

Under Section 64 of the Employment Standards Act, 2000 [ESA], employees in Ontario with more than five years of service are entitled to severance pay if their employer has a payroll of $2.5 million or more. The $2.5 million threshold is not the only way severance pay is owed but is by far the most common measure used when considering whether an employer owes statutory severance pay.

Prior to the Hawkes decision, the law was clear that when calculating whether an employer qualifies as a statutory severance employer under the severance pay section of the ESA, only the Ontario payroll of the employer will be considered. However, Hawkes has changed the law and established that global employment will now be factored into the calculation of an employer’s payroll under the severance pay section of the ESA.

Facts

Mr. Hawkes was dismissed by his employer, Max Aicher (North America) Limited (“Aicher”). Mr. Hawkes brought a claim against his former employer, arguing that Aicher qualified as a statutory severance employer under s. 64(1)(b) of the ESA, and therefore owed him severance pay.

In Ontario alone, Aicher’s payroll fell below the $2.5 million threshold, but climbed well above $2.5 million if the payroll of Aicher’s parent company, headquartered in Germany, was factored into the equation.

Mr. Hawkes’ claim was dismissed both by an Employment Standards Officer, and the Ontario Labour Relations Board (the “Board”), which both relied on the traditional conception of s. 64(1)(b), ruling that only Aicher’s Ontario payroll would be considered when calculating whether they were a statutory severance employer. Mr. Hawkes appealed these decisions to the Court.

Decision

The Court ruled that Aicher was a statutory severance employer, and therefore owed Mr. Hawkes severance pay as a result of his dismissal. The Court characterized the decision and reasoning of the Board as “illogical” and “flawed,” criticizing it on several grounds.

The Board had argued that s. 3(1) of the ESA, which outlines that the Act only applies to workers in Ontario, operated to exclude an employer’s non-Ontario payroll from the calculation in the severance pay section of the ESA. The Court disagreed with this interpretation, arguing that if the legislature had intended to exclude non-Ontario payroll from the statutory severance calculation, they would have explicitly said so in the severance pay section of the ESA.

The Court also cited decisions from the Supreme Court of Canada (“SCC”) in support of its conclusion. The SCC decisions of Machtinger v HOJ Industries and Rizzo & Rizzo Shoes Ltd (Re) stated that the ESA should be interpreted in a broad manner that extends its protections to as many employees as possible, including when determining whether a dismissed employee is owed severance pay. When language in the ESA is unclear, or otherwise raises doubt, the Court stated that those ambiguities must be resolved in favour of the employee. The Court argued that the Board had done the opposite, in that they had interpreted the severance pay section of the ESA in a manner that undermined the purpose of extending the protections of the ESA to as many employees as possible.

Based on the above reasoning, the Court allowed Mr. Hawkes’ claim, and remitted the case to the Board to determine the amount of severance pay Mr. Hawkes was entitled to.

Takeaways for Employers

Hawkes is a highly important decision for employers that carry on operations outside of Ontario, or even outside of Canada. Going forward, payroll calculations as required by the ESA will not be limited to Ontario-based operations. Rather, an employer’s entire global workforce will be taken into account. Employers who were not considered statutory severance employers prior to Hawkes should ensure that they review their global payroll in order to determine what their obligations are when dismissing employees with five or more years of service. If an employer’s global payroll is equal to or greater than $2.5 million, they will have severance pay obligations that must be considered, even if their Ontario payroll falls below that threshold.

This blog is provided as an information service and summary of workplace legal issues.

This information is not intended as legal advice.

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