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Ontario Labour Relations Board Confirms Threshold for Severance Pay Limited to Ontario Payroll

Practice Areas: Employment Standards

As many of our regular readers likely know, section 64 the Employment Standards Act, 2000 (“ESA”) provides that employees with five (5) or more years of service are entitled to severance pay in addition to their statutory notice requirements, provided that their employer meets the specified annual payroll threshold of $2.5 million.

In determining whether employees are entitled to severance pay, there has been some disagreement among adjudicators as to how to appropriately calculate the $2.5 million statutory threshold. The root of this disagreement is whether the payroll of employees outside Ontario is to be included in this calculation.

In a recent case, Doug Hawkes v Max Aicher (North America) Limited, the Ontario Labour Relations Board clarified on appeal that it is only Ontario payroll and operations that must be considered for the purpose of severance pay obligations.

This case was an application for review of an Employment Standards Officer’s decision that the respondent, Max Aicher, a wholly owned subsidiary of an international company based in Germany, was not a severance paying employer under the ESA. This conclusion was reached on the basis that the employer did not have a payroll of $2.5 million or more in Ontario.

The applicant argued that the payrolls of both the subsidiary company and the parent company ought to be considered in determining the employer’s payroll for the purposes of calculating severance under section 64(1) of the ESA.

The Board held that while an employer may have operations and payrolls outside Ontario, it is only Ontario-based employment and operations that are relevant in determining whether severance pay obligations exist.  At paragraph 25 the Board explained:

In this case, the applicant was employed in Ontario by a company operating in Ontario. In my view, having regard to the Act as a whole, while an employer may have operations and payrolls outside Ontario, it is only Ontario-based employment and operations that is captured by section 3 and therefore section 64 of the Act. The absence of the words “in Ontario” in section 64 does not mean that the provisions are unrestricted. The words in Ontario” are found in section 3 and their effect is to apply to employers whose employees perform work in Ontario (or whose work is a continuation of work performed in Ontario). It does not make sense to presume that provincial legislation could affect employment or operations anywhere but in Ontario.

This decision is a welcomed one for employers operating throughout Canada whose payroll in Ontario falls below the threshold. If you are an employer in need of guidance on your statutory severance obligations, or any issues arising at the point of dismissal, the lawyers at CCPartners are well versed in navigating all issues regarding the end of an employment relationship.

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