When Do Ontario Employers Need To Pay “Statutory Severance Pay”?

Under Ontario’s Employment Standards Act, 2000 (the “ESA”), if an employer has an annual payroll of $2.5 million (the “Threshold”), then employees with five or more years of service are entitled to “severance pay” (sometimes called “statutory severance pay”) on termination without cause. Statutory severance pay can be substantial – eligible employees are entitled to one week’s wages per year of service (prorated for part years) to a maximum of 26 weeks. Statutory severance pay is in addition to required ESA notice of termination or pay in lieu.

As the ESA applies only to employees performing work in Ontario or continuing such work outside of Ontario, the long-standing approach to the Threshold was to only count an employer’s payroll within Ontario to determine eligibility, an approach upheld by the courts until now.

In a recent decision, Hawks v. Max Aicher (North America) Limited the Ontario Divisional Court held that employers must use their global payroll in determining whether they meet the Threshold.  In Hawks, the Court found that the Ontario Labour Relations Board’s decision to refuse considering the employer’s global payroll was unreasonable. The Court reasoned that the wording of the relevant section did not restrict the reference to an employer’s payroll to Ontario and that the legislature could have limited the Threshold to Ontario payroll with express wording if that was their intention. The Court stated that Ontario has the authority to legislate provisions that account for facts outside of the province, including size of payroll. Implicit in the decision is that the collective payrolls of affiliated companies within a corporate group can be considered as one employer for the purpose of the Threshold, as permitted under the “associated employer” provision in the ESA.

Takeaway

Employers who are considering terminating Ontario based employees with five or more years of service must evaluate whether their global corporate group payroll meets the Threshold and pay statutory severance pay if the global payroll exceeds $2.5M. This is a significant new cost for larger employers with small Ontario workforces.

If you want more information on this topic, you can contact us at:

Geoffrey Howard:         ghoward@howardlaw.ca

604 424-9686

Sebastian Chern:           schern@howardlaw.ca

604 424-9688