Recently the Labour Relations Board clarified section 64 of the Employment Standards Act, 2000 (“ESA”). This section provides authority for when an employee is entitled to severance pay in Ontario upon termination. The applicable section reads as follows:
Entitlement to severance pay
64 (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and,
(a) the severance occurred because of a permanent discontinuance of all or part of the employer’s business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result; or
(b) the employer has a payroll of $2.5 million or more.
In Ontario, the wording of the ESA makes it such that, unless subsection (a) applies, an employee is entitled to severance pay if they have worked for more than 5 years for an employer with a payroll of $2.5 million or more. This severance pay is on top of any termination pay owed under the ESA.
This past year the Ontario Labour Relations Board interpreted section 64 in Doug Hawkes v. Max Aicher (North America) Limited, 2018 CanLII 125999 (ON LRB). Hawkes has changed the way in which payroll for the purposes of section 64 is calculated.
For many years, the leading authority on calculating payroll for severance purposes came from the Ontario Superior Court of Justice in Paquette v Qudraspec Inc., 2014 ONSC 243. In Paquette, the Court decided that the calculation of payroll was the payroll of the entire company, regardless of location. Paquette was determined solely on the wording of section 64, in isolation, and relied heavily on the fact that the section did not include a phrase such as “in Ontario.”
However, as argued by the employer in Hawkes, and accepted by the Ontario Labour Relations Board, section 64 must be read alongside section 3(1):
To whom Act applies
3 (1) Subject to subsections (2) to (5), the employment standards set out in this Act apply with respect to an employee and his or her employer if,
(a) the employee’s work is to be performed in Ontario; or
(b) the employee’s work is to be performed in Ontario and outside Ontario but the work performed outside Ontario is a continuation of work performed in Ontario.
Following the reading of both sections, the Board concluded that only the payroll within Ontario could be considered in calculating whether section 64 would be met.
Hawkes is authority that will be important for many terminated employees given that entitlement to severance pay can add a significant amount of money to one’s termination entitlements.