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Recent Ontario Decision Casts Doubt On Statutory Severance Pay Threshold
Ontario employees are entitled to termination payments in accordance with the Employment Standards Act (ESA) – namely notice on termination (or payment in lieu) and by virtue of section 64(2), the employee is entitled to an additional statutory severance payment if they have worked for their employer for 5 years or more or if the employer has an annual payroll of at least CAD$2.5 million.
The severance payment is paid at a rate of one week of pay for every year served, up to a maximum of 26 weeks. The ESA provides guidance on what is considered to be a CAD$2.5 million payroll – as follows:
An employer shall be considered to have a payroll of $2.5 million or more if,
- the total wages earned by all of the employer's employees in the four weeks that ended with the last day of the last pay period completed prior to the severance of an employee's employment, when multiplied by 13, was $2.5 million or more; or
- the total wages earned by all of the employer's employees in the last or second-last fiscal year of the employer prior to the severance of an employee's employment was $2.5 million or more.
Historically, the courts have interpreted the wording of section 64(2) to mean that the payroll applies to operations based in Ontario only, and this has been endorsed by the Ontario Ministry of Labour in its guidelines supporting the Act. However, all of this has been cast into doubt by the recent judgement in Paquette v. Quadraspec Inc. In this case, the employee claimed he was entitled to statutory severance as per section 64(2) of the act, a position that was defended by the employer on the basis that the Ontario payroll was below the threshold. The Court concluded that the wording of S64(2) should not be interpreted to limit the payroll threshold to Ontario only and in this case, the joint payrolls of the defendants Ontario and Quebec payrolls were in excess of the threshold and therefore, the employee should be entitled to a severance payment. An employee with more than 26 years of service brought a motion after his employment was terminated on a without-cause basis. It was the employee's position that in addition to notice or pay in lieu of notice pursuant to the ESA, he was also entitled to statutory severance pay. The employer disagreed on the basis that it had an Ontario payroll that was less than $2.5 million.
If the decision is upheld or endorsed by the Ministry of Labour, this could have wide implications for employers currently operating below the threshold in Ontario but with operations in other jurisdictions. It should be noted that court in Paquette did not specifically limit the application of the test to just Canada. Therefore, it is open for a US company operating a small outfit in Ontario and with no other Canadian location to fall foul of S64(2).
We will continue to monitor developments as the case progresses to appeal.