When it comes to the $2.5 million threshold for ESA severance

Pursuant to section 64, an employee is entitled to statutory severance pay if the employee has been 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.

The issue of what “a payroll of $2.5 million or more” means comes up more than you might think and is certainly not as straight forward as one might like.

The ESA specifies that an employer shall be considered to have a payroll of over $2.5 million or more if:

(a) 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

(b) 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. 2000, c. 41, s. 64 (2); 2001, c. 9, Sched. I, s. 1 (16).

Confused yet? Good. Now, what is meant by the “employer’s employees”?

The debate arises because subsection 64(2) does not specifically include the word Ontario. As a result, it is not clear whether “employer’s employees” means those employees in Ontario, across Canada, or globally.

Historically, judicial interpretation indicated that only Ontario employees were included in the count. The wages earned by employees outside of Ontario, but still in Canada, were not added. This interpretation was endorsed in Altman v. Steve’s Music a 2011 decision, the Ministry of Labour in its Policy and Interpretation Manual, and in past decisions at the Ontario Labour Relations Board (“OLRB”).

But, in 2014, Paquette v Quadraspec Inc., the court took a totally different approach and refused to read “in Ontario” into subsection 64(2) and instead took into account the employer’s total Canadian payroll inside and outside Ontario.

So, for the last five years or so, those of us who predominantly advocate for individual, we have included the national wages of employees when arguing for an entitlement to statutory severance.

But, apparently, the good times are over.

In late 2018 the OLRB released Doug Hawkes v. Max Aicher (North America) Limited, 2018 CanLII 125999 (ON LRB), which re-evaluated Paquette and the obligations under subsection 64(2).

Hawkes filed an ESA complaint alleging that, among other things, he was entitled to severance pay. The Employment Standards Officer determined that he was not entitled to severance pay because Max Aicher (North America)’s Ontario wages did not meet the requisite payroll threshold.

Mr. Hawkes appealed that decision and lost. Among other things, he argued that Max Archer (North America’s) employees and the parent company’s employees in Germany ought to be included in the calculation of the $2.5 million threshold.

Vice Chair Gita Anand distinguished the case from Paquette, wrote the decision stating, among other things, that “having regard to the Act as a whole, while an employer may have operations and payrolls outside Ontario, only Ontario-based employment and operations that is captured by section 3 and therefore section 64 of the Act.”

While this is welcome news for employers in Ontario it is frustrating for long service Ontario employees. If one of the purposes of severance is to reward and incentivize long-service employment it seems counterintuitive that a corporation could organize itself in such a manner to intentionally avoid severance obligations.

I still prefer the reasoning in Paquette that “…there is no reason to interpret the provisions of section 64 so as to narrow their scope by reading in the words ‘in Ontario’, and given the purpose of the provision is to protect small businesses from the financial burden of paying severance, the provisions ought to be interpreted expansively such that the payroll calculation ought to include all of an employer’s employees, even if some worked outside Ontario, in Québec.”

Part of me wonders if Hawkes asking for the inclusion of German employees’ wages was a step too far, and that had it been analogous to Paquette, asking for an assessment based on a national payroll, if the analysis would have remained the same.

For my small business clients – good news! For now, severance will be based on your Ontario employee wages.

For my employee clients – bad news! There may be no severance entitlement if the Ontario payroll isn’t $2.5 million.
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