A New Approach to Determining Severance Obligations

Greg Dobney
Posted November 18, 2014 Category: Businesses

A decision released by Justice Kane of the Ontario Superior Court this past spring (en français) has changed the approach for determining whether an employer has an obligation to provide severance pay to its employees under the Employment Standards Act, 2000.

Generally speaking, the law governing employment relations is within provincial jurisdiction.  Each province has the power to establish laws governing the relationships between employers and employees in that province.  In Ontario, the minimum standards for governing employment relationships are set out in the Employment Standards Act, 2000.  Among other things, the Act establishes the minimum termination and severance pay requirements when an employer terminates an employee’s employment without cause.  While the minimum termination requirements apply to the vast majority of employment relationships, the additional “severance” obligations apply only when certain criteria are met.

To paraphrase the criteria, an employee is entitled to severance pay if his/her employment is terminated without cause and s/he has been employed with the employer for longer than five years and either:

(a) the employee’s termination was because of a discontinuance of all or part of an employer’s operations and the employee is one of 50 or more employees to have his/her employment relationship end in a six-month period as a result; or

(b) the employer has a payroll of $2.5 million or more.

The Act goes on to set out that an employer is considered to have a payroll of $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 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.

Until the Superior Court’s decision this past spring, whether an employer met the $2.5 million payroll criterion was determined by examining only the employer’s operations in Ontario.  The logic behind this approach went something like this: since employment laws are within provincial jurisdiction, only the employer’s operations within the province are relevant in determining the employer’s obligation to pay severance.

As you may have guessed, Justice Kane has taken a different approach.  In his decision in the case of Paquette v. Quadraspec Inc., Justice Kane examines the severance obligations and the method for determining whether an employer has a $2.5 million payroll.  His conclusion: the employer’s payroll is based on the total wages earned by all of the employer’s employees and there is no reason to look only at the wages paid only to the employer’s employees in Ontario.

In Paquette, the employee worked in Ontario for a company with operations in both Ontario and Quebec.  If the wages paid only to employees in Ontario were considered, the employer would have a payroll of less than $2.5 million.  However, the wages for the employees in Ontario and Quebec combined would result in the employer having a payroll exceeding $2.5 million.  Justice Kane found that the latter scenario was proper and that the plaintiff was entitled to severance pay.

Employers whose operations extend outside of Ontario should now be aware that their severance obligations are no longer determined by reference to their payroll in Ontario alone.

Greg Dobney
Posted November 18, 2014 Category: Businesses

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