By Barry W. Kwasniewski

The Ontario Superior Court of Justice, Divisional Court (“Divisional Court”) has further clarified when employers must pay severance pay to their employees. Paragraph 64(1)(b) of the Employment Standards Act, 2000 (“ESA”) requires an employer with a payroll of $2.5 million or more to pay severance when the employer severs an employment relationship with an employee of five or more years of service. In Hawkes v Max Aicher (North America) Limited, released on June 15, 2021, the Divisional Court overturned an earlier decision of the Ontario Labour Relations Board (the “Board”) and found that the calculation of payroll for the purpose of section 64 of the ESA is not limited to either Ontario payroll or Canadian payroll, but will include global payroll amounts.

The plaintiff, Doug Hawkes, was terminated from employment on October 7, 2015 after more than three decades of employment with the defendant company and its predecessors (the “Defendant”). Following termination, Hawkes filed a complaint alleging he was entitled to termination, vacation, and severance pay. While he was found to be entitled to termination and vacation pay on January 25, 2017, he was told he was not eligible for severance pay because the Defendant did not have a payroll of $2.5 million or more, when considering only the salaries in the Ontario jurisdiction. Hawkes then applied for the decision to be reviewed by the Board pursuant to subsection 116(3) of the ESA.

The Board’s decision, Doug Hawkes v Max Aicher (North America) Limited, released on December 27, 2018, affirmed that global payroll was excluded from the section 64 calculation (the “Board Decision”). The Board’s reasoning relied on the interpretation limits imposed by subsection 3(1) of the ESA to conclude that section 64 only anticipates payroll amounts from operations in Ontario. The Board also distinguished the case before them as factually different from Paquette c. Quadraspec Inc. (“Paquette”), a 2014 Superior Court of Justice decision which held that an employer’s national payroll must be considered in calculations made under section 64. Finally, the Board took the position that there was no reason to depart from its position pre-Paquette, namely that only Ontario payroll should be considered in calculations under section 64.

Upon reviewing the Board Decision on a standard of reasonableness, the Divisional Court found the Board Decision to be unreasonable because of a lack of justification and intelligibility in its reasoning. As a matter of statutory interpretation, the inclusion of words of limitation in one part of the ESA (such as the limitation of “in Ontario” in section 3) and not in another (such as in section 64) is seen as deliberate and meaningful. The Board missed this in their analysis. Restricting the meaning of “payroll” in subsection 64(2) of the ESA by virtue of subsection 3(1) is indefensible and unreasonable, according to the Divisional Court.

The Divisional Court also thought that Paquette was not substantially factually different, and the Board (while not bound by Paquette) should have given it serious consideration. As well, the cases the Board considered as justifying its position did not assert that only the payroll of an employer’s operation in Ontario is relevant for the purposes of the ESA.

Therefore, because of the unreasonable position adopted by the Board, as well as its method of interpretation, which was inconsistent with modern principles of statutory interpretation required in Canada (Minister of Citizenship and Immigration) v Vavilov, the Divisional Court set aside the Board Decision. Further, the Divisional court remitted the matter back to the Board to determine entitlement to severance pay with the direction that the payroll calculation of section 64 of the ESA is not limited to either Ontario or Canadian payroll.

Read the August 2021 Charity & NFP Law Update