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In the recent decision rendered in Paquette c. Quadraspec Inc., 2014 ONCS 2431, 2014 CarswellOnt 5338 (Ont. S.C.J.), the Ontario Superior Court of Justice disregarded previous wisdom, concluding that an Ontario employer’s payroll outside the province should also be accounted for when determining whether it is obligated to pay statutory severance pursuant to s. 64 of Ontario’s Employment Standards Act, 2000, S.O. 2000, c. 41 (”ESA”). The decision is significant in that the Ontario court has traditionally viewed a company’s Ontario payroll as the only applicable payroll to account for when determining if the statutory payroll threshold for severance obligations has been met.

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Section 64 of the ESA provides an employee with the right to severance pay under certain circumstances, namely:

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Entitlement to severance pay

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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

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(b) the employer has a payroll of $2.5 million or more. 2000, c. 41, s. 64 (1).

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Payroll

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(2) For the purposes of subsection (1), an employer shall be considered to have a payroll of $2.5 million or more if,

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(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). [Emphasis added.]

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This interim decision resulted from a motion brought by Alain Paquette, a former employee of Quadraspec Inc. who was employed by the company for approximately three decades.

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One of the issues that the court was left to consider was whether the words “in Ontario” should be read into the legislation with respect to an employer’s payroll.

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In its 2011 decision in Altman v. Steve’s Music Store Inc. (2011), 89 C.C.E.L. (3d) 120, 2011 ONSC 1480 (Ont. S.C.J.), the same court held that the relevant provision of the ESA only contemplated accounting for an employer’s Ontario operations when determining if the payroll threshold had been met. In that decision, Corrick J. stated [at paras. 33-36]:

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Steve’s Music has operations in Ontario and Quebec. The issue before me is whether the payroll of Steve’s employees in Quebec should be included in the determination of the payroll under s. 64(1)(b). The evidence is that the Ontario payroll is $2.1 million. If the Quebec payroll is included, the total exceeds $2.5 million.

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In the case of Northern Superior Supply Co., the Ontario Labour Relations Board held that only the payroll of an employer’s operation in Ontario is relevant to s. 64(1)(b). The Board held that Ontario has legislative authority with respect to businesses operating in Ontario and has no authority to legislate concerning payrolls in other provinces.

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The Board relied on the decision of the Divisional Court in Tullett and Tokyo Forex (Canada) Ltd. v. Singer in which the court held that an employee of a Canadian subsidiary of a U.S. company who had worked four years for the U.S. company, and two years in Ontario for the Canadian subsidiary, was not entitled to severance pay because he had not worked in Ontario for more than five years. The court held that the provision in the Act was directed to Ontario based employment. Similar rulings have been made in other cases.

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Ms. Altman is not entitled to severance pay given that Steve’s payroll for its Ontario operations is less than $2.5 million. This claim is therefore dismissed.

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In Paquette, Kane J. broke with tradition and the dicta of Corrick J., stating [at para. 58]:

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The text of Articles 64(1)(b) and 64(2) of the Act is clear. There is no reason to interpret these provisions so as to restrict the scope by adding the words “in Ontario.” If that had been the intention of Parliament, it must be presumed that it would have expressed clearly and explicitly as it did under the Pay Equity Act.

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While both of the aforementioned decisions are from the same court, Kane J.’s analysis is far more in-depth and thoughtful than that in the Steve’s Music case, wherein Corrick J. largely defers to past rulings of the Divisional Court and Ontario Labour Relations Board.

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Kane J. went so far as to review the legislative intent of the provisions in question, stating that when the threshold/measure was changed in 1987, the then Minister of Labour, William Wrye, did not limit the analysis only to the payroll of a company in Ontario, noting that severance pay is compensation for those losses relating to employer-specific skills that become redundant once dismissed, especially for long-service employees.

Conclusion

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This decision, if it is not successfully overruled or appealed, has significant implications for businesses of all sizes operating in Ontario. The ruling also represents a significant source of liability when the principles are applied to scenarios involving long-service employees.

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Many employers have presumed that their maximum exposure in Ontario with respect to termination and severance pay under the ESA is eight weeks outside of a mass termination scenario — particularly if they cap their payroll to under $2.5 million in the province. However, a corporation’s extra provincial payroll, whether that is in another province or country, may now directly impact corporate liability exposure and the decision on how to proceed with termination.

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This decision increases the potential statutory liability with respect to severance pay by up to a maximum of 26 weeks of base salary. While this is not likely to force businesses out of Ontario, it certainly increases the cost of doing business when dealing with long-term employees.

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Notably, an employer cannot reduce its obligation to pay severance pay by giving an employee advance notice of termination, as termination pay and severance pay are two distinct concepts under the ESA, the former being the only entitlement that can either be satisfied by way of a payment or advance notice of termination in lieu of a payment.

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The implications of this decision are best illustrated with a practical example that presumes the employer has a combined payroll of $2.5 million or more. A 26-year employee who would have received only eight weeks of compensation and benefit continuation might now have the potential to claim an additional 26 weeks of base salary, for a combined termination and severance pay entitlement of 34 weeks. This presumes the employee has not been dismissed for wilful misconduct pursuant to Employment Standards Act, 2000, O. Reg. 288/01 and is entitled to both termination and severance pay.

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In short, this represents an increase of approximately six months of guaranteed base salary. For an employee who may not otherwise be inclined to pursue additional legal redress through a civil action or who may not have the resources to do so, this is a significant amount of guaranteed compensation. When coupled with the fact that such an amount is not subject to mitigation, it may even result in a windfall in some scenarios.

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This decision follows a growing trend by the Ontario court with respect to finding ways to assist employees by not reading unwritten words into legislation as well as termination clauses when an employee is dismissed without cause. The impact of this decision and the reconciliation of the differing opinions coming out of the court have yet to be seen, but are eagerly anticipated.

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If you have a questions or concerns about entitlements and obligation under the Employment Standards Act or Canada Labour Code, call a Toronto employment lawyer, Toronto labour lawyer and Toronto Human Rights lawyer at Stitz Litigation. Michael Stitz is an employment and labour lawyer in Toronto with over half a decade of winning experience. Call for a free case assessment.

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