Under the Ontario Employment Standards Act (“ESA”), employers with a payroll of at least $2.5 million are required to provide statutory severance pay when dismissing an employee with 5 or more years of service. But how is an employer’s “payroll” actually calculated?

Over the years, there have been conflicting decisions around the calculation of the $2.5 million threshold under the ESA and whether an employer’s payroll outside of Ontario is included. Both courts and the Ontario Labour Relations Board (“OLRB”) have gone back and forth on the definition, with the prevailing view that the $2.5 million threshold was limited to an employer’s Ontario payroll. This was until recently when the Ontario Divisional Court ruled in Hawkes v. Max Aicher (North America) Limited (“Hawkes”) that the payroll threshold refers to an employer’s global payroll.

The Decision

In Hawkes, the employee was employed by an Ontario-based subsidiary of a European company. Following the termination of his employment, the employee filed a complaint with the Ministry of Labour alleging that he was entitled to termination pay, vacation pay, and severance pay based on the employer’s global payroll.

An Employment Standards Officer (“ESO”) reviewed the claim and determined that the employee was entitled to termination and vacation pay, but not severance pay because the employer’s Ontario payroll was less than $2.5 million. The OLRB upheld the ESO’s decision, reiterating that “payroll” for the purposes of severance pay under the ESA was limited to an employer’s Ontario payroll. The employee appealed this decision.

On judicial review, the Divisional Court disagreed with the ESO and the OLRB and found that the payroll threshold for determining whether an employer is a severance payor under the ESA is based on its global payroll rather than its Ontario or Canadian payroll.

Key Takeaways

The decision in Hawkes has far-reaching implications for employers, particularly for multinational employers with a relatively small number of employees in Ontario. Unless the decision is successfully appealed, Ontario employers that are related to companies or have operations outside of the province will need to consider their global payroll in assessing their severance pay obligations under the ESA.