Canada: Court rules Ontario severance pay based on global payroll

In brief

Under the Ontario Employment Standards Act (ESA), employers with a payroll of at least CAD 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?


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.

In more detail

Over the years, there have been conflicting decisions around the calculation of the CAD 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 CAD 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.

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 CAD 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.

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.