Insights & Articles

< Back to Insights & Articles

Recent Ruling has Major Implications for Employer Severance Obligations

A decision has been released which challenges the traditional approach and understanding of severance pay under the Employment Standards Act, 2000, in Ontario. The Act states that where an employee is terminated without cause, they are entitled to notice of termination, and in some circumstances, severance. Section 64 requires that employers with an annual payroll of $2.5 million or more must pay severance when terminating employees with 5 or more years of service:

(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,

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

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

  1. 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
  2. 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.

To date, the approach has been to consider only an employer’s total Ontario payroll. However, the court in Paquette c. Quadraspec Inc., 2014 ONCS 2431 (CanLII) has ruled that one must look at an employer’s entire payroll when calculating statutory severance entitlements. The Honourable Justice Paul Kane held that legislature did not intend to limit such payroll calculations by provincial boundaries, and that severance obligations should be calculated based on the total wages earned by all employees of the employer, both inside and outside of Ontario.

While the decision will likely be appealed, it could have huge implications for employers with operations outside of Ontario, or outside of Canada. This additional severance obligation could mean that employees with 5 or more years of service who are terminated will be entitled to payment of an extra week of pay per year of service, up to a maximum of 26 weeks. This is in addition to the statutory notice obligations. Many Ontario employees, on the other hand, will be celebrating this potentially significant increase in severance entitlement.

If you employ employees in Ontario, or you are an employee who has recently been terminated, you may wish to speak to a lawyer about your rights and obligations and the implications of this decision. For more information please contact us or Sarah Low directly at 519-672-5666.