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Until recently, I was confident that an Ontario employer would not owe severance pay under the Employment Standards Act, 2000 (the “ESA”), unless it met the $2.5 million Ontario payroll test. I am no longer so sure, following a surprising decision of Justice Kane of the Ontario Superior Court of Justice in April 2014.

The facts are simple:

  • Quadraspec is a company whose head office is located in Quebec. It operates three mills; one in Quebec and two in Ontario.
  • Mr. Paquette was employed by Quadraspec and its predecessors for approximately 24 years, at which time his employment was terminated without cause in March 2011. Mr. Paquette was working at the Oakville, Ontario location at that time.
  • Quadraspec’s Ontario payroll did not meet the $2.5 million test. It was $1.24 million in 2009, $1.23 million in 2010, and $1.52 million using the 4-week period before Mr. Paquette’s termination date, multiplied by 13.
  • Quadraspec’s Canadian payroll did meet that test. The total payroll for all employees, including the employees in Quebec, was $3.12 million in 2009, $2.71 million in 2010 and $3.18 million using the same formulae referenced above.

The judge’s legal analysis is also simple. It goes like this:

  • The severance pay provisions of the ESA apply to employers who have “a payroll of $2.5 million or more”.
  • There are several references to this $2.5 million payroll test in the severance pay provisions. Nowhere does it state that only an employer’s Ontario payroll counts.
  • In contrast, there are other provisions in the ESA that do refer to Ontario employment. There is also other Ontario employment legislation that limits employer obligations based on the size of the employer’s Ontario payroll.
  • The Hansard debates of 1987 that led to the introduction of $2.5 million test indicate that its purpose is to protect employees who work for a larger company or a company “that is part of a larger enterprise.” Nowhere in those debates does it mention that payroll should be limited to Ontario operations.
  • Had the Ontario legislature intended that the severance pay provisions should be interpreted as only applying to employers who have an Ontario payroll of at least $2.5 million, then this could have been easily expressed in a clear and explicit manner in the wording of those provisions. It was not.
  • Mr. Paquette was awarded, among other things, approximately 24 weeks’ severance pay under the ESA, because Quadraspec’s Canadian payroll met the $2.5 million test.

What is not so simple is what to now tell our employer clients to do when it comes to ESA severance pay. Do they pay ESA severance pay if they have an Ontario payroll of less than $2.5 million, but a Canadian payroll that meets that threshold? What if their Canadian payroll is also under the $2.5 million threshold, but their North American or worldwide payroll meets that threshold?

As a management-side lawyer, I disagree with the Judge Kane’s decision, and support the approach consistently approved by both the Ontario Ministry of Labour and the Ontario Labour Relations Board that only Ontario payroll should be used in the $2.5 million test. The Ministry’s website still refers to the use of Ontario payroll only. A call today to the Ministry’s Employment Standards Information Center confirms such continued approach.

Over the coming months, we will be very interested to see if the Ministry changes its position on this issue, given Judge Kane’s decision. We will also be interested in whether this decision is appealed and, if not, whether it is followed or not in other cases.

The decision can be found (only in French at this time) at: Paquette v. Quadraspec Inc.

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