The Ontario Employment Standards Act mandates severance pay after five years of service upon employers with a payroll of $2.5 million or more. This term in the statute may have repercussions beyond the immediate need to make the payment. Where the employment contract sets out a lower threshold requirement than the ESA minimum, the termination clause may be at risk and hence expose the employer to the greater common law claim.

It is clear that in establishing the payroll number that related businesses add to the number.

Out of Province

The more significant question is whether the company’s payroll numbers for related businesses or the same business out of Ontario add to the salary number. The apparent purpose of the payroll requirement is to fix a higher minimum standard on businesses of a significant size. If AT&T has two employees in Ontario, does it then escape the ESA or must it comply?

The Case Law

In 2014, the law was that the payroll number was not limited to operations in Ontario. In the case in question, this was an important issue as the decision meant that the employment contract violated the ESA and hence the employee was allowed common law wrongful dismissal damages.[1] The court noted that the legislation was not clear and that had the Province wished the payroll be limited to Ontario alone, it could have done so easily and chose not to do so.

Contrary View

In late 2018, the Ontario Labour Relations Board[2] considered an appeal from an Employment Standards Officer decision in interpreting this very issue on a direct application for statutory severance. The ESO had concluded that only Ontario payroll was to be used in the severance entitlement.

The OLRB agreed that the ESO was correct and that the prior decision had failed to interpret the statute correctly.

The prior Paquette decision was also distinguished, apart from the first issue of the correct interpretation of the statute. In this precedent case, the employer was the same company with employees in Ontario and Quebec. In the OLRB case, there were “two” employers, one of which had no Ontario employees. The secondary argument was advanced that the two entities were related which was considered distinctive.

What Just Happened Here?

The OLRB and the ESO are indeed specialized decision makers interpreting their “home” statute. For the present moment, this would appear to the law and certainly so for a direct application for severance pay under the statute. A collateral attack before a judge in civil court may be the best means of challenging this decision.

Employers’ View

No doubt companies with modest payrolls will take immediate comfort in this decision, particularly those with termination provisions in the employment contracts. Barring that issue, the impact of the statutory severance is relevant only for the immediate termination requirement and further that it has no reduction when there is successful mitigation.

Employees’ View

Individuals facing this issue should seek legal advice as to how to assess this claim. It is not straightforward. There is no doubt that the ESO will consider the OLRB decision binding.

Get Advice and Know Your Rights

This issue can be unduly complicated. Get Advice. For advice on all employment law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.


[1] Paquette c Quadraspec Inc.

[2] Hawkes v Max Aicher (North America) Ltd.