Determining the amount of severance pay to which an employee is entitled is no easy matter. Courts must consider the employee’s age, salary, experience, years of service and prospects of similar employment when deciding on an appropriate amount. This task becomes even more complicated when the employer is an international employer with headquarters in another country as this raises the issue of whether the employer’s international payroll should be considered in severance calculations in Ontario. An Ontario court considered this question in a recent case.

Ministry of Labour Says Employer Misses Threshold for Severance Pay Based on Payroll in Ontario

The employer was a wholly-owned subsidiary of a steel company headquartered in Germany. The employee had worked for the subsidiary steel company as a maintenance manager for 23 years, prior to when it was purchased by the employer in 2010. When the employer purchased the Canadian company, the employee received and accepted an offer of continued employment. The employer then terminated the employee in 2015.

The employee filed a complaint against his employer with the Ministry of Labour. The employee alleged that the employer owed him severance pay, vacation pay and termination pay. An Employment Standards Officer (ESO) with the Ministry agreed with the employee with respect to the payment of vacation and termination pay. However, the ESO rejected the employee’s claim for severance pay. The ESO found that, as per s. 64 of the Employment Standards Act (ESA), the employee did not meet the requirements for severance pay. The finding that the employee did not qualify for severance pay was based on the determination that the employer did not have a payroll of $2.5 million or more. This followed the ESO’s conclusion that only salaries paid to Ontario employees should be included in the calculation of the payroll threshold.

Ontario Labour Relations Board Upholds the ESO’s Conclusion

The employee asked for the Ontario Labour Relations Board (Board) to review the ESO’s decision. At issue was whether the payroll calculation should include the employer’s global payroll, or be limited to just its payroll in Ontario.

The employee argued that both the parent company and subsidiary steel company’s payroll should be considered under s. 64 of the ESA. The employee relied on the Ontario Superior Court decision Paquette v. Quadraspec Inc., which held that an employer’s national payroll, not just its provincial payroll, should be considered in decisions relating to severance pay.

The employer countered that s. 3(1) of the ESA, which states that the provisions of the ESA apply to work carried out in Ontario, sets the scope of all provisions. Although s. 64 does not explicitly reference payroll “in Ontario”, that limit is implied due to the boundaries set by s. 3(1).

The Board agreed with the decision of the Ministry of Labour, finding that the global payroll should be excluded from the threshold calculation due to the limits set by s. 3(1) of the ESA. The Board also held that Paquette was factually distinguishable from the current case.

The employee brought an application for judicial review of the Board’s findings.

Court Finds Board’s Decision Unreasonable Given Accepted Standards of Statutory Interpretation

The Court found that the Board’s conclusions, in this case, were illogical.

The Board had reasoned that by limiting the availability of the various employment standards in the ESA, including severance pay, to employees whose work is performed in Ontario, the legislature must have intended to limit the obligation to pay severance to companies with a provincial payroll of $2.5 million or more. However, the Court found that when interpreting a statute, ordinarily the inclusion of words of limitation in one part of the act and not in another is seen as deliberate and meaningful. The Board’s approach took this commonsense approach and turned it on its head.

Secondly, the Court concluded that the Board should have given Paquette serious consideration because the distinction the Board found did not rise to the level of principle. Lastly, the Board’s determination, that it saw no reason to depart from its pre-Paquette position, was found to be incorrect.

The bottom line was that the Court found the Board’s decision was unreasonable. The Court reasoned that where an administrative decision-maker failed to consider a key element of a statutory provision’s text, context, or purpose, its failure to consider that element would be indefensible, and unreasonable in the circumstances.

The Court allowed the employee’s application and remitted the matter for a determination of entitlement. This included the direction that the calculation of payroll for the purpose of s. 64 of the ESA is not limited to either Ontario payroll or Canadian payroll.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto For Severance Pay Disputes

For advice on severance pay obligations, employer liability, employee rights and other employment or labour law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise both employers and employees on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.