Determining application of employment standards requirements
Question: Where there is a requirement for severance pay for dismissed employees if a company’s payroll is of a certain size, how is this calculated if the size of the payroll fluctuates?
Answer: Employment standards statutes in all Canadian jurisdictions contain termination provisions requiring employers to provide employees who are dismissed without cause with a specified minimum amount of notice of dismissal, compensation for length of service, termination pay and severance pay, depending on the circumstances. Additional requirements may apply where there is a “group termination” — where the employer dismisses more than a certain number of employees within a specified period. These statutory termination provisions are different in each province, and employers must therefore check the rules carefully in the jurisdictions in which they operate.
In Ontario, the Employment Standards Act, 2000, requires an employer to provide statutory termination notice or termination pay in most situations where an employee is dismissed without cause. The amount of termination pay or notice that is required is between one and eight weeks, depending on the employee’s length of service. The act requires additional notice or termination pay in mass termination situations, where the employment of 50 or more employees is terminated at an employer’s establishment within a four-week period.
In addition to these termination pay requirements, Ontario’s act imposes additional “severance pay” obligations on employers in situations where an employee has worked for the employer for five or more years, and where the employer either has a payroll of at least $2.5 million, or has severed the employment of 50 or more employees in a six-month period because all or part of its business has closed.
The method for determining whether an employer meets the $2.5 million threshold is governed by s. 64(2) of the act. Under that provision, an employer is considered to have a payroll of $2.5 million or more if:
• 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
• 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.
Accordingly, even where an employer’s payroll fluctuates, liability for severance pay can arise if the payroll meets these threshold levels within one of the specified periods.
A recent case of the Ontario Superior Court of Justice highlights how broadly Ontario’s severance pay provisions may be interpreted by the courts. In Paquette c. Quadraspec Inc., the court considered the national payroll of the company in determining that it met the $2.5 million threshold, and thus severance pay was owed. In making that determination, the court rejected the reasoning in Altman v. Steve’s Music Store Inc., where the court had earlier ruled that only the company’s Ontario payroll, and not its Quebec payroll, could be considered in the determination of whether statutory severance pay was owed. A decision from the Ontario Court of Appeal will likely be required before this point is resolved with certainty.
For more information see:
• Paquette c. Quadraspec Inc., 2014 CarswellOnt 5338 (Ont. S.C.J.).
• Altman v. Steve’s Music Store Inc., 2011 CarswellOnt 1703 (Ont. S.C.J.).
