Ontario court overturns board's severance pay ruling

Court finds payroll outside of Ontario should be used to determine worker’s severance pay entitlement, based on language of ESA

Ontario court overturns board's severance pay ruling

A multinational company’s total global payroll should be used in determining if a dismissed Ontario worker is entitled to severance pay, the Ontario Superior Court of Justice has ruled.

Max Aicher (North America) is a wholly-owned subsidiary of Max Aicher GmbH & Co KG, a steel company based in Germany. In November 2010, Aicher purchased the assets of US Steel and kept on several of US Steel’s employees. Doug Hawkes was one of those employees, having worked for US Steel and its predecessor since 1977. Aicher offered Hawkes continued employment as maintenance manager after the acquisition.

Aicher terminated Hawkes’ employment on Oct. 7, 2015. Hawkes filed a complaint with the Ontario Ministry of Labour claiming termination, severance, and vacation pay. An employment standards officer found that Hawkes was entitled to termination and vacation pay, but not to severance pay. The Ontario Employment Standards Act, 2000 (ESA) required employers to have a payroll of $2.5 million or more for terminated employees to receive severance pay. Although the parent company had a much larger global payroll, Aicher’s operation in Ontario had a payroll of less than $2.5 million. Only salaries in Ontario counted towards the payroll threshold, said the officer.

Hawkes appealed to the Ontario Labour Relations Board. He argued that while section 3 of the ESA states that it applies to work performed “in Ontario” and work performed outside of Ontario that was a continuation of work performed in Ontario, section 64, which outlines entitlement to severance pay, only requires the employer to have a payroll of $2.5 million or more with no mention of it only having to be in Ontario.

Aicher countered that the ESA’s stipulation that it applied to work performed in Ontario meant that everything was limited to Ontario, even though the payroll provision didn’t explicitly reference Ontario-only payroll.

Ontario-only payroll counts: labour relations board

The board agreed that Aicher and the parent company were related businesses under the ESA — which provided that “if associated or related activities or businesses are carried on by or through an employer and one or more other persons, the employer and the other person or persons shall all be treated as one employer for the purposes of the ESA.” However, it upheld the employment standards officer’s determination that the parent company’s global payroll should be excluded from the payroll calculation for the purposes of determining Hawkes should receive severance pay.

“The words ‘in Ontario’ are found in section 3 and their effect is to apply to employers whose employees perform work in Ontario (or whose work is a continuation of work performed in Ontario),” said the board. “It does not make sense to presume that provincial legislation could affect employment or operations anywhere but in Ontario.”

Usually, the inclusion of words limiting a provision in one part of legislation and not another is seen as ‘deliberate and meaningful’: court

Hawkes appealed again, this time to the Ontario Superior Court of Justice. The court noted that in order for it to overturn the board’s decision, Hawkes would have to show that it was not a reasonable and acceptable outcome with regards to the facts of the case and the law. In this case, the issue came down to how the language of the ESA was constructed, the court said.

Broad interpretation intended

The court found that the board’s reasoning that the legislature intended to limit the obligation to pay severance to companies whose Ontario payroll was $2.5 million or more because the various employment standards applied only to Ontario work, was “illogical.” Usually, the inclusion of words limiting a provision in one part of legislation and not another is seen as “deliberate and meaningful,” but the board essentially decided that the exclusion of the words “in Ontario” in the severance pay provision was meaningless. This wasn’t the purpose of the severance pay provision, which was to exempt small employers from paying severance, the court said, pointing to comments by the Ontario Minister of Labour in 1987 that described the introduction of the $2.5 million payroll amount as “to better recognize the dignity and value of the people who work in this province by extending the protection of severance pay to as many employees as possible.” This idea was since encouraged by the Supreme Court of Canada, which interpreted the severance pay provisions “in a broad and generous manner,” the court said

Contrary to that purpose, the board favoured a narrow interpretation of the ESA that, instead of limiting the payroll exemption to “truly small enterprises,” allowed some large national or multinational corporations to avoid paying severance pay to long-service employees. This undermined the purpose of the payroll exemption, said the court.

“It is hard to imagine how Ontario could, or why Ontario would, legislate entitlement to severance with respect to work performed outside Ontario; but it is easy to understand why Ontario would base the requirement to pay severance on the size of the payroll of an employer both within and outside the province,” said the court.

The court also disagreed with the board’s finding that the province had no authority to legislate concerning payrolls outside Ontario. There was no “jurisdictional impediment” to legislating that an assessment of an employer’s ability to pay severance should account for the employer’s overall size, not just in Ontario, it explained.

The court determined that it was unreasonable to give Aicher an exemption from the payroll calculation used to determine severance pay entitlement under section 64 of the ESA, as employment outside of Ontario should be included as part of the company’s payroll. It allowed Hawkes’ appeal and remitted the matter back to the Labour Relations Board to determine how much severance pay to which Hawkes was entitled.

For more information, see:

  • Hawkes v. Max Aicher (North America) Limited, 2021 ONSC 4290 (Ont. S.C.J.).

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