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In a recent employment case, an Ontario court highlighted the different employment standards that apply to employers with payrolls over $2.5 million and ruled that an employer’s international payroll must be used in the associated calculation.

Payroll Considerations under the Employment Standards Act

The Employment Standards Act (“ESA”) sets out a different set of rules relating to employers’ severance obligations in s. 64, which reads in part:

Entitlement to severance pay

64 (1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and,

(a) the severance occurred because of a permanent discontinuance of all or part of the employer’s business at an establishment and the employee is one of 50 or more employees who have their employment relationship severed within a six-month period as a result; or

(b) the employer has a payroll of $2.5 million or more.  


(2) For the purposes of subsection (1), an employer shall be considered to have a payroll of $2.5 million or more if,

(a) 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

(b) 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.” 

This means that an employer who severs an employment relationship with an employee must pay severance pay to the employee if the employee was employed by the employer for five years or more and the employer has a payroll of $2.5 million or more.

Terminated Employee Denied Severance by Employment Standards Officer

In the case under review, the employee was terminated in 2015 and had worked for the employer for more than five years. The employer is a wholly owned subsidiary of a company headquartered in Germany (the “parent company”).

Following his termination, the employee filed a complaint with the Ministry of Labour alleging that he was entitled to termination, vacation, and severance pay. In 2017, an employment standards officer (“ESO”) determined that the employee was entitled to termination and vacation pay, but not to severance pay. The ESO concluded that the employee did not meet the requirements for severance pay set out under s. 64 of the ESA because the employer did not have a payroll of $2.5 million or more. In reaching this conclusion, the ESO found that only salaries under Ontario jurisdiction factored into the calculation of the payroll threshold. 

Employee Challenges Decision to Ontario Labour Relations Board

Subsequently, the employee applied to have the decision reviewed by the Ontario Labour Relations Board (the “Board”), challenging the ESO’s determination as it related to the employer’s payroll. 

The employee claimed that he was entitled to severance under s. 64 because it was the payroll of the parent company that mattered, which exceeded the $2.5 million threshold, and not the employer’s payroll in Ontario. He cited previous case law which held that an employer’s national payroll must be considered and submitted that the same reasoning applied to a global payroll. Finally, he contended nothing in s. 64 placed a geographical limit on the payroll consideration and that the section did not specify an “Ontario payroll”.

In response, the employer conceded that s. 64 does not explicitly reference payroll “in Ontario”, but that the geographical limit was implicit under s. 3(1) of the ESA, which specifies that the Act applies to employers and employees in Ontario. 

Board Refuses to Factor Employer’s International Payroll

In 2018, the Board rejected the employee’s claim, finding that the employer’s parent company’s international payroll was excluded from the s. 64 calculation. In its reasons, the Board noted that s. 64 was generally interpreted with regard to the limits imposed by s. 3(1), stating:

“In this case, the [employee] was employed in Ontario by a company operating in Ontario. In my view, having regard to the Act as a whole, while an employer may have operations and payrolls outside Ontario, it is only Ontario-based employment and operations that is captured by section 3 and therefore section 64 of the Act. The absence of the words “in Ontario” in section 64 does not mean that the provisions are unrestricted. 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). It does not make sense to presume that provincial legislation could affect employment or operations anywhere but in Ontario.”

Employee Seeks Judicial Review of Board’s Decision on International Payroll

The employee applied for judicial review of the Board’s decision with the Ontario Superior Court of Justice. The sole issue was whether the calculation of payroll under s. 64 of the ESA was restricted to Ontario employment, or whether employment outside of Ontario should be included.

Court Rules That International Payroll Must Be Considered Under s. 64 of the ESA

The court reviewed the Board’s decision on the standard of reasonableness. It found several errors in the board’s reasoning, stating in part:

“[The Board] treats the inclusion of the words “in Ontario” in s. 3 in relation to work and their exclusion in s. 64 in reference to payroll as meaningless. In addition, the Board’s view that it does not make sense to presume that provincial legislation would define payroll to include wages outside Ontario is itself illogical. On the contrary, it makes perfect sense for the legislature to limit the right to severance pay to employees who perform work in Ontario, while exempting small employers from paying severance on the basis of their overall payroll, in and outside Ontario. 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.

Furthermore, the suggestion in the Board’s reasons that Ontario has no authority to legislate concerning payrolls outside Ontario is simply wrong. There is no jurisdictional impediment to Ontario legislating that an assessment of an employer’s ability to pay severance should take into account the size of the employer outside Ontario.”

As a result, the court allowed the employee’s application and set aside the Board’s decision, directing that the calculation of payroll for the purpose of s. 64 of the ESA is not limited to either Ontario payroll or Canadian payroll.

Get Help

If you have been terminated, you may be tempted to simply sign the severance package you have been provided with so that you can sever ties with your former employer and begin to move forward. While this may seem enticing, it is not the best course of action. Most employees do not realize how much they are entitled to upon termination and, without obtaining knowledgeable advice, often end up accepting significantly less than they should receive.

If you have been fired, one of the first phone calls you should make is to a wrongful dismissal lawyer. The highly experienced Mississauga employment lawyers at Bader Law have been advising employees on termination, severance packages, and wrongful dismissal for several years. We can review any termination letter or package you have been provided with, negotiate with your employer on your behalf, and file a wrongful dismissal claim where necessary. With our lawyers on your side, you can ensure you are getting the maximum amount that you are entitled to.

Contact a knowledgeable employment lawyer as soon as possible. At Bader Lawour lawyers will counsel you on your rights, advise you on your options, help you create a plan for moving forward, and secure fair compensation for the wrongful termination of your employment. Contact us online or at (289) 652-9092 to learn how we can help.