In Hawkes v. Max Aicher (North America) Limited, the Ontario Divisional Court held that the calculation of an employer’s payroll for the purposes of determining its severance pay obligations under the Ontario  Employment Standards Act, 2000 (ESA) must include its payroll outside of Ontario and Canada.

Background

The employee was employed by Max Aicher (North America) Limited (Aicher), a wholly owned subsidiary of Max Aicher GmbH & Co KG (MAG), which was headquartered in Germany. Following the termination of his employment, the employee filed a complaint with the Ministry of Labour alleging that he was entitled to, among other things, severance pay under the ESA.

Section 64(1)(b) of the ESA requires an employer who severs an employment relationship with an employee to pay statutory severance pay if the employee was employed by the employer for five years or more and the employer has a payroll of at least $2.5 million. Aicher’s global payroll exceeded $2.5 million but its Ontario payroll did not. An employment standards officer (ESO) with the Ministry of Labour determined that the employee was not entitled to statutory severance pay because Aicher did not have a payroll of $2.5 million or more in Ontario.

OLRB Decision: Geographical Limits

On review of the ESO’s decision, the Ontario Labour Relations Board (OLRB) affirmed that the calculation of an employer’s payroll for purposes of statutory severance pay is limited to Ontario only. The OLRB reasoned that section 64 of the ESA must be interpreted with regard to the geographical limits imposed by section 3(1) of the ESA. Furthermore, the OLRB factually distinguished an earlier 2014 decision of the Ontario Superior Court in Paquette v. Quadraspec Inc. which held that an employer’s national payroll must be considered under section 64 of the ESA, and instead, the OLRB found support from pre-Paquette cases in making its decision.

Ontario Divisional Court Decision: Broad and Generous Interpretation

On judicial review of the OLRB’s decision, the Court decided that the calculation of payroll for the purposes of statutory severance pay is not restricted to Ontario or Canadian employment only. Notably, the Court referred to several Supreme Court of Canada decisions which have affirmed that the ESA is benefits-conferring legislation. That is, the ESA ought to be interpreted in a broad and generous matter, and any doubt arising from ambiguity in language should be resolved in favour of the employee. The Court noted that the OLRB’s decision favoured an interpretation that undermined the purpose of the ESA, as it allowed large multinational corporations to avoid paying statutory severance pay to long-service employees.

Takeaways

Given that “related employers” are treated as one employer under section 4 of the ESA, the Court’s decision will have far-reaching implications on multinational employers that have a small presence in Ontario but a large presence internationally. In fact, the OLRB determined that Aicher, and its parent corporation, MAG, in Germany were “related employers” under section 4 of the ESA. The result is that Ontario employers that have operations outside of Ontario and/or are related to companies that have operations outside of Ontario (in a manner that would trigger the related employer provisions under the ESA) must use their global payroll in assessing statutory severance pay obligations.