Under the Ontario Employment Standards Act (“ESA”), employers whose “payroll” is at least $2.5 million are required to pay a departing employee statutory severance pay if the employee is dismissed after five years of service. But how is an employer’s “payroll” calculated?

Until recently, it was widely accepted that an employer’s “payroll” included only the amounts paid to employees in Ontario. For example, in Altman v. Steve’s Music Store Inc., 2011 ONSC 1480 [“Altman”], the Superior Court found that the plaintiff was not entitled to severance pay because the employer’s “payroll” did not exceed $2.5 million. In that case, the employer’s Ontario payroll was less than $2.5 million, and its “global payroll” – including employees in both Ontario and Quebec – was more than $2.5 million.

Because of cases like Altman, employers who operate in multiple jurisdictions have generally not included amounts paid to employees in other provinces (or countries) in determining whether severance pay was required under the ESA,.

In Paquette c. Quadraspec Inc., 2014 ONCS 2431 (“Paquette“), the Ontario Superior Court decided that cases like Altman are incorrect. This decision suggests that employers may have to include amounts paid to employees in all jurisdictions when determining whether they have a “payroll” of $2.5 million or more.

Background

Quadraspec Inc. (“Quadraspec”) is a medical diagnostic technologies company operating in both Ontario and Québec. On March 14, 2011, Quadraspec dismissed Alain Paquette, a long-serving employee who had more than 15 years of service. Quadraspec’s did not provide Paquette with statutory severance pay because the total amounts paid to its employees in Ontario did not exceed $2.5 million. Paquette claimed wrongful dismissal, arguing that Quadraspec was required to pay him statutory severance pay because its payroll did exceed $2.5 million when amounts paid to Quebec employees was included in the calculation.

The Decision

The Ontario Superior Court of Justice decided that, although Quadraspec’s “Ontario payroll” was less than $2.5 million dollars, it was required to pay severance pay because its “global payroll” exceeded $2.5 million dollars. According to Justice Kane’s analysis, the legislature intended to identify employers whose payroll was at least $2.5 million in all of its jurisdictions.

Justice Kane’s interpretation is consistent with the fact that other Ontario legislation, such as the Pay Equity Act, expressly limits its scope to Ontario. For example, s. 13 of the Pay Equity Act defines “payroll” as “the total of all wages and salaries payable to the employees in Ontario of the employer”. If legislators had intended to limit the ESA severance pay threshold to an employer’s Ontario payroll – Justice Kane reasoned – they would have been more specific.

Implications

Whether or not this decision will be appealed or applied in future cases remains to be seen. In the meantime, employers whose payroll exceeds $2.5 million – including amounts paid to employees in all jurisdictions – should be aware that they may be required to pay severance pay to qualifying Ontario employees.