The recent decision of Justice Kane in Paquette v. Quadraspec Inc., 2014 ONCS 2431 (“Paquette”) has arguably changed employees’ entitlement to severance pay on the termination of employment. Severance pay is distinct from termination pay and is meant to award long-term employees for their service and to compensate them for their loss of seniority and the value of their employer-specific skills. An employee entitled to severance pay will receive one weeks’ wages per year of service, prorated for partial years of service, and capped to a maximum of 26 weeks.

Pursuant to the Ontario Employment Standards Act, 2000 (the “ESA”), an individual who was employed in Ontario is generally entitled to severance pay on the termination of employment when he or she has at least five years’ service with an employer that has a payroll of at least $2.5 million.

Although section 64 of the ESA provides some guidance as to how to calculate an employer’s payroll, it is silent as to the geographic scope of the employer’s payroll that ought to be considered. Prior to Paquette, courts in Ontario had interpreted section 64 such that only an employer’s Ontario-based payroll was relevant to the consideration of whether an employee was entitled to severance pay. As such, with the law largely settled, in cases where an employer had a payroll of less than $2.5 million in Ontario, a dismissed employee would not be entitled to severance pay even if the employer had a payroll of greater than $2.5 million across Canada.

Paquette concerned just such an employer. The employer, Quadraspec, operated in both Ontario and Quebec with a combined payroll of $2.7 million, although its Ontario-based payroll was less than $2.5 million. Quadraspec dismissed its employee Alain Paquette, who was employed in Ontario. At issue was whether this employee was entitled to severance pay.

Justice Kane distinguished the prior jurisprudence and determined that Mr. Paquette was entitled to severance pay based on the employer’s national payroll. Justice Kane considered the purpose of providing severance pay and applied rules of statutory interpretation to conclude that the legislature did not intend to limit the consideration of an employer’s payroll to that in Ontario alone. It appears that the Paquette decision will not be appealed, but it remains to be seen whether it will be followed. However, at least for the time being, Ontario employers should be aware of the financial implications of the Paquette decision when making decisions concerning the dismissal of employees with more than five years’ service.

Julia Bassett