The $2.5 Million Dollar Question

Not every employee who finds him or herself suddenly unemployed is entitled to severance pay in Ontario. Although almost all employees are entitled to “notice” of termination (employees on probation may not be entitled to notice, on this point see Probationary Periods and Notice,) significantly fewer are entitled to “severance.” (For a summary of what “notice” of termination entails, and wrongful dismissal generally see What is Wrongful Dismissal?)

“Severance” is different from “notice.” Unlike “notice,” which attempts to ‘cover’ any employee’s transition from one job to the next, severance pay “acts to compensate long-serving employees for their years of service and investment in the employer’s business and for the special losses they suffer when their employment terminates:” Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 SCR 27.

More importantly, the eligibility for severance under Ontario law is different from eligibility for notice. In order to be entitled to statutory “notice” of termination pursuant to the provisions of the Ontario Employment Standards Act, 2000 an employee needs to be continuously for three months. In order to be entitled to “severance” under the ESA an employee must be continuously employed for no less than five years and in the case of an individual who is terminated (note: if the employee is one of 50 or more let go within six months, different rules may apply), the dismissed employee's employer must have a payroll of $2.5 million or more.

An issue that is often litigated in our frequently more interconnected world is what counts as “payroll” for the purposes of the $2.5 million criterion.

In Altman v. Steve’s Music, 2011 ONSC 1480 (CanLII), a case worth reading in its own right, the Honourable Justice Katherine B. Corrick held that it is only the employer's operations within Ontario that count for the purposes of calculating the $2.5 million in payroll. In that case the employer had operations in both Ontario and Quebec. If one included the staff in Quebec, then payroll would exceed $2.5 million, if not, then it did not. On this point Justice Corrick wrote the following:

[34] In the case of Northern Superior Supply Co., the Ontario Labour Relations Board held that only the payroll of an employer’s operation in Ontario is relevant to s. 64(1)(b) [of the ESA]. The Board held that Ontario has legislative authority with respect to businesses operating in Ontario and has no authority to legislate concerning payrolls in other provinces.

[35] The Board relied on the decision of the Divisional Court in Tullett and Tokyo Forex (Canada) Ltd. v. Singer in which the court held that an employee of a Canadian subsidiary of a U.S. company who had worked four years for the U.S. company, and two years in Ontario for the Canadian subsidiary, was not entitled to severance pay because he had not worked in Ontario for more than five years. The court held that the provision in the Act was directed to Ontario based employment. Similar rulings have been made in other cases. [Citations omitted.]

Thus, until the decision of the Ontario Superior Court in Paquette c. Quadraspec Inc., 2014 ONCS 2431 (CanLII), it appeared settled that for the purposes of determining whether or not an employer meets the test of having a payroll in excess of $2.5 million, an employee can only count the payroll of the employer’s Ontario operations.

However, in a ruling released in April 2014, Paquette c. Quadraspec Inc., 2014 ONCS 2431 (CanLII), the Honourable Justice Paul Kane rejected Justice Corrick's reasoning and held that an employer's entire payroll had to be considered. For more on that decision, have a look at the post The Requirement to Pay Severance in Ontario - The Decision in Paquette c. Quadraspec Inc., 2014 ONCS 2431

Commentary

As set out in my discussion on wrongful dismissal, just because a dismissed employee’s employer does not meet the threshold for statutory severance does not mean that the employee is not entitled to anything.

Notwithstanding the fact that Ms. Altman was not entitled to “severance” from Steve’s Music, she was still awarded 22 months of notice. Had she been entitled to severance pay, same would have been deducted from the 22 months in any event, such that it likely made no practical difference whether she was entitled or not.

Takeaways

The takeaway for employees is it is prudent to know whether or not you’re entitled to “severance.” Typically this only matters if an employer is only obligated to the statutory minimum amounts of termination pay under the ESA; however, when it does matter it is prudent to know what counts and what does not. The second takeaway is that even if one is not entitled to “severance pay,” usually an employee, especially a long-serving one, will be entitled to “notice” of dismissal and as Altman demonstrates, same can be considerable. It is therefore always wise to seek professional legal advice before taking any decisions on the reasonableness of a “severance package;” the employment lawyers at Kelly Santini LLP would be happy to speak to you.

The takeaway for employers is that even if you do not meet the $2.5 million threshold, that does not necessarily mean that you do not have to provide your employees with something. If you are considering the termination of an employee’s employment, it is likely prudent to seek the professional legal advice of an employment lawyer and the employment lawyers at Kelly Santini LLP would be happy to speak to you as well.

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As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He tweets from @SeanBawden.