In the decision of Hawkes v. Max Aicher (North America) Limited ["Hawkes"], the Ontario Divisional Court (the "Court") overturned a ruling of the Ontario Labour Relations Board (the "Board") by deciding that the payroll threshold for determining whether an employer owes severance under section 64 of the Employment Standards Act, 2000 (the "ESA") is based on the employer's global payroll, rather than just its Ontario payroll.
Under section 64 of the ESA, employees in Ontario with more than five years of service are entitled to statutory severance pay if their employer has a payroll of $2.5 million or more. The $2.5 million threshold is not the only way the requirement to pay severance is determined, but it is by far the most common measure used when considering whether an employer owes statutory severance pay.
Prior to Hawkes, case law established that only the employer's payroll in Ontario was relevant to the assessment contemplated at section 64 of the ESA. However, the Hawkes Decision has changed the law and established that an employer's global payroll should now be considered.
The employee, Mr. Doug Hawkes, was the maintenance manager for Max Aicher (North America) Limited ("Aicher") until his termination in 2015. Although Aicher is based in Ontario, it is a wholly owned subsidiary of Max Aicher GmbH & Co KG, which is a steel company based in Germany.
In Ontario alone, Aicher's payroll fell below the $2.5 million threshold, but climbed well above $2.5 million if the German-based parent company's payroll was factored into the equation. After his termination, Mr. Hawkes filed a complaint with the Ministry of Labour claiming he was entitled to severance pay.
Mr. Hawkes' claim was dismissed by the Employment Standards Officer and the Board, who determined that only the Ontario payroll should be considered when assessing section 64 of the ESA. Mr. Hawkes appealed these decisions to the Divisional Court.
On judicial review, Mr. Hawkes asserted that he should be entitled to severance pay since Aicher and its parent company's global payroll well exceeded the $2.5 million threshold. The Court agreed and set aside the Board's findings, characterizing the Board's decision and reasoning as "illogical" and "flawed." The Court clarified that the calculation must include an employer's payroll outside of Ontario and even outside of Canada. The Court remitted the case to the Board to determine the amount of severance pay Mr. Hawkes was entitled to.
The Bottom Line
The Court's decision in Hawkes clarified that an employer must take into account its entire global workforce when determining whether it is obligated to provide statutory severance pay under the ESA. Employers who were not considered statutory severance employers prior to Hawkes should ensure that they review their global payroll in order to determine what their obligations are when dismissing employees with five or more years of service.
While this does not change any "common law" assessment of reasonable notice upon termination, employers who have enforceable employment agreements limiting their employees' entitlements to the minimum requirements under the ESA, must now ensure that the proper severance calculation and payment is made upon termination. Failure to pay the full amount, even if inadvertent, could lead to allegations of failure to comply with the ESA.
Contact the experienced employment attorneys at Hyde HR Law, for expert guidance regarding your statutory obligations and entitlements at law.