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An Employer’s Severance Pay Obligations


Hi there, Brittany Taylor here with another important legal update.

Today I’m going to be speaking to you about an employer’s obligation to provide severance pay to an employee at the end of the employment relationship.

Under the Employment Standards Act, most employees in Ontario are entitled to notice, or termination pay, or a combination of both, upon the termination of their employment. Some employees may be entitled to additional compensation, called severance pay, where certain conditions are met.

Generally speaking, severance pay is going to be payable where an employee has 5 or more years of service for the employer, and the employer has an annual payroll of 2.5 million or more.

Now, the Employment Standards Act governs Ontario employees only, it does not apply to employees working in other jurisdictions, as a result, there has been some confusion over the years over whether or not an employer’s total annual payroll should be counted when determining if they met the 2.5 million dollar threshold, or if it should be based only on their payroll in Ontario.

The Ontario Labour Relations Board has previously indicated that it is the latter that applies, so this would mean that a massive global employer may still not have to pay severance pay to an employee, as long as their Ontario payroll was under that 2.5 million dollar threshold. However, a recent Ontario decision has made it clear that the OLRB got this one wrong.

In Hawkes v. Max Aicher (North America) Limited, the court concluded that the calculation of payroll is not restricted to Ontario employment only. Employment outside of Ontario, including employment outside of Canada, must be included in calculating whether or not this threshold has been reached.

This is an important update for both employers and employees, and will likely result in more businesses meeting the severance pay threshold, thus increasing the costs on dismissal.

That’s it for today. Please check back with us regularly for more legal updates, and reach out if you have any questions. Thank you.

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