Increased Severance Costs for Employers in Ontario


Stuart Rudner here with another Rudner Law video employment law update.

Do you have employees in Ontario and are either operating multi-nationally or even multi-provincially? If so, your severance costs may have just dramatically increased. The reason I say that is because in Ontario we have something somewhat unique, where in addition to providing notice of dismissal, or termination pay, which we often refer to informally as severance, there is a requirement under the Ontario Employment Standards Act, 2000, which says that in addition to that, some employers must also provide severance pay, which is essentially 1 week of pay for every year of service, capped at 26 weeks, and prorated for partial years. Now, this only applies in certain circumstances.

First of all, it only applies for employees that have worked for at least 5 years, and that can be cumulative, so that’s an important point. If you have someone who works with you for 3 years, and then voluntarily resigns and goes and works somewhere else, even for decades, and then comes back again, and works with you for another 3 years, and then you let them go, their accumulative employment is 6 years, and they would therefore qualify. So that’s point one, they have to be employed for a total of at least 5 years.

Secondly, and the point of this post, is that your payroll, your annual payroll, must be at least $2.5 million. If it is, so if both of those criteria are met, you are also responsible for providing severance pay.

Now, there’s a recent decision from the Ontario Divisional Court, which has dramatically changed things, because in the past, we always interpreted that $2.5 million threshold for payroll to be based upon either Canada only, or Ontario only, depending on who you ask and over time it has changed. However, the most recent decision from the Divisional Court has confirmed that it’s based upon global payroll. So if you have one employee in Ontario, but your global payroll exceeds $2.5 million annually, you would be responsible for providing severance pay to that one employee in Ontario if he or she had been employed for at least 5 years and you let them go.

This can have dramatic implications, so we encourage you, as we always do, to consult with an employment lawyer before you let employees go and make sure you fully understand your rights and your obligations.

That’s it for today, thanks for tuning in.

Take care and stay safe.

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