Determining Employer Liability For Severance Pay

What is the Employment Standards Act?
The Employment Standards Act is the law that contains basic rules about employing people and working. Both employees and employers have rights and
responsibilities under the Act.
Does the Act cover all employees in Ontario?
Most employees are covered by the provincial legislation. However, employees working in industries that fall under Federal jurisdiction, such as, Post office, Banks, Railways, Radio stations, Airlines, Television stations etc. are not covered. 
If you are member of the trade union and your contract of employment is governed by the collective agreement, you may not be covered by the Act.
If you are currently employed with the company, you may be able to file a claim with a request that your name not be disclosed. The Act protects you when you are exercising your rights under it.
Once it is determined that the employee has been terminated who has five or more years of service to an employer, it is then determined whether the employer is liable for severance pay. If:
.           the employer has a $2.5 million annual payroll in the last two fiscal years in
            Ontario Or
.           50 or more employees have been terminated within a six months period because
            of permanent discontinuance of all or part of the business at an establishment,
the employer must pay to entitled employees.
In order to determine whether the employer has a payroll of $2.5 million in Ontario, one must look at the definition of “payroll” as defined in the ESA, which states, it is the greater of:
.           wages earned by employees in the twelve month period ending the last day of the
            most recent fiscal year-end before the termination occurs: Or
.           the same for the second last fiscal year; or
.           the same for the last four weeks ending on the last pay period prior to termination
            multiplied by 13.
The term “payroll” is the same as “wages” and includes all monetary remuneration payable by an employer to an employee under an employment contract. Wages may include allowances for room or board but does not include tips or gratuities, gifts or bonuses paid at the employer’s discretion, and not related to production hours or efficiency, traveling allowances or expenses. Contribution by the employer for employee benefits is also excluded.
Where there are more than one related companies, the payroll of all related companies in Ontario is added to determine the threshold of $2.5 million.
If it is determined that the annual payroll is less than $2.5 million, one then determines whether 50 or employees have been terminated by their employer in a period of six months or less and the terminations are due to permanent discontinuance of all or part of the employer’s business at an establishment.
Permanent discontinuance of the employer’s business occurs when the employer has no intention of continuing the business at some future point in time.
In determining 50 or more employees, all employees who have been terminated are included in the count whether or not they are entitled to severance pay, such as employees with less than three months service or elect to work.    
If you or the employer disagrees with the investigating officer’s decision, both parties have a right to appeal to Ontario Labour Relations Board within 30 days of the officer’s decision. The Board appoints a referee to hear the appeal. It does not cost the employee to request an appeal but the employer may be required to deposit monies in trust with the Ministry of Labour if it is found to be owing. The monies are distributed according to the decision of the referee. The referee decision is final and binding on both parties.    
In the past, the Ministry was very aggressive in defending the rights of an employee and would send a legal counsel to represent the employee at the Board’s hearing to deal with the matter. It rarely does so now. Obviously, the employer has advantage over the employee in these circumstances as it has more resources than the employee. The question arises, should the employee also engage the services of a professional to deal with these matters. It is my view, employee’s may not engage such services at the officer’s level hearing but may do so at the referee level hearing, particularly, if the issues are complex.
It is important that if a hearing has been scheduled, the employee must attend such a hearing to present evidence to support its position or to contest the evidence of the employer, otherwise, the officer or the referee may rely on the evidence of the employer to render a decision.   
This information is provided for guidance only and should not be considered as a legal advice.

This article is provided by Rajinder K. Batra, who is a retired Employment Standards Officer with the Ministry of Labour with 15 years experience in these matters.

If you have any questions regarding your employment, please contact the writer by e-mail at

If you don’t have access to e-mail; you can fax your question at (905) 331-1805.

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