Law Times

Law Times • November 10, 2014 Page 11 www.lawtimesnews.com Will Paquette hold sway on severance issues? BY MIcHAEl McKIERNAN For Law Times ational and interna- tional businesses with a small Ontario pres- ence could take an unexpected hit when severing employees after an Ontario Su- perior Court judge ruled a com- pany's entire payroll, not just the Ontario portion, would de- termine whether it must make statutory severance payments to departing employees. Under Ontario's Employ- ment Standards Act, employees who have worked for at least five years at a company qualify for severance pay as long as the business has a payroll of at least $2.5 million. According to the act, employees are due one week's base pay for every year of service up to a maximum of 26 weeks of pay. There was a wide belief that only the payroll in Ontario counted towards the $2.5-mil- lion threshold. But earlier this year, Ontario Superior Court Justice Paul Kane contradicted the existing case law on that point with his decision in Pa- quette v. Quadraspec Inc. In the decision, Kane noted the act refers only to the "total wages earned by all of the em- ployer's employees" without limiting it to Ontario. "There is no legal justifica- tion or jurisdiction to interpret these items so as to insert re- strictions which are not found in the act," wrote Kane. Michael Stitz, an employ- ment lawyer with Grosman Grosman & Gale LLP in Toron- to, says the traditional approach to the issue has been "f lipped on its head" by Kane's decision. "It's a groundbreaking and controversial decision because it has broken with tradition and gone against what most employers operating in Ontario understood to be the framework for statutory severance pay," says Stitz. Brent Kettles, who practises employment law at Toronto's Lenczner Slaght Royce Smith Griffin LLP, says in practice the decision will only affect a small subset of businesses: those with a relatively small workforce in Ontario but also a sizable presence outside the prov- ince. However, for those caught by the broadened cri- teria, the consequences are significant, he says. Before the reversal, for companies with a payroll of less than $2.5 million in On- tario, the maximum statuto- ry obligation they faced un- der the act was an eight-week payout in lieu of notice for long-term employees or less than a third of the 26-week maximum payout for sever- ance pay. "It essentially puts a whole new class of employers into the category of having sever- ance obligations who might have previously thought they didn't," says Kettles. According to Stitz, the change in approach will af- fect companies of all sizes operating in Ontario. But he says smaller companies whose out-of-province activities take them just over the $2.5-million threshold will feel it most. "It exposes businesses to a significant liability without the employee needing to sue. If you're a large multinational, maybe you can absorb a pay- ment of six months wages to a 30-year employee as a cost of doing business but for a smaller company, you're going to take a big hit." In Paquette, Quadraspec Inc., a metal forgings company headquartered in Quebec, oper- ated two mills in Ontario. The employee sued the firm follow- ing his termination in 2011 after 24 years of continuous employ- ment. As part of the action, he asked the court to declare the termination provision of his work contract invalid because of its failure to comply with the act. In the year before Paquette's termination, Quadraspec's On- tario payroll totalled around $1.2 million. However, when its Quebec employees were part of the mix, the total payroll rose to $2.7 million. In his decision, Kane nulli- fied the termination clause and determined Quadraspec must pay Paquette severance after a detailed study of the legislative intent behind s. 64 of the act that sets the $2.5-million pay- roll level. Quadraspec's lawyers had asked the judge to read in the words "in Ontario" to the section, but Kane refused, not- ing provincial legislators had in fact added the words themselves when defining payroll in other pieces of legislation. "There is no reason to in- terpret these provisions so as to restrict the scope by add- ing the words 'in Ontario.' If that had been the intention of the legislature, it must be presumed that it would have expressed it clearly and ex- plicitly as it did under the Pay Equity Act," wrote Kane. According to Stitz, Pa- quette fits a trend he sees of an increasing reluctance on the part of judges to read un- written words into legislation in ways that would hinder employees' cases, especially in situations involving termina- tion clauses. "I think over the last cou- ple of years, we've seen equity prevail in a sense. Judges are not going to unduly preju- dice employees by reading words in to something that was vague. With respect to sever- ance pay, the judge has bent over backwards to look at the legisla- tive intent and meeting minutes. The words 'in Ontario' aren't there, and he's not going to put them in there. Conversely, some might say that's what the legisla- ture intended and the judge isn't bending over backwards at all. Whichever way you view it, the message being sent is that if leg- islators intend to do something, put it in there in writing." In reaching his decision, Kane reversed the approach tak- en by Superior Court colleague Justice Katherine Corrick in the 2011 case of Altman v. Steve's Music in which she decided the $2.5-million threshold applied only to the Ontario portion of the payroll. There has been no appeal in Paquette, leaving di- verging lines of precedent on the issue. But Adrian Ishak, a mem- ber of the labour, employment, and employment benefits group at Baker & McKenzie LLP in To- ronto, says he expects the depth of Kane's analysis will give it the edge in the future. "It's arguable that lower tri- bunals are bound by Paquette, notwithstanding the fact that it is contrary to other decisions issued in the past. The fact that it is such a recent decision will probably also hold sway. Many lawyers I know believe it is wrong on the basis of the previ- ous decisions, but here, we are certainly taking a far cagier ap- proach now to advising clients than we did before." LT FOCUS NOT TOO BIG. NOT TOO SMALL. ;IEVIEPE[½VQXLEXGSQFMRIWI\TIVMIRGIPIEHIVWLMTERHXIEQ[SVO ;IEPMKRFIWXTVEGXMGIW[MXL¾I\MFMPMX]ERHTVEKQEXMWQ ;ILEZIERMRREXIETTVIGMEXMSRJSVIEGLGPMIRX´WYRMUYIGLEPPIRKIW -JXLMWWSYRHWPMOIXLIVMKLX½XJSV]SY]SY´ZIHMWGSZIVIH6MKLXWM^IH8LMROMRK ® . *MRHSYXLS[XLMWETTVSEGLGEREWWMWX]SY &YWMRIWW0E['SQQIVGMEP0MXMKEXMSR'SQQIVGMEP6IEP)WXEXI 'SRWXVYGXMSR -RWSPZIRG] 'SVTSVEXI 6IWXVYGXYVMRK )QTPS]QIRX 0EFSYV ;MPPW )WXEXIW 8VYWXW ® Untitled-4 1 2014-11-04 9:35 AM N 'This is going to force employers to be very careful before they lay someone off and trigger those provi- sions,' says Brent Kettles. the leave." According to Kishnani, simply talking through the reasons for a justified termination with an employee can help reduce the chances of a lawsuit. "Employees, justifiably, often feel wronged, which is what can prompt the desire to take legal action," she says. "If they are treated fairly and the employer takes the time to explain the reasons for termination, including what their severance package consists of, and provided it is in line with the em- ployee's entitlement pursuant to the law, employees may feel more respected than if they were simply dismissed without any discussion." LT Continued from page 10 Fair treatment key to avoiding litigation

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