In Ontario, employment relationships are governed by the Employment Standards Act, 2000 (the “ESA”). The ESA sets out minimum entitlements that employers must provide to their employees. The parties to an employment contract cannot contract out of the minimum entitlements under the ESA.
In Paquette v Quadraspec Inc., Mr. Paquette made two different claims against his former employer, Quadraspec Inc. First, he claimed that his employment contract with Quadraspec Inc. did not provide for the minimum entitlements under the ESA. Second, he claimed that he is entitled to severance pay in accordance with the ESA.
Minimum Entitlements under the ESA
Section 12.4 of Mr. Paquette’s employment contract states that upon termination, Mr. Paquette is entitled to a maximum termination payment of six months wages. Section 12.4 also states that Mr. Paquette expressly waives any right to claim any other amount, “excluding salary, vacation pay and other benefits accrued and unpaid at the time of termination.”
Mr. Paquette claimed that Section 12.4 provides an entitlement that is less than the entitlement provided by sections 60(1) and 61(1) of the ESA. These sections state as follows:
Requirements to comply with during the notice period
60(1) During a notice period under section 57 or 58, the employer,
(c) shall continue to make whatever benefit plan contributions would be required to be made in order to maintain the employee’s benefits under the plan until the end of the notice period.
Pay Instead of Notice
61(1) An employer may terminate the employment of an employee without notice or with less than notice than is required under section 57 or 58 if the employer,
(a) pays to the employee termination pay in lump sum equal to the amount the employee would have been entitled to receive under section 60 had notice been given in accordance with that section; and
(b) continues to make whatever benefit plan contributions would be required to be made in order to maintain the benefits to which the employee would have been entitled had he or she continued to be employed during the period of notice that he or she would otherwise have been entitled to receive.
Section 12.4 of Mr. Paquette’s employment contract provides only for payment of benefits earned and unpaid at the time of termination, as opposed to the payment of benefits throughout the notice period.
The Court held that section 12.4 of the employment contract clearly contradicts sections 60(1) and 61(1) of the ESA and accordingly it is null and void. The Court stated: “Quadraspec cannot write a detailed 15-page employment contract and then expect a favourable decision concerning its request that the court infer unwritten terms or ignore the terminology used in the actual wording of the contract.”
This decision is in line with other recently decided cases on this issue. It is important for employers to be certain that employment contracts expressly provide for all entitlements under the ESA.
Upon termination, Mr. Paquette was not provided with any severance pay.
In certain circumstances, employers in Ontario are obligated to pay severance pay in accordance with section 64 of the ESA, which states:
64(1) An employer who severs an employment relationship with an employee shall pay severance pay to the employee if the employee was employed by the employer for five years or more and,
(b) the employer has a payroll of $2.5 million or more.
Quadraspec Inc. is headquartered in Quebec. It has two plants in Ontario and one plant in Quebec. The annual payroll of all employees in Ontario is less than $2.5 million. However, the annual payroll of all employees in Ontario and Quebec combined is more than $2.5 million.
Quadraspec Inc. argued that section 64(1)(b) of the ESA refers only to the payroll of employees in Ontario.
Although there is evidence that the purpose of this section is to exclude smaller employers from the financial obligation of severance pay, the Court found that if the section was to be restricted to wages in Ontario, then that it would have said so. Therefore, Quadraspec Inc. was ordered to provide Mr. Paquette with severance pay.
This decision expands the obligation for employers to pay severance pay. There is speculation in the legal community as to whether this decision will become the new standard or if it will be overturned.