In a recent Ontario case, the Court of Appeal addressed and clarified the “common employer” doctrine as it applied to an employment case.
The case also addressed the liability of corporate directors, but we are focussing on the common employer doctrine in this discussion.
Employer Corporate Structure
The appeal involved three separate entities.
Corporation 1, a medical company, stood at the top of a corporate group. It was the majority shareholder of Corporation 2, which itself had a wholly owned subsidiary, the Subsidiary.
Dismissed Employee Seeks Compensation from Corporations
The employee had worked as CEO of Corporation 2 and the subsidiary.
His written employment agreement was with the Subsidiary, but he reported to, and his performance goals were set by, the board of directors of Corporation 2.
When his employment ended, the employee was owed substantial sums for salary and other entitlements. He brought an action seeking recovery of all outstanding amounts from Corporation 2 and the subsidiary as well Corporation 1.
While the employee did not have a formal position or written agreement with Corporation 1, he alleged that it, along with Corporation 2 and the subsidiary, were his common employers.
Lower Court Finds in Favour of Employee
The employee first obtained default judgment against Corporation 2 and the Subsidiary. He then moved for summary judgment against Corporation 1, which was granted.
Ultimately, the motion judge concluded that Corporation 1 was a common employer of the employee.
Corporation 1 appealed the judgment against it, arguing that the motion judge’s finding that it was liable to the employee as a common employer was flawed. It argued that the motion judge misconstrued the common employer doctrine, effectively finding it liable only because of its corporate affiliation to the employee’s contractual employer.
What is the Common Employer Doctrine?
The Ontario Court of Appeal explained the common employer doctrine as follows:
“One avenue exists under the doctrine of common employer liability. This common law doctrine recognizes that an employee may simultaneously have more than one employer. If an employer is a member of an interrelated corporate group, one or more other corporations in the group may also have liability for the employment obligations. However, and importantly, they will only have liability if, on the evidence assessed objectively, there was an intention to create an employer/employee relationship between the employee and those related corporations….
The common employer doctrine does not involve piercing the corporate veil or ignoring the separate legal personality of each corporation. It imposes liability on companies within a corporate group only if, and to the extent that, each can be said to have entered into a contract of employment with the employee…
Thus, consistent with the doctrine of corporate separateness, a corporation is not held to be a common employer simply because it owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee. Rather, a corporation related to the nominal employer will be found to be a common employer only where it is shown, on the evidence, that there was an intention to create an employer/employee relationship between the individual and the related corporation.”
Court of Appeal Allows Appeal
At the outset, the court held that the motion judge had not applied the correct factors in her determination and had failed to ask the seminal question relevant to determining whether a common employer relationship existed. It stated that the most important factor in such a determination is whether there was an intention to create an employer/employee relationship between the individual and the related corporation.
After reviewing the evidence, the court held thatthere was insufficient evidence to support a finding that Corporation 1 intended to create an employer/employee relationship between itself and the employee.
As a result, the court allowed the appeal by setting aside the summary judgment against Corporation 1, and substituted an order dismissing the motion for summary judgment against it.
At Bader Law, we are proud of the relationships we build with the clients we help. Our goal is to demystify the law, provide clarity about what you can expect, and always be available to answer questions as the matter moves forward.
We seek to resolve disputes between employees and their employers quickly, efficiently, and without the need to resort to lengthy litigation. We will negotiate with your employer and attempt a resolution outside of court or another adjudicative body.
However, where needed, we do successfully represent clients in litigation at all levels of court and before various tribunals, including the Human Rights Tribunal of Ontario, the Canadian Human Rights Tribunal, and the Workplace Safety and Insurance Appeals Tribunal.
At Bader Law, our knowledgeable employment lawyers can counsel you on your rights, advise you on your options, and help you create a plan for moving forward. We represent employees in Mississauga and areas west of Toronto. Contact us online or at (289) 652-9092 to learn how we can help.