The doctrine of common employer liability typically concerns two or more connected companies that have shared obligations to employees. Companies often have aligned interests, overlap in assets, personnel, and symbiotic relationships, and the law recognizes that they are separate and distinct entities. However, an employee of one of those entities can also be found to be an employee of a connected one.
The Ontario Court of Appeal (“Court”) recently released its decision in O’Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (CanLII) (O’Reilly). The Court allowed an appeal brought by Tornado Medical Systems Inc. (“Tornado”) to set aside a summary judgment motion decision that found Tornado and ClearMRI Solutions Ltd. (“ClearMRI”)1 to be common employers.
The plaintiff, Mr. O’Reilly, was hired by the subsidiary ClearMRI as a director. The plaintiff had argued before the motion judge that Tornado as the majority shareholder company to ClearMRI, was a common employer and that Tornado owed the same employer obligations as ClearMRI. The motion judge agreed and further ordered payment for deferred wages, a loan the plaintiff had provided to ClearMRI and various other entitlements.
On appeal, the Court disagreed and took the opportunity to discuss common employer liability at length. Justice Zarnett for the Court summarized the function of the doctrine:
More than one entity may be found to be common employers if there exists an intention that the relevant entity(s) is a party to the employment agreement with the employee. That intention is demonstrated by the objective conduct of the parties.
(a) The Written Contract
The named employer in the employment contract is a relevant, but not a determinative factor. The written agreement is instructive as to who the controlling entity is, but is not overly relied upon since businesses can use them to exert control without actually being named in the contract. Likewise, the absence of a company’s name in a contract does not automatically mean that it is not a common employer. The Court elaborated as follows:
(b) Evidence of Control
Whether multiple companies have entered an employment relationship with an employee is an objective analysis that is determined by observing the conduct of the parties. The Court noted two types of conduct that are central to the analysis:
- Where the effective control over the employee resided; and
- Whether there is an agreement specifying an employer other than the alleged common employer
While both are important, the focus is on which business (if not both) exercises the effective control over the employee. Control can be inferred from factors such as:
- Who selected the employee?
- Who pays the employee’s wages or other remuneration?
- Who dictates the employee’s duties?
- Who can dismiss the employee?
This is not an exhaustive list but does provide guidance on key elements of control.
Companies that have interconnected entities should be wary of how contracts are drafted and implemented, including employee reporting relationships to staff employed by affiliated entities.
Conversely, Employees finding themselves in a dispute with an employer that may be connected to other corporations should be aware of their options. We encourage you to review the above factors and considerations in identifying the appropriate party(s) to pursue your legal claims. Pursuing more than one related entity may have strategic benefits, including increased chances of recovery.
Need legal advice? Contact one of our employment lawyers at email@example.com.
1 ClearMRI was subdivided as ClearMRI US and ClearMRI Canada; the plaintiff was CEO of both. For the purposes of discussing the common employer liability issue, we refer to ClearMRI as a single entity.