Common Employer Liability: Who is the Employer When Multiple Companies are Involved?

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:

“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.”

When do Multiple Entities Constitute a “Common Employer”?

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:

To summarize, the doctrine of common employer liability exists consistently with the principle of corporate separateness because it holds related corporations liable for obligations they actually undertook to perform in favour of the employee. It does not hold them liable simply because they have a corporate relationship with the nominal employer. Whether the related corporations actually undertook to perform those obligations is a question of contractual formation – did the parties objectively act in a way that shows they intended to be parties to an employment contract with each other, on the terms alleged? Of central relevance to that question is where effective control over the employee resided. The existence of a written agreement specifying an employer other than the alleged common employer(s) will also be relevant; the extent of the relevance will depend on the terms and the factual context.”

(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:

  1. Where the effective control over the employee resided; and
  2. 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.

Takeaways

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 info@jpakemploymentlaw.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. 

By |2022-01-17T16:23:57-04:00January 17th, 2022|Article, Article-All|0 Comments

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