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“Common Employer” Doctrine Reaffirmed by Ontario Court

In King v 1416088 Ontario Ltd., 2014 ONSC 1445 the common law doctrine for “common employer” was reaffirmed by the Ontario Superior Court of Justice. It was held that a number of related corporate defendants were jointly and severally liable to the plaintiff for reasonable notice of termination and pension benefits, even though the plaintiff had not actually been employed by several defendants.

Facts

Mr. King was an accountant and bookkeeper for 38 years, for Danbury Sales Ltd. During this time the company was purchased by 1416088 Ontario Ltd. and was carrying on a business as Danbury Industrial.

Mr. King was dismissed without cause. He received no statutory termination pay, no pay in lieu of notice, no vacation pay, and no pension payments. All the other employees of Danbury Industrial were terminated. Danbury Industrial ceased corporate trading, but continued to exist as a corporate entity, and still had a President.

Soon after, some employees that were initially terminated by Danbury Industrial were offered employment by another related company, 986866 Ontario Ltd. The company began operating as DSL Commercial. The company started trading in the same line of business, from the same premises and using the same telephone number and web address as Danbury Industrial. Mr. King was not subsequently hired by DSL Commercial.

Mr. King commenced a wrongful dismissal action against several Danbury Industrial entities, including DSL Commercial. He claimed he was entitled to pay in lieu of reasonable notice of termination at common law, as well as pension benefits.

Even though Mr. King was never formally employed by DSL Commercial, he argued that he should be treated as though he had been because: 1) he did work for 986866 Ontario Ltd., before it started trading as DSL Commercial; and 2) DSL was a common employer (along with various other companies that formally employed him or for which he did work over the years) and/or is the successor to the companies that employed him.

Issues

1. Which of the defendants is liable for payment of the plaintiff’s statutory termination pay and vacation pay, in lieu of notice?
2. Does any compensation payable to Mr. King include retirement compensation?

Decision

The Court ultimately found in Mr. King’s favour, ruling that all the Danbury defendants are jointly and severally liable for the damages he claimed.

The Court reaffirmed the principles in Downtown Eatery (1993) Ltd v Ontario (2001), 54 OR (3d) 161 (CA) which applies the “common employer” doctrine in the common law context. The Court agreed that “an individual may be employed by a number of different companies at the same time”. Further, the Court reaffirmed that, “as long as there exists a sufficient degree of relationship between the different legal entities who apparently compete for the role of employer, there is no reason in law or in equity why they ought not all to be regarded as one for the purpose of determining liability for obligations owed to those employees who, in effect, have served all without regard for any precise notion of to whom they were bound in contract.” What will constitute a sufficient degree of relationship will depend on the facts of each case.

In looking at the facts of this particular case, the Court relied on the following when it determined that DSL Commercial was not a separate entity from Danbury Industrial:

• DSL Commercial used the same location, supplies, telephone system, and website as had Danbury Industrial.
• DSL Commercial’s website made reference to “corporate lineage spanning more than 54 years,” encouraged customers to “rely on our experience,” which used the “Danbury” and “Danbury Group” names.
• Mr. King completed several tasks so that DSL Commercial could start operating as a business. This included setting up payroll, WSIB and employer tax account, banking resolutions, as well as monitoring its bank account.
• Although DSL Commercial formally had the license to use the “Danbury” name and logo, Danbury Industrial had also used the same name from May 2010 through October 2011; and
• The operating name, “DSL Commercial” was based on the old corporate entity “Danbury Sales Ltd.,” which was an employer of Mr. King in the 1980s.

Further, the Court was satisfied that all of the Danbury entities were sufficiently interconnected such that they could also be said to have employed Mr. King pursuant to the common employer doctrine.

Based on these findings, the Court held that the defendants are jointly and severally responsible for payment of compensation to Mr. King because of his termination. Mr. King was granted 24 months of pay in lieu of notice, and pre-judgment interest on this amount. He was also entitled to receive retirement compensation, and was awarded the value of these benefits retroactive to the date of his termination, with pre-judgment interest. Also, a declaration confirming his entitlement to receive future payments under his retirement agreement was granted.

The important points that employers should take away are as follows:

• When businesses operate through multiple corporations, these corporations could be held jointly or severally liable for the dismissal of a former employee, even though the business is not the former employer of an individual.
• It is important to have contracts in place which mitigate the risks that arise when employees are dismissed.

The lawyers here at CCPartners can help employers mitigate the risks that arise when dealing with former employees, where there are multiple corporate entities that are operating as a “common employer”.