In unionized industries and in particular the construction
sector, there are well established rules governing when multiple
companies can be considered a single employer under the law. Dozens
of multiple employer applications per year are brought in Ontario
alone. The same cannot be said about common employer determinations
in the non-unionized sector. However, a recent case heard by the
Ontario Superior Court of Justice dealt with such a situation.
In King v 1416088 Ontario Ltd,
the plaintiff was a long service employee of a business engaged in
liquidation, valuation and auctioneering called
"Danbury." The employee had initially been hired by a
company called Danbury Sales (1971) Limited as a bookkeeper in
1973. Over the course of his employment, the business of Danbury
was carried on by no less than seven different corporate entities
at various times. Finally, in October of 2011, while working for
Danbury Industrial, a company continuing from his original
employers, along with all other employees of the company, was
terminated without cause or notice. At the time, the formal
employer of the plaintiff had been Danbury Industrial for
approximately six years.
In December of 2011, a company established but not engaged in
business prior to the employee's termination called DSL
Commercial ("DSL") began operating under the Danbury
name. The plaintiff brought an action against DSL and all prior
Danbury companies for wrongful dismissal.
The dispute in front of the court was whether all of the
companies for which the employee had worked under the Danbury name
and the apparent successor company DSL were considered the
employer. The employee argued that all of the companies carried on
the same business, albeit at different times, and the Court should
treat them as the same employer. The defendants argued that, as a
result of pending litigation in 2011, Danbury Industrial was
deactivated at the time of the employee's termination, and that
after the employee's termination, there was a "clean
break" from the previous corporations prior to DSL commencing
Since the only corporation against whom the employee could
realistically collect was DSL, this question was critical to the
real world consequences of the case.
The Court sided with the employee.
The Court found that there were simply too many attributes in
common between DSL Commercial and the previous employers to be
ignored. Not only did the companies all conduct business under the
name Danbury under the same license, the companies used the same
hardware and even office furnishings. Even in the case of some
companies for which there was less direct evidence to their place
in the historical legal structure of the business, the Court
pointed to the "overall inter-connectedness of the Danbury
business, and the plaintiff's contribution to [them]" as
supporting the Court's decision to treat them as a single
employer. All of the companies were held to be liable for the
notice and severance pay payable to the employee.
Lessons for Employers
This case is not a typical sale of business situation, with two
arms-length entities engaged in a transaction. As a result, the
outcome in this case is perhaps less of a surprise.
When a sale occurs by share purchase, the purchaser is almost
certainly deemed to assume the existing employees along with their
past service. However, when the sale occurs by way of asset
purchase, there is flexibility and risk. When employee service and
related efficiencies are deal-breakers, how that risk is shifted
can become subject of intense negotiations between the parties.
This case plainly supports the view that courts will not permit
employers to engage in a simple shell game with non-arms-length
entities to avoid liability for employees' service. But it
holds lessons for bona fide arms-length purchasers as well.
When purchasing the assets of a business, there are many ways to
address the challenges posed by existing employees and their
service. Lawyers at Stringer LLP often advise parties to
transactions on the solution to suit their needs.
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