Canada: Multiple Related Corporations Can Be A Common Employer

Last Updated: May 27 2014
Article by Jennifer Emmans

Most Read Contributor in Canada, October 2018

A recent Ontario Superior Court of Justice decision has revisited the "common employer" doctrine. In King v. 1416088 Ontario Limited, 2014 ONSC 1445, an employee of 38 years was found to be entitled to reasonable notice as well as his pension from one or several related corporations, regardless of the fact that the corporation that was his formal employer was no longer in operation. 

Facts

Mr. King was hired by Danbury Sales (1971) Ltd. in 1973. In 1981, he signed a Retirement Compensation Agreement which provided him with a pension should he continue employment with the corporation, its heirs, executors, administrators or successors, until the age of 65.

Danbury Sales (1971) Ltd. evolved over time into multiple different corporate entities. Some were run concurrently, and some were run consecutively; some became dormant and were later revived, and others were wound up. All were owned and/or run by the same family, spanning three generations, including Bernie Weinstein, his son David Ordon, and finally David's son Jonathon Ordon. All corporations were associated with the "Danbury" name, which was licensed for use by one corporation to another. In the 38 years that Mr. King held his position, his formal employer occasionally changed from one corporation to another, and he performed work for still other corporations, all within the Danbury group of corporations. 

At the time of Mr. King's termination, two corporations were most relevant in the Court's analysis. The first, Danbury Industrial, was owned by David Ordon and was the formal employer of Mr. King at the time of his termination. Danbury Industrial had been experiencing financial difficulties.  It was wound up in October of 2011. All employees, including Mr. King, were terminated as part of this process. As a result, Mr. King did not receive statutory termination pay, pay in lieu of notice, vacation pay or pension payments. Mr. King was nearly 73 years of age when he was terminated.

The second corporation, which became known as DSL Commercial ("DSL"), was purchased by Jonathan Ordon from David Ordon between 2007 and 2010. This corporation had held the license to use the Danbury name and logo since 1995, and also owned the telephone line and website associated with Danbury. 

In December of 2011, just months after Danbury Industrial had ceased operations, DSL began operating in the same areas as had Danbury Industrial. It used the same premises, telephone number, and web address, and also hired David Ordon and five of the ten employees that had been terminated from Danbury Industrial. Mr. King was not hired and brought an action against a number of the "Danbury" corporations, including DSL, for damages arising from his termination from Danbury Industrial and for the payment of his pension benefits. 

Decision

Despite the fact that the named defendants were not all necessarily Mr. King's formal employers, the Court found them all, including DSL, jointly and severally liable for payment of the damages being claimed by Mr. King.

With respect to DSL's liability, the Court looked specifically at several factors to conclude that DSL was not a distinct entity from Danbury Industrial, Mr. King's former employer:

  • DSL used the same offices, desks, chairs, telephone system, location (address), website, and telephone number as Danbury Industrial;
  • DSL's website made reference to "corporate lineage spanning more than 54 years," encouraged customers to "rely on our experience," and used the "Danbury" and "Danbury Group" names;
  • While DSL owned the Danbury name and therefore was entitled to use it, Danbury Industrial had also used the same name through licensing; 
  • The DSL name was inspired by the old corporation name "Danbury Sales Limited," which had been an employer of Mr. King in the 1980s;
  • Jonathan Ordon purchased the shares of what would become DSL with the expectation that he would eventually take over the business;
  • Part of Mr. King's job for a period of time was to monitor the inactive bank accounts of the corporation that would become DSL; and
  • Just prior to his termination from Danbury Industrial, Mr. King had been instructed to set up the payroll account, source deduction account, Employment Health Tax account, WSIB account, banking resolutions and credit card termination account for the corporation that subsequently became DSL. 

The Court also relied on the 2001 Ontario Court of Appeal case of Downtown Eatery (1993) Ltd. v. Ontario for the proposition that, where appropriate based on the facts, a group of corporations that function as a single unit in relation to the operation of a business may be found to be the "common employer" of an individual, each of which would be liable for that employee.  

The Court concluded that DSL was the current incarnation of the business that Mr. King had worked for over the last 38 years.  Additionally, pursuant to the common employer doctrine, the Court found that the other named defendants, whether previous formal employers of Mr. King or not, were also liable to Mr. King for his damages.  

Mr. King was provided with 24 months pay in lieu of notice and was awarded pre-judgement interest. The Court ordered that Mr. King receive his pension payments backdated to his date of termination plus interest, as well as a declaration as to his entitlement to future benefits pursuant to his Retirement Compensation Agreement of 1981. 

Conclusions

It is not an uncommon practice for businesses to operate through the use of multiple corporations in order to manage liability, among other things. But businesses must be aware that despite these arrangements, a corporation (or multiple corporations) can be held to be jointly and severally liable as an employer even if it is not the formal employer of an individual. The doctrine of the common employer allows for courts to examine the relationship between the legal entities in each case in order to find whether there is a common element of control.  Where this is found, liability for employees may follow. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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