One of the more deceptively complex questions in some cases can
be: Who is the employer?
Many businesses and organizations now consist of multiple,
separate corporations, organized for tax, liability, and other
legitimate commercial purposes. Although in some contexts
such structures prevent any liability from flowing between the
constituent elements, in wrongful dismissal cases such a structure
can often come under attack, as plaintiffs attempt to draw
unrelated elements of the same organization into litigation to
access assets or because of confusion over the correct party to
Sproule v. Tony Graham Lexus
Toyota involved such a corporate structure. The
plaintiff had been dismissed from his employment at a car
dealership. The dealership was one of several, separately
incorporated dealerships owned by a network of holding
The plaintiff brought a wrongful dismissal action against all of
the dealerships, holding companies, and the directors of the
organization. The defendant brought a motion for summary
judgment to have the holding companies and the personal defendants
removed prior to trial.
In defending its decision to include the various defendants in
the action, the plaintiff relied on the "common employer"
doctrine. That doctrine provides that an employee may be
employed by multiple related corporations simultaneously under a
single contract of employment if there is an indication that the
parties intended for the employee to be directed and employed by
all of those related corporations. In such a case, all of the
employers may be liable to the employee in a wrongful dismissal
The court did not accept the plaintiff's argument that the
common employer doctrine applied to the holding companies.
The court found it undisputed that they were "true"
holding companies, which did not engage in business on their own
behalf or exercise any employment control or direction over the
plaintiff. The common employer doctrine could not apply
because the facts simply could not support the plaintiff's
assertions that the holding companies were employers. The
court dismissed the case as against the holding companies.
The court also dismissed the case as against the personal
defendants. Despite the fact that they had ultimate control
over the organization, their actions in dealing with the Plaintiff,
particularly his termination, were undertaken in good faith and
within the scope of their authority. As a result, there was
no reason for them to be held personally liable in the wrongful
The employer did not attempt to have the action dismissed as
against the other dealerships in the group.
What employers should know
This case illustrates the limits of the common employer
doctrine. In order for the doctrine to apply, the companies
must be more than merely related or not "arms length";
they must also be engaged in some type of employment function with
respect to the particular employee. Because the holding
companies were not engaged in any economic activities, they could
not be held to be employers, and could not be held liable in the
wrongful dismissal action.
While the common employer doctrine can still lead to employment
law liability across multiple corporations, this decision goes to
illustrate that a corporate structure can help contain such
Directors and officers should take care to ensure that corporate
vehicles are used for their intended purposes. In our
practice, we often see that the best laid plans are simply not
followed in practice. For example, holding companies are not
holding companies that have active employees and issue T4s and ROEs
in their own corporate names.
Employers with complex corporate structures should review their
organizational charts to evaluate their level of protection, and
improve that protection where warranted or take advantage of that
structure where possible.
This past year has been marked with significant changes to employment legislation, and watershed decisions that will affect employers for years to come. We've designed this year's conference to deliver a practical and digestible review of what you need to know to manage your employees effectively.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).