Canada: When Can Multiple Entities Be Considered A Single Employer?

O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (CanLII)

Under the common law Doctrine of Common Employer, multiple entities can be considered a single employer under particular circumstances. The O'Reilly case is crucial for clarifying the "common employer" doctrine in Ontario employment law. Specifically, it articulates the need to show intent to create an employer/employee relationship between the employee and the alleged common employer(s).

Overview

In October of 2014, William O'Reilly commenced a claim for six months' wages and twelve months vacation pay against his employer(s) via myriad defendants: ClearMRI Solutions Ltd. ("ClearMRI Canada"), ClearMRI Solutions, Inc ("ClearMRI US"), Tornado Medical Systems Inc. ("Tornado"), as well as against individual directors of these corporations.¹

All of the corporations were sued collectively as "common employers." Tornado was the majority shareholder of ClearMRI Canada which itself had ClearMRI US as its own wholly owned subsidiary.² Although William did not have a written employment contract or position with Tornado, he alleged that Tornado—along with the other corporations—were all his common employers.³ William obtained default judgment against the ClearMRI companies and successfully moved for summary judgment against the other defendants.⁴ Tornado appealed.⁵

The Ontario Court of Appeal allowed Tornado's appeal, stating that the motion judge erred in the articulation and application of the common employer doctrine.⁶ In doing so, the Court of Appeal confirmed that the motion judge made an extricable error of law in concluding that Tornado was a common employer.⁷

The Lower Decision

William served as the CEO of ClearMRI Canada.⁸ In 2012, William signed an agreement with ClearMRI US confirming the terms of his employment which named ClearMRI US as the employer.⁹ William did not hold any formal position with Tornado.¹⁰ Although ClearMRI US was named as William's employer in the written agreement, the motion judge found that William was also employed by Tornado.¹¹

The motion judge identified three factors that should be considered in determining whether there was a common employer: the employment agreement itself, where the effective control over the employee resides, and whether there was common control between the different legal entities.¹² Using these factors, the motion judge found that Tornado was a common employer of the plaintiff as Tornado exercised "a sufficient amount of control" over the plaintiff and found that there was common control between Tornado and the different legal entities.¹³

Tornado appealed.

Ontario Court of Appeal Decision

On appeal, the Court of Appeal determined that Tornado was not liable as a common employer. A corporation is not held to be a common employer simply because it is owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee.¹⁴ Rather, a corporation will be found to be a common employer only where it can be shown that there was an intention to create an employer/employee relationship between the individual and the related corporation.¹⁵ Where there is a written employment agreement with an entity other than the alleged common employer, the court must assess how such an agreement bears on whether there was an intention to create an employment agreement with the alleged common employer.¹⁶

The Court of Appeal found that the motion judge failed to undertake the required analysis of the effect the written agreement had in determining whether there was intention that Tornado was a party to the employment agreement.¹⁷ Further, the Court of Appeal found that none of the three factors that the motion judge relied on were enough to find that Tornado exercised control over the plaintiff as an employee. ¹⁸ Lastly, the Court of Appeal found that the motion judge failed to explain why the existence of a corporate relationship between Tornado and the ClearMRI companies provided an intention that Tornado was a party to the employment agreement with the plaintiff.¹⁹

In all, the Court of Appeal found that there was no intention between the plaintiff and Tornado to contract with Tornado as a common employer. In the absence of evidence that would show an intention to have Tornado as a common employer, the Court of Appeal allowed the appeal and set aside the summary judgment against Tornado.²⁰

Analysis and Conclusion

The Court of Appeal makes it clear that whether an entity is considered a common employer is dependent on the intention of the parties in addition to factors such as the existence of an employment agreement, control over the plaintiff, and existence of a corporate relationship between the entities.

The courts will strictly interpret the application of the common employer doctrine to ensure that intercorporate relationships would not be conflated as evidence of a common employer relationship.

Employees who provide services for multiple entities should seek legal advice as they may be able to seek recovery from multiple parties. Conversely, employers should be careful of having employees perform services for or take direction from other entities unless the intention is to create a common employer relationship.

Footnotes

1. 2021 ONCA 385 at para 26.

2. Ibid at para 15.

3. Ibid at para 6.

4. Ibid at para 7.

5. Ibid at para 8.

6. Ibid at para 11.

7. Ibid.

8. Ibid at para 19.

9. Ibid at para 20.

10. Ibid at para 19.

11. Ibid at para 35.

12. Ibid at para 31.

13. Ibid at para 35.

14. Ibid at para 50.

15. Ibid.

16. Ibid at para 75

17. Ibid at para 75.

18. Ibid at para 86.

19. Ibid at para 91.

20. Ibid at para 92.

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.