Case clarifies what is meant by ‘common employer’

October 28, 2011 Christina Catenacci Employment/Labour Standards, Human Resources

The Ontario Superior Court of Justice recently decided that an employee was wrongfully dismissed and entitled to $20,363 in damages. The problem was that the damage award was made against two companies that were no longer in operation and without assets to pay the judgment. A related company that did have assets to pay the award was found not to be a common employer and was thus not liable.

The terminated employee launched a wrongful dismissal claim against the three related companies—an auto dealership owned by the father, another auto dealership owned by his daughter, and the real estate holding company owned by the father that leased land to the dealerships. The employee thought he would be able to recover damages against at least one of them since he considered them common employers.

The Court had to decide whether the only company with assets out of the three companies, the real estate holding company, was liable as a common employer.

The Court considered that the employee had worked at both auto dealerships and was terminated from the second one after working there for three months. He was always paid by the individual dealerships, and not by the real estate holding company.

Also relevant was that the real estate holding company leased the property to the dealerships at market rental rates. It had no employees and had nothing to do with dealership operations. It received no profits or payments from the dealerships. However, the real estate holding company paid salaries to managers at the dealerships and was reimbursed by the dealerships.

The Court concluded that the real estate holding company could not be liable as a common employer. Even though the company leased land to the dealerships, that was not enough to lead to a finding that it was a common employer of the employee:

There was no connection between the employee and the owner of the real estate holding company since he was an employee paid by the dealerships
The owner of the real estate holding company exercised no control over the employee through the managers; any control or supervision was exercised at the dealership level
This was not a single business run by a highly interconnected group of companies such that the real estate holding company should be considered a common employer; the two dealerships were independent and had their own employees, managers, directors, officers and shareholders.

As a result, the real estate holding company was not found to be a common employer, and was not liable for the wrongful dismissal award to the employee.

Some may believe that this decision makes no sense and is unfair. But what does it mean for employers?

It is important to note that common employers that are liable for each others’ judgments in court are typically found to be common due to control, ownership and connection between interconnecting companies. If this can be proven, common employers are responsible for the liabilities of debts.

Christina Catenacci
First Reference Human Resources and Compliance Editor

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Christina Catenacci

Christina Catenacci, BA, LLB, LLM, was called to the Ontario Bar in 2002 and has since been a member of the Ontario Bar Association. Christina worked as an editor with First Reference between February 2005 and August 2015, working on publications including The Human Resources Advisor (Ontario, Western and Atlantic editions), HRinfodesk discussing topics in Labour and Employment Law. Christina has decided to pursue a PhD at the University of Western Ontario beginning in the fall of 2015. Read more

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