Who Is The Boss - Employees Of Related Companies
Many businesses structure their enterprises through, not one, but a number of related corporate enterprises. In the case of smaller, privately held corporations, often those companies have common assets, common management, common ownership and common accounting. This is completely legitimate. Businesses are allowed to arrange their structures in any number of ways without interference. There are, however, a few exceptions to the rule that separate corporate entities are separate legal persons in the eyes of the law.
Courts will look past the legal corporate structure if there is evidence of fraud, deceit, or dishonesty. In other words, if the corporate identity is used as a sham for wrongdoing from the outset of certain business activity. Similarly, if a corporate identity is used to protect assets as an after-thought to a deal that went badly, courts may also "pierce the corporate veil".
A further exception exists in the sphere of employment law. Here, another goal of protecting employees plays a role in finding that distinct corporate entities are common employers and both (or several) will have the obligation to pay wages or severance pay. Two cases illustrate. Both were cases where past employees moved for summary judgement to find that the distinct corporate entities were common employers. The judges made different findings illustrating how important the specific facts will be to the ultimate conclusion.
In Sproule v Tony Graham Lexus Toyota, the former employee alleged that a number of companies were a common employer. He argued that the companies had common assets, common shareholders, shared common employees and all operated as a single business entity. Two individuals were the operating mind of each company and had final say on all business decisions.
The judge rejected this argument, even though the companies had intermingled assets and finances. Rather, most of the companies were simply holding companies and used for tax and accounting practices. Those entities had no control over the employee.
In direct contrast, in Dear v Glamor Designs Ltd., the court found that two distinct corporations had acted as a common employer. In that case, the employee started employment with the first company in March 2005. In August 2013, the employee, along with co-workers, was informed that a new company would now be paying wages. The remaining terms of employment remained the same.
During the next year, the employee was laid off several times. A final lay off notice came and the corporation offered three months severance pay. The employee sued, alleging that he was owed twelve months severance based on the employment that began in 2005. He also alleged that the two companies were a single business enterprise having common ownership, common assets, common employees, and common accounting.
The judge accepted this argument concluding that the common control over the employee made the corporations a common employer. It stated: “[A]lthough an employer is entitled to establish complex corporate structures and relationships, the law should be vigilant to ensure that the permissible complexity in corporate arrangements does not work an injustice in the realm of employment law.”
The Lesson: Findings that two or more corporations are a common employer depend entirely on the factual matrix. Corporate entities may look and operate in very similar manners but minute differences can be determinative. It is strongly suggested that you seek advice from experience employment law counsel when making claims in this area of law.
Sproule v Tony Graham Lexus Toyota, 2016 ONSC 2220 (ONSC) https://www.canlii.org/en/on/onsc/doc/2016/2016onsc2220/2016onsc2220.pdf
Dear v Glamor Designs Ltd., 2015 ONSC 5094 (ONSC) https://www.canlii.org/en/on/onsc/doc/2015/2015onsc5094/2015onsc5094.pdf
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