Understanding Common Employer Liability
Know how you and your associated business organizations could be jointly liable to employees.
Employers’ business organizations, whether they be corporate, personal or a combination of both, can be jointly liable to employees in circumstances of wrongful dismissal. In order to be found jointly liable, a Court or Tribunal must determine that the relationship is such that the various companies and people involved are exercising sufficient common control or direction to be considered a “common employer.”
Canadian courts have recognized that modern corporate organizations are setup to maximize business, accounting and tax considerations and, therefore, may result in more than one entity being the employer of any particular employee. Additionally, Employment Standards legislation in most provinces have provisions that deem individuals, corporations or organizations working closely together to be a single employer.
Defining the common employer
In analyzing who constitutes a common employer, the test is whether there is a “sufficient degree of relationship.” To determine that, the following factors are considered: individual shareholdings, corporate shareholdings, interlocking directorships and common control. In other words, if the shareholders, directors and officers are the same throughout a group of companies and they are exercising common control over some aspect of the employee’s employment, they may be found to be common employers and be jointly liable for damages to wrongfully dismissed employees.
The common/single employer doctrine arises most often in cases of insolvency or dissolution, when a dismissed employee is claiming damages for wrongful dismissal and cannot easily collect from the primary employer. The inquiry then turns to related companies or individuals who are sufficiently interrelated and exercise sufficient control.
An actual contract of employment with one company is no impediment to holding related companies liable. The inquiry is one of fact—what is actually going on in the corporate organization; rather than one of form—what the documents say. Further, the courts are more concerned with ensuring the employee’s rights are protected rather than preserving the independence of corporate entities.
What the common employer doctrine means for your operation
The takeaway for owners/employers with common corporate organizations such as holding companies and operating companies is to recognize that the just because the employee’s contract is with the operating company, the holding company is not necessarily protected from liability when there is common control. When holding companies are involved only as shareholders, common control is not likely to be established and liability will not likely flow through. It is only in instances when a web of companies is interrelated, interdependent and involved in some aspect of the employee’s employment that the common employer doctrine is successfully utilized to circumvent contract and corporate structure and make secondary/related companies liable.
This article is for informational purposes only. It is not legal advice. Always consult with your lawyer regarding your specific circumstances.