Monday, August 24, 2015

Which Doctrine to Apply: Common Employer or Successor Employer?

A recent case out of the Superior Court of Justice, Dear v. Glamour Designs Ltd., highlights an interesting nuance in the law surrounding transitions between employers.

The defendant in this case was one corporation within a family-owned group of businesses:  Special Occasional Sales Ltd., Glamour Designs Limited, and International Fashion Group, all of which were operated by members of the Maccarone family:  Vince Maccarone is president of IFG; his daughter Michelle is president of GDL, and there's a Katherine Maccarone listed as president of SOS.

Mr. Dear began working for SOS as a sales representative in March 2005.  There were a number of temporary layoffs in the tail-end of his employment period - one wonders whether or not these may, in and of themselves, constituted a constructive dismissal - and he was finally dismissed effective December 2014.

The hitch here is that SOS itself discontinued its operations in August 2013, and his employment thereafter was with GDL.  Dear claimed that they constitute 'common employers', and therefore that GDL is liable for employment-related liabilities of SOS.

Dear claimed that Vince told the employees in or around August 2013 that they would continue in their jobs but be compensated by GDL.  The defendant denied that, claiming that SOS had actually terminated the employment relationship by way of a notice given in March 2013 (which they could not produce).  GDL argued that, after the employment relationship between SOS and Dear was terminated, GDL stepped in and hired Dear.

Common Employers

At common law, the concept of 'employer' is a little bit flexible.  You're not strictly limited to claiming against the corporation that signs your payroll cheques; the case law has looked at a lot of different scenarios where a single business might have its affairs ordered into various corporations (for legitimate reasons, no less), but there are compelling public policy reasons not to arbitrarily limit the employees from being able to claim against any of those corporations.  As the Court of Appeal found in 2001 (citing a British Columbia decision):
As long as there exists a sufficient degree of relationship between the different legal entities who apparently compete for the role of employer, there is no reason in law or in equity why they ought not all to be regarded as one for the purpose of determining liability for obligations owed to those employees who, in effect, have served all without regard for any precise notion of to whom they were bound in contract. What will constitute a sufficient degree of relationship will depend, in each case, on the details of such relationship, including such factors as individual shareholdings, corporate shareholdings, and interlocking directorships. The essence of that relationship will be the element of common control.
On the other hand, there are plenty of scenarios where one person might have a substantial ownership stake in multiple discrete businesses, and there are good reasons why an employee of one such business should not be able to claim across the corporate veil in such cases.

So there's a fairly significant amount of case law now looking at the factors to earmark common employers, including the degree of integration of the businesses and the common control of the corporations.

The judge accepted Dear's position that GDL and SOS were common employers.  It's a little thin on some of the facts:  I don't know what SOS' business was, nor what GDL's business was.  It would be surprising if a new business could pick up a dissolving business' sales staff seamlessly if there wasn't some degree of integration between the businesses, or if NewCo wasn't actually absorbing OldCo's business line, but the bottom line for us is that we're looking at a fairly finite selection of facts in the decision:

  1. That the companies were all owned by relatives of each other;
  2. That the companies had adjacent offices;
  3. That Vince, at least at times, controlled or was at least involved in both corporations, issuing Records of Employment for both.
The judge then finds that the corporations "could easily have operated as one", and therefore was a single business.  That is, essentially, the test, but without knowing the business models of the different businesses, it's hard to know if there are additional facts underpinning this conclusion.  And that uncertainty is concerning:  On a face value read of the decision, it appears to be a precedent supporting a notion that businesses owned by close relatives will generally be responsible for each other's employment liabilities.  A difficult proposition to justify.

The important result of the finding, of course, is that Dear's employment was nearly a decade (as opposed to a little over a year) which has dramatic effect on his notice entitlements.  Accordingly, the judge awarded him judgment on the basis of nearly a decade of service.


It's not clear to whether or not the 'common employer' finding was truly warranted.  It seems plausible, but I'm not sure what other facts were on the record.

However, on my read of the decision, I can't help but question if a 'common employer' analysis was even necessary.  It seems to me that the issue could likely been resolved on the basis of a 'successor employer' analysis.

It appears to be common ground that the transition from SOS to GDL occurred in or around August 2013 - presumably, Dear was on SOS' payroll one day, then GDL's the next.  (Not only did none of his layoffs cover that period, but it actually wouldn't matter to the successor employer doctrine if one of them had.)  If his duties didn't change significantly in that transition, then the only cogent explanation for the transition would be that, for employment relations purposes, GDL had acquired at least part of SOS' business.

This isn't a high standard - it doesn't require a formal purchase and sale of a business.  Transfers - even informal transfers - of office equipment, inventory, leases, good will, or other parts of the business - will often meet this test.  As I pointed out in another borderline common employer case, I have very seldom seen true 'successions of convenience' where one business winds up its business, and then a second and totally unrelated one opens up a similar business in the same location, without any dealings between the two.

Indeed, the very question of 'common employers' seems likely to be the wrong one in the context.  There's no question that GDL employed Dear, nor that GDL dismissed Dear.  We're not trying to pierce the corporate veil at all here, which is what the 'common employer' doctrine is typically about.  Rather, we're trying to determine whether or not Dear's notice period from GDL should bear in mind his prior years of service with a different organization.

If GDL's and SOS' businesses were closely related enough to possibly warrant a common employer finding, it seems essentially impossible that GDL could not have been a successor employer.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation.  If you need legal assistance, please contact him for information on available services and billing.

No comments:

Post a Comment