Family businesses can be particularly susceptible to challenging economic times and, as a result, they frequently search for ways to organize corporately in a manner that limits liability to creditors and employees alike.
Having said that, as the Maccarone family discovered in Dear v. Glamour Designs Ltd., courts will be hesitant to allow the transfer of an employee from one corporation to a related one to reduce the length of her continuous service.
Keith Dear commenced employment with Special Occasion Sales (SOS) as a sales representative in 2005. In August 2013, Vince Maccarone, president of International Fashion Group (IFGL) and husband of SOS’s owner, Kathy Maccarone, advised all sales associates working for SOS that they would be compensated for their work by a separate corporate entity known as Glamour Designs. (GDL).
Dear’s employment continued with GDL thereafter. His job title, remuneration and responsibilities remained unchanged.
On Sept. 17, 2014, GDL provided Dear with three months’ working notice that his employment would come to an end on Dec. 19.
At a summary judgment hearing, Dear claimed such notice was insufficient.
He argued that SOS and GDL were common employers operating under IFGL; he had nine years of service through SOS and GDL and not simply one year (through GDL only); and he was entitled to 12 months’ notice of termination at common law.
GDL denied that it and SOS were common employers of Dear. It argued that in March 2013, it had provided Dear with notice that his employment with SOS would end in August of that year. Although Vince claimed SOS employees received formal written notice of such termination, no such document was produced, purportedly due to a flood at the old premises. Dear denied he had received such notice.
In any event, the Superior Court of Justice in Ontario rejected GDL’s position entirely. Quoting the British Colombia Supreme Court’s 1987 decision in Sinclair v. Dover Engineering Services Ltd., Justice Suhail Akhtar held that:
“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.”
After observing that this passage was cited with approval by the Ontario Court of Appeal in Downtown Eatery (1993) Ltd. v. Ontario, Akhtar noted the close relationship between GDL, IFG and SOS.
He found that corporate profile reports indicated Vince was listed as president of IFGL; his daughter Michelle as president of GDL; and his wife Katharine as president of SOS.
The reports also suggested GDL and IFGL had the same mailing address, and SOS was located adjacent to them.
At the same time, Akhtar found that a letter Dear received offering him employment with GDL listed an address that was the same as SOS’s. That letter also indicated Dear’s salary, job description, health plan and “existing’ holiday time would be the same.
It was also clear to the judge that Vince was involved in the management of GDL. Notably, he was stated to be the contact person on records of employment Dear received from both GDL and SOS.
Having regard to the evidence of SOS, GDL and IFGL’s interrelationship, Akhtar held that the three entities were components of a family business that could easily have operated as one employer.
“In this case, the fact that the family business was split into three segments should not (have been) the cause of injustice to Dear who was continuously employed by that common employer from 1 March, 2005, to his termination date of 19 December, 2014,” said Akhtar.
Dear, who was 66 years old at the time of his dismissal, was awarded 12 months’ reasonable notice.
Consider whether GDL would have been able to avoid its liability if it had provided Dear with a new employment agreement that recognized his prior service for the purposes of the Ontario Employment Standards Act, 2000 only, but not for the purpose of calculating his entitlement to notice of termination at common law.
At any rate, absent such an agreement or other limiting factor, the decision in Dear demonstrates courts will objectively assess the relationship between corporate entities for whom an employee worked when calculating her entitlement to common law notice.
Service to all such entities will be taken into consideration where the entities operated under common direction, the employee’s duties to each entity were similar, and her benefits of employment were continued from one entity to another.
Employment counsel ought to keep this principle in mind when assessing an employer’s liability at dismissal.
For more information see:
• Dear v. Glamour Designs Ltd., 2015 CarswellOnt 12594 (Ont. S.C.J.).
• Sinclair v. Dover Engineering Services Ltd., 1987 CarswellBC 26 (B.C. S.C.).
• Downtown Eatery (1993) Ltd. v. Ontario, 2000 CarswellOnt 634 (Ont. S.C.J.).
Rich Appiah is a partner practising labour and employment law at Israel Foulon in Toronto. He can be reached at (416) 640-1550 ext. 225, firstname.lastname@example.org or for more information, visit www.israelfoulon.com.
© Copyright Canadian HR Reporter, HAB Press. All rights reserved.