Court takes payroll of company, agents into consideration in determining severance eligibility

In Ontario an employer with a payroll of at least $2.5 million must give severance to an employee who has worked for the company for at least five years and has been terminated

Adamson v. Murray Axmith & Associates Ltd., 2005 CarswellOnt 1611 (Ont. S.C.J.)

The Ontario Superior Court of Justice has ruled that the salaries of a Toronto-based company, and all its Ontario agents, should be added up in determining the severance eligibility of an ex-employee.

Barry Adamson joined Murray Axmith & Associates Ltd. in 1980 and later became the president of the company. In March 2000 his employment was terminated and he filed an action seeking $65,000 in severance pay.

Murray Axmith started in Toronto and in the 1980s franchised offices to at least 12 Canadian locations. The company was later restructured, with the head office called the “principal” and the other operations in Ontario “agents.” By the end of the 1990s there were four agents in Ontario — Ottawa, Hamilton, Kitchener and London.

Adamson’s claim was that under Ontario’s Employment Standards Act an employer with a payroll of at least $2.5 million must give severance to an employee who has worked for the company for at least five years and who has been terminated. The company never had a payroll that high, but Adamson argued the company and the agents should be considered one employer. When the various offices’ payrolls are combined, they exceeded the $2.5 million threshold, Adamson claimed.

The court said the essential issue was whether the company and its agents were sufficiently “associated or related” to be considered one operation. The essential criteria in making this determination was a combination of:

•common management;

•common financial control;

•common ownership;

•the existence of a common trade name or logo;

•the movement of employees between the business entities; and

•the use of the same premises or other assets.

There were enough elements to satisfy Adamson’s claim, the court said. Agents’ operations were governed by a standard agreement and the company retained control over various aspects of the agents’ business, including hiring of key staff. The operations of the agents were to a large extent prescribed by a manual which covered such topics as pricing, invoicing and professional standards. Agents were audited by the company to ensure they were operating as prescribed.

Agents had to adhere to the company’s fee schedule. There were also shared costs arrangements. For its financial statements the company treated the revenue earned by its agents as part of its own. The agent’s agreement contained express instructions on how revenues were to be applied. Murray Axmith had also arranged liability insurance for all the offices.

The employer and the agents all carried on business under the name Murray Axmith. This was an essential aspect of the business. They were represented to customers as the same enterprise. In this manner they were able to benefit from the goodwill associated with the name.

The court found there was a “fundamental interdependence” between Murray Axmith and the agents. The payrolls of the company and the local agents (including non-discretionary bonuses and consultant fees paid for work comparable to services done by salaried employees) exceeded the $2.5 million mark. Adamson was awarded $65,000.

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