The ‘common employer doctrine’

As a recent decision of the Ontario Court of Appeal shows, an employer can be liable for notice of termination for an employee who doesn’t even work for it

Stuart Rudner
Is the “common employer doctrine” something that should concern employers? Can an employer be liable for notice of termination when the employee in question doesn’t work for it? In some situations, the answer is yes.

The Ontario Court of Appeal recently addressed this issue in Jakl v. Russell Tire & Automotive Centre (1990) Inc.

Charles Jakl was employed by Russell Tire. Goodyear Canada Inc. was a creditor of Russell Tire. Due to financial difficulties experienced by Russell Tire, Goodyear took various steps which, in the view of the trial judge, resulted in it having effective control over the company’s business and its employees.

About 20 months later, Russell Tire terminated Jakl’s employment. He was provided with statutory notice of termination, but nothing toward his common law entitlement. He brought a wrongful dismissal action against both Russell Tire and Goodyear.

The claim against Goodyear was based upon the common employer doctrine.

What is the ‘common employer doctrine?’

This doctrine is designed to address situations where the individual can rightfully be considered an employee of more than one entity. In such cases, it allows the employee to pursue more than one party, which can be particularly beneficial where the more direct employer is, for one reason or another, unable to pay a judgment.

Due to the fact Goodyear had effective control over the business of Russell Tire, it was found to be a common employer and therefore on the hook for notice of termination.

It should be noted that Goodyear did not have to pay the full amount of notice to which Jakl was entitled. Rather, it was found to be liable for a share proportionate to the length of time during which it was a common employer. Jakl had been working for Russell Tire for a total of nine years, but Goodyear had only been in effective control for a period of about 20 months of that time. While Russell Tire was found to owe pay in lieu of notice of nine months, Goodyear was only liable for 12 weeks.

The leading case with respect to the issue of common employers is Downtown Eatery (1993) Ltd. v. Ontario, also a decision of the Ontario Court of Appeal. The employee worked for an adult entertainment establishment known as For Your Eyes Only. As the court described it, For Your Eyes Only was a:

“…simple entity, a single site nightclub in downtown Toronto. Yet, beneath the surface of lights, liquor and entertainment, there was a fairly sophisticated group of companies involved in the operation of the nightclub. Twin Peaks Inc. was the owner and lessor of the nightclub premises.

“The Landing Strip Inc. leased the premises from Twin Peaks. It also owned the trademark for For Your Eyes Only and held the liquor and adult entertainment licenses. Downtown Eatery Ltd. owned the channels and equipment at the nightclub and operated it under a license from The Landing Strip. Best Beaver paid the nightclub employees, including Alouche. In June 1993, all of these companies were owned and controlled by Bengro Corp. and Harrad Corp., the holding companies for Grosman and Grad.”

B.C. decision lays out law

In reviewing the law, the court referred to the case of Sinclair v. Dover Engineering Services Ltd., a British Columbia Court of Appeal decision. In that case the court 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 at 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.”

The court found there “was a highly integrated or seamless group of companies which together operated all aspects of the For Your Eyes Only nightclub,” and noted the nightclub continued in business long after the plaintiff had been terminated. Furthermore, the contract of employment indicated the plaintiff would receive the same benefits “as available in our sister organization.” Given all of the above, the court found there were common employers in that case.

Case of note

Another case of note is Algo Group Inc. v. Ontario (Ministry of Labour), in which one corporation was an investor in another. In that case it was determined the investor corporation went far beyond the role of a mere investor, to the extent the relationship was one of partners who were, in effect, carrying on the retail business in common. In particular, the adjudicator found that:

“Algo closely supervised the finances of the Lavie One Holdings companies including One + One, on an ongoing basis. It held a majority of positions on the board and three officer positions. The fact that it was involved in the business and not merely an investor is highlighted by the fact that when it made the initial purchase the parties agreed that it had to co-sign all expenditures, including paychecks.

“The fact that Algo was an active partner in this business is also underlined by the fact that it procured the line of credit with its own bank and it was also an Algo representative who attended the bank’s annual review. Mr. Kaner, whom Algo claims operated the company, according to all of the testimony had little involvement with any financial matters.

“Mr. Chankowsky and Mr. Jonkas, who was essentially hired by Algo, handled all of the financial matters. A company’s financial affairs are obviously a very, if not, the most, significant part of its operations. Algo was also prepared to get involved in other personnel matters such as the hiring of Mr. Roberge. On occasion he did interfere in other operational matters such as the negotiation of leases.”

The common employer doctrine will not apply to many businesses. However, it is something that should be kept in mind, especially if you find yourself in a situation similar to those described above.

For more information see:

Jakl v. Russell Tire & Automotive Centre (1990) Inc., 2005 CarswellOnt 201, 2005 C.L.L.C. 210-015, 193 O.A.C. 259, 38 C.C.E.L. (3d) 61 (Ont. C.A.)

Downtown Eatery (1993) Ltd. v. Ontario, 2001 CarswellOnt 1680, [2001] O.J. No. 1879, 8 C.C.E.L. (3d) 186, 200 D.L.R. (4th) 289, 14 B.L.R. (3d) 41, 54 O.R. (3d) 161, 147 O.A.C. 275, 2002 C.L.L.C. 210-008 (Ont. C.A.)

Sinclair v. Dover Engineering Services Ltd., 1988 CarswellBC 910, [1988] B.C.J. No. 265, 49 D.L.R. (4th) 297 (B.C. C.A.)

Stuart Rudner practices commercial litigation and employment law with Miller Thomson LLP’s Toronto office. He can be reached at (416) 595-8672 or by e-mail at [email protected].

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