Lessons from a recent Ontario decision
Exclusive to Canadian HR Reporter from Rudner Law.
What starts as a problem with unpaid wages can quickly become much more expensive.
In the recent decision of Brian Allan Cutajar v. Automobile Specialties Inc. et al., an employee was owed $40,500 in unpaid wages. The court found that the repeated failure to pay those wages amounted to constructive dismissal, resulting in liability for not only the unpaid wages and termination pay, but also $60,000 in additional damages.
The defendants failed to participate in the litigation, leaving the employee’s claims essentially unanswered. And the liability did not stop with the company that employed the employee on paper — the court found that the group of companies that jointly carried on the business were all liable under the common employer doctrine.
The decision offers several important lessons for HR professionals and employers: repeated non-payment of wages can fundamentally breach the employment relationship, multiple corporate entities may be found to be common employers, and failing to respond when litigation is commenced can leave an employer without an opportunity to defend the claims against it and significantly increase its potential liability.
Non-payment of wages and constructive dismissal
Brian Allan Cutajar had worked as an automotive service technician for more than 20 years. During his employment, there was a repeated pattern of delayed or unpaid wages. By the time he asserted constructive dismissal in April 2025, he was owed $40,500 in unpaid wages.
The court found that the repeated failure to pay wages when they were due amounted to a fundamental breach of the employment relationship. The court confirmed that payment of wages is one of the most fundamental terms of an employment relationship.
Depending on the circumstances, repeated non-payment can fundamentally undermine the employment relationship and give an employee grounds to claim constructive dismissal.
Cost can extend well beyond unpaid wages
The financial consequences did not end with the $40,500 in unpaid wages.
Because the court found that Cutajar had been constructively dismissed, he was entitled to pay in lieu of notice in addition to his unpaid wages. The court found that a reasonable notice period would have been 15 to 18 months. However, Cutajar found a new job within six weeks, which mitigated most of his losses.
He was therefore awarded eight weeks of statutory termination pay under the Employment Standards Act, 2000. Had he not found new employment so quickly, the companies’ liability would have been significantly greater.
The court also awarded an additional $60,000 in damages, characterized as general damages, bad faith damages arising from the failure to pay wages, and punitive damages.
The result was therefore significantly greater than simply paying the wages that had been withheld. Conduct that begins as a failure to pay wages can ultimately expose an employer to liability for unpaid wages, damages for constructive dismissal, and additional damages.
1 employer: multiple corporate entities
The decision also provides a reminder about the common employer doctrine.
The defendants included two corporate entities. The court found that the defendants had blurred the lines between themselves sufficiently to apply the common employer doctrine.
For businesses operating through multiple corporate entities, the lesson is that corporate structure alone does not necessarily determine who is considered the employer. Where the entities operate in a way that blurs their respective roles, a court may find that more than one entity is responsible for the employee’s obligations.
Ignoring lawsuit can make matters worse
Perhaps the most important lesson for HR professionals is what happened after the lawsuit was commenced.
The controlling mind of the corporate defendants acknowledged receipt of the Statement of Claim and requested additional time to retain counsel. The plaintiff’s counsel agreed to the extension. No lawyer was subsequently retained on behalf of the defendants, and the defendants took no steps to defend or participate in the litigation.
The court found that wrongful dismissal matters, particularly where cause is not in dispute, are appropriate for default judgment. With no defence or evidence from the defendants, the plaintiff was able to obtain judgment on his claims.
The defendants were also ordered to pay $14,218 in legal costs.
What employers should take away
Cutajar is a useful reminder that employers should take employment disputes seriously from the outset:
- Pay wages when they are due: Repeated non-payment can amount to a fundamental breach of the employment relationship and lead to constructive dismissal.
- Do not assume separate corporate entities will eliminate liability: Courts will consider the substance of the employment relationship when determining whether the common employer doctrine applies.
- Respond immediately to litigation: If your company receives a demand letter, or a Statement of Claim, obtain legal advice promptly. Ignoring the proceeding does not make it go away. It can instead leave the employer without an opportunity to defend the claim before judgment is entered.
Whether you receive a demand letter or have already been served with a Statement of Claim, it is important to retain an employment lawyer as soon as possible. Early legal advice can help you assess the claim, understand your options, and develop a strategy for managing the dispute before it becomes more costly.
Alex Minkin is an associate lawyer at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
