“Common Employer” Liable for Employee Compensation

July 7, 2015

The Ontario Court of Appeal has upheld the decision of the Ontario Superior Court of Justice in the recent common employer case, King v. 1416088 Ontario Ltd. (c.o.b. Danbury Industrial), 2014 ONSC 1445.  The Court found that the Defendants were common employers and therefore they were jointly and severally liable for the compensation owing to King.

Jack King was hired by Danbury Sales (1971) Ltd. as an accountant and senior bookkeeper in September 1973.  In October 2011, he was terminated without cause from Danbury Industrial, at the age of 72.  At the time of termination, he was not given statutory termination pay, pay in lieu of notice, vacation pay or pension payments.  King commenced an action for these amounts against a number of employers for which he claimed to work over the course of his 38 years of employment, as well as against 986866 Ontario Ltd., carrying on business as DSL Commercial (“DSL”), which commenced trading in the same lines of business, from the same premises, and using the same telephone number and web address as Danbury Industrial.  Most of the Defendants, besides DSL, were dormant or judgment proof, and unlikely to be able to satisfy any judgment against them.

At trial, the parties were in agreement that King was entitled to statutory pay and pay in lieu of notice.  The issues were whether any other entity besides Danbury Industrial was responsible for these payments, and whether Mr. King had any pension entitlement.  The Defendants argued that there was a clean break between Danbury Industrial and DSL, and that these companies had different ownership and management.

At trial, the Court found that DSL is the current incarnation of the business that King had worked for over the course of his career.  In particular, the groundwork for DSL was being laid, with King’s assistance, while King was still formally employed by Danbury Industrial.  Additionally, Danbury Industrial was using the Danbury name and goodwill even though the right to the name was held by owner of DSL from May 2010 to October 2011.  King undertook work for most if not all of the companies named in the action in the regular course of his employment and his work frequently involved transferring money between them.  The Courts found that King was an employee of all the defendant businesses pursuant to the common employer doctrine because of their inter-connectedness and King’s contribution to all of them.

Notably, the owner of DSL was the son of the owner of Danbury Industrial and the grandson of the owner of Danbury Sales (1971) Ltd.

In 1981, while employed with Danbury Sales (1971) Ltd., King was asked to attend a meeting and sign a document prepared by solicitors called “Retirement Compensation Agreement”.  King could not recall any financial consideration for the agreement, but the contract referenced “consideration of the premises and of the covenants and agreements herein set forth, and for other good and valuable consideration, receipt of which is hereby acknowledged.”  The terms included an entitlement to $736.60 for life, with spousal benefits upon his death if he had not yet received 120 monthly payments.  The contractual conditions required that he continue to be employed by the corporation until his 65th year and that he not engage in any competitor’s business.  There was also a requirement that he would remain available to the corporation in an advisory or consulting capacity.

The owner of Danbury Industrial had forgotten about the agreement although he had been present at the time of execution, and the owner of DSL had no knowledge of its existence.

The Court found that throughout King’s 38 years of employment with the various companies in the Danbury Group, he undertook substantially the same work.  Although his employer changed, he never received a record of employment until his 2011 termination and there was only one attempt to memorialize his employment terms, which did not reveal a departure from King’s original duties or responsibilities.  There was no good reason for the Courts to not give effect to the retirement agreement.

Overall, it was concluded that the Defendants were jointly and severally liable for payment of the compensation owing to King as they were common employers.  The parties agreed that King’s entitlement was to 24 months of pay in lieu of notice, plus pre-judgment interest.  King was additionally awarded $736.60 per month from his date of termination forward as per the terms of the Retirement Compensation Agreement.

Lessons for Employers

Courts have the ability to look behind superficial differences in companies to see if they are common employers for the purpose of determining liability to employees.  The Common Employer Doctrine renders such employers jointly and severally liable without the necessity of there being a direct contract between a particular company and an employee.

Successor companies should therefore be aware that they can be liable for employee entitlements if the terminating company has inadequately fulfilled these responsibilities.

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