Canadian Employment Law Today

Canadian HR Reporter, 2021 they may pursue those claims as against both their primary employer and the applicable re- lated company. At a high level, an employee's ability to recover damages from the related company will depend on the nature of the re- lationship and the extent of common control between the related company and the primary employer of the individual. This assessment will take into account the substance, as op - posed to the form, of the relationship between companies. In pursuing claims against a common em- ployer, an individual can bring an applica- tion to have multiple entities declared as a common employer at common law (as ad- dressed in O'Reilly), pursuant to employment standards legislation — such as the Ontar- io Employment Standards Act, 2000 (ESA) or the the Ontario Labour Relations Act (LRA) in Ontario, for example. O'Reilly: Facts and background William O'Reilly served as the CEO and a di- rector of ClearMRI Solutions Ltd. (ClearMRI Canada) and its wholly-owned subsidiary, ClearMRI Solutions Inc. (ClearMRI US). Tor- nado Medical Systems is the majority share- holder of ClearMRI Canada. O'Reilly was employed pursuant to a written employment agreement with ClearMRI US, but he reported to, and had his performance goals set by, the board of directors at ClearMRI Canada. When O'Reilly's employment ended, he brought an action against both ClearMRI com - panies and Tornado seeking recovery of all outstanding amounts owed for salary, vacation pay, and an outstanding loan he had made to ClearMRI Canada. O'Reilly initially obtained default judgment against the ClearMRI com - panies, but when that judgment was not sat- isfied, O'Reilly moved for summary judgment against the remaining defendants. The motion judge found that ClearMRI Canada, CLearMRI US and Tornado were all common employers. This decision was overturned by the Ontario Court of Appeal. The main issue before the Court of Appeal was whether there was a sufficient relationship between Tornado and the ClearMRI compa - nies to apply the common employer doctrine. The Court of Appeal unanimously held that Tornado was not liable under the doctrine be- cause there was no objective intent between O'Reilly and Tornado to enter into an employ- ment contract on the terms for which O'Reilly sought damages — salary, vacation pay, and a loan — nor did Tornado exercise sufficient control over O'Reilly as an employee. In reaching this conclusion, the Court of Ap - peal emphasized that it is not enough that a shareholder's objectives may be aligned with those of the corporation, or that the corpora- tion's success may accrue to the benefit of the shareholder. A shareholder corporation does not effectively control an employee simply be- cause they stand to benefit from the success of the corporation and the employee is working towards that success. Impact on employers The Court of Appeal's decision clarifies that common employer liability applies to wrong - ful dismissal actions (as argued in this case by Tornado) as well as any claims that could be brought by reason of a breach of the employ- ment agreement. This includes claims relating to the failure to pay salary, bonus, or other entitlements, in addition to claims about dis- missals without notice or cause. O'Reilly also provides helpful parameters as to the application of the common employer doctrine in common law claims — the Court of Appeal's findings do not necessarily apply to claims under the ESA or LRA. In particular, the decision confirms that common employer liability exists in a manner that is consistent with the principle of corporate separateness, and liability will not arise solely because a cor - poration has a corporate relationship with an employee's primary employer. Rather, liability arises under the common employer doctrine where related corporations have objectively demonstrated that they intended to be parties to an employment contract with the employee, with respect to the terms the employee is seek - ing to enforce. The Court of Appeal in O'Reilly found that this question of contractual forma- tion was not addressed, articulated, or applied by the motion judge. While a variety of conduct may be relevant to whether there was an intention to enter into a contract, O'Reilly establishes that the following two factors are key: the employer in question exercises effective control over the employee, and an employment agreement explicitly spec - ifies that the corporation is the employer of the individual. With respect to the first, and most germane, factor, control over matters such as the selection of employees, payment of wages or other remuneration, method of work, and ability to dismiss are all important indicators of an employer-employee relationship. With respect to the second factor, a written employ - ment agreement does not need to exist for a finding of a contractual relationship between an employee and employer. Rather, such a relationship will be found based on an objec- tive assessment of all the evidence and factual context. O'Reilly further confirms that while corporate interrelationships warrant consideration when making a common employer assessment, they do not on their own justify application of the doctrine. Legal view O'Reilly will provide some comfort to businesses operating through interrelated entities in underscoring that the courts will only "pierce the corporate veil" where warranted by the individual circumstances, taking into ac - count the objective intentions of the parties as evidenced by their conduct. At the same time, interrelated entities should continue to be cau- tious in situations where there may be overlap in the provision of services by employees be- tween such entities or the exercise of direction or control over employees by such entities, as this type of conduct can be indicative of a com- mon employer relationship regardless of the written terms between the parties. For more information, see: • O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (Ont. C.A.). 6 | | October 6, 2021 October 6, 2021 « from FINDING on page 1 Majority shareholder of employer didn't exercise control over worker's employment Cases and Trends Cases and Trends CREDIT: ALUXUM iSTOCK Liability will not arise solely because a corporation has a corporate relationship with an employee's primary employer. ABOUT THE AUTHOR Lucy Carruthers is an associate practising in the Employment and Labour Group with Stikeman Elliott in Toronto. She can be reached at (416) 869-5527 or lcarruthers@stikelman.com.

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