Understanding the Common Employer Doctrine
**Written by Zura Nakiwoga, Articling Student at Lee Workplace Law
What is the common employer doctrine?
The common employer doctrine is a legal concept that, in certain circumstances, will treat related entities as a single employer in the event an individual works for more than one related company. This doctrine can arise from common law principles or be triggered by specific statutory provisions, such as Section 4 of the Employment Standards Act (ESA) in Ontario.
When will it apply?
Statutory:
A finding of common employer for statutory purposes may arise if certain specific criteria are met, as follows:
- If an employer and one or more other parties are involved in associated activities or businesses, they are considered as a single entity under the ESA.
- This applies even if these activities or businesses are not conducted simultaneously.
- However, there are exceptions:
- It does not apply to a corporation and an individual shareholder unless the shares are held for partnership purposes.
- It also does not apply to the Crown or its agencies or entities where all members are appointed by the Crown.
- Those treated as a single employer are jointly and severally responsible for any violations of the ESA and its regulations.
Common law:
In addition to statutory obligations, related employers may be found to be common employers for common law liabilities, such as reasonable notice of termination.
In the landmark case of O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (CanLII), the Ontario Court of Appealconfirmed the test for determining common employer status under the common law. This test focuses on whether there was an intention to create an employer-employee relationship between the individual and the related corporations. Factors such as control over the employee's work, the language of employment agreements, and the overall circumstances of the employment relationship are considered.
In Beaumont v. Beaumont et al. v. Beaumont and Boemar Inc, 2023 ONSC 6085 (CanLII), the court applied this test to a family dispute, which involved claims for, among other things, unpaid wages against the family business. In assessing the issue of whether related entities and the implicated individuals were common employers, different conclusions were reached. One of the businesses and individuals were held to be common employers due to their active and direct involvement and control over the employment relationships, including responsibility for payment of wages. On the flipside, other entities were absolved of liability for the unpaid wages, as they did not have the requisite degree of involvement or control over the employment relationship. This highlights the fact specific approach taken to assessing common employer status.
What are the implications of being a common employer?
Being deemed a common employer carries significant implications for both employers and employees. This can include:
- Joint and several liability: Common employers are jointly and severally liable, meaning they share liability for employment-related obligations. Either or both can be on hook for items like unpaid wages, termination pay, or severance. Note, however, it does not mean the employee can claim double entitlements from each entity. Rather, joint and several liability can be highly relevant in the event one of the entities goes insolvent or out of business, in which case the employee can claim against the still-in-existence entity.
- Statutory entitlements: Common employer designation can also create risk related to items like overtime and hours of work compliance under the ESA. If an employee works for two related organizations that are common employers, coordination is needed to ensure compliance with rules about overtime and hours of work.
Practical Takeaways
For Employers:
- Ensure clarity in employment agreements: Clearly specify the intended employer in employment contracts to avoid ambiguity. If the intention is for the employee to work for both entities, it may be best to address this head on.
- Manage statutory obligations: Regardless of common employer status, ensure that employees receive all statutory entitlements, such as minimum wage, overtime pay, and vacation pay.
- Establish agreements: If an employee works for multiple related organizations, consider having agreements in place to determine which entity is responsible for severance pay and other termination-related obligations. Common employers will also need to ensure hours of work and overtime entitlements are being properly tracked and provided between the organizations.
For Employees:
- Clarify employment relationships: If you work for multiple related companies, clarify the terms of your employment with each entity to ensure clarity on responsibilities and that you will be provided with your full legal entitlements.
- Understand your rights: Be aware of your entitlements under employment standards legislation and the common law. Seek legal advice if you believe your rights have been violated.
Conclusion
By understanding the common employer doctrine and its implications, both employers and employees can navigate employment relationships effectively while minimizing legal risks. Both employers and employees are encouraged to seek legal advice based on specific circumstances of each case, helping parties make informed decisions and protect their rights.
