Since the Supreme Court of Canada’s decision in Hryniak v. Mauldin, summary judgment has repeatedly been celebrated as an important tool in any employment lawyer’s toolbox. The length of the reasonable notice period or the validity of a termination clause are usually factually uncontroversial issues, and therefore are perfectly poised for determination without trial. Recently, however, Jim Anstey of Nelligan O’Brien Payne’s employment law group was successful on an employment law summary judgment motion of an altogether different type: securing a dismissal of a wrongful termination claim against individual and corporate defendants where a “common employer” relationship was alleged.
In the underlying action (which has yet to be heard) to Sproule v. Tony Graham Lexus Toyota et al., the court will be tasked with determining whether the Plaintiff was dismissed or whether he resigned from his employment as manager of a car dealership. In addition to the dealership for which he worked, the Plaintiff named 13 defendants: three other corporations that operated car dealerships, eight holding companies that held shares in the various dealerships, and two individuals who were directors of all the companies at the time that the employment relationship with the Plaintiff ended.
With regard to the individual defendants, the judge held that as there was no allegation of fraud, deceit, dishonesty or a want of authority on their part, the claim against them must be dismissed. It is not appropriate to pierce the corporate veil and attribute personal liability to directors who are simply carrying out their corporate responsibilities with the authority vested in them.
The judge then conducted an extensive review of the case law surrounding the common employer doctrine, before stating that the fact that the operating and holding companies were intermingled financially would not necessarily result in a finding that they operated as a common employer. In order for the common employer doctrine to apply, a corporation that is not technically the employee’s employer must exercise control over the employee, whether directly or indirectly. As the court noted in the leading case of Downtown Eatery (1993) Ltd. v. Ontario, multiple corporations will be a common employer where they conduct operations in a “highly integrated or seamless” manner. As a result of this analysis, the judge was confident he could determine on summary judgment that the holding companies in this case, which had no operations and no employees, could not be said to be common employers of the employee.
While decided in the Moving Defendants’ favour, this case demonstrated once again that the common employer doctrine is an important principle of employment law and is key to ensuring that employee rights do not suffer as a result of complex corporate structures. While the common employer doctrine is not only applicable when the formal employer does not have the funds to satisfy a judgment, that is generally when it will be most useful to plaintiffs. It is important for plaintiff counsel to be alive to the possibility that more than one corporation could be the plaintiff’s employer and to name defendants accordingly.
That said, defending against a claim is costly and time-consuming, and the fact that a corporation might be financially able to defend itself does not mean that additional companies who are not reasonably an employer of the plaintiff should be included in the litigation. Plaintiffs who improperly name defendants as common employers may be open to costs against them if the defendants are successful in having the action dismissed against them on summary judgment. Furthermore, numerous unnecessary defendants can render a proceeding unduly cumbersome and complex by adding additional issues to the fray, and requiring significantly more documentary and oral discovery than would otherwise be necessary.
The takeaway for counsel on both sides of the bar is to look for practical resolutions to potential common employer issues. Where companies are not particularly profitable, such that the plaintiff’s real concern is recovering on a judgment, counsel could explore alternative resolutions to address this fear. For example, rather than pursuing the claim against multiple defendants, the parties could agree to pay monies into trust or court pending a determination of the matter on the merits. It also bears remembering that there are legal remedies available to undo transfers of capital designed to frustrate a judgment.
One final takeaway: a summary judgment motion may be useful in a host of various situations and should be considered not only for final resolutions, but to simplify matters prior to trial.