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Common Employer Liability

March 4, 2022

Ontario

,

Canada

Issue

When will the courts find that companies that share the same directors and shareholders are not common employers?

Conclusion

The doctrine of common employer liability recognizes that an employee may simultaneously have more than one employer. If an employer is a member of an interrelated corporate group, one or more other corporations in the group may also have liability for the employment obligations. However, and importantly, they will only have liability if, on the evidence assessed objectively, there was an intention to create an employer/employee relationship between the employee and those related corporations. (O'Reilly v. ClearMRI Solutions Ltd.)

The common employer doctrine is consistent with the doctrine of corporate separateness because a corporation is not held to be a common employer simply because it owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee. Rather, a corporation related to the nominal employer will be found to be a common employer only where it is shown, on the evidence, that there was an intention to create an employer/employee relationship between the individual and the related corporation. (O'Reilly v. ClearMRI Solutions Ltd.)

The test to detemine whether a related corporation is liable for specific employment obligations is based in contractual formation. Specifically, the test is whether the employee and the corporation alleged to be a common employer intend to contract about employment with each other on the terms alleged? To determine whether the required intention to contract was present, what is relevant is how each party's conduct would appear to a reasonable person in the position of the other party. (O'Reilly v. ClearMRI Solutions Ltd.)

In O'Reilly v. ClearMRI Solutions Ltd., Zarnett J.A. considered the leading Ontario Court of Appeal on common employer liability, Downtown Eatery, and the caselaw that followed. Zarnett J.A. commented that the Court of Appeal, in Downtown Eatery, stated the test as follows: an individual may be found to be an employee of more than one corporation in a related group of corporations, as long as the evidence shows an intention to create an employer/employee relationship between the individual and the respective corporations within the group. To determine that issue, the operative question raised by the facts was where effective control over the employee resides. Zarbett J.A. further emphasized two points from Downtown Eatery. Firstly, the written contract of employment in that case did not name a legal entity as employer. Instead, the employer was the nightclub, a business operated by the four corporations. Therefore, the written agreement begged the question of who the parties intended the employer to be. Secondly, each of the four corporations was in a direct relationship of control with the employee. None of them were held to be employers simply because they had a relationship with another corporation that was directly involved with the employee. (O'Reilly v. ClearMRI Solutions Ltd.)

Prior to O'Reilly v. ClearMRI Solutions Ltd., there were various formulations that described the test under the common employer doctrine.

In Koscianska v. Lipson Shirtmakers Inc., Davies J. held, when considering a common employer claim, the test is whether there is sufficient integration in the operations of the companies. However, financial integration is not sufficient on its own. The focus of the analysis is on how the related companies operate: Did the companies function as a single, integrated unit in terms of their business operations? Did the employee(s) perform services for both companies? Did both companies exercise control over the employee or the employee’s terms of employment? Is there evidence of an intention to create an employer/employee relationship with both companies?

In Talbot v. Nourse et al, Koehnen J., citing Downtown Eatery, stated that a sufficient degree of relationship between two corporations can render both liable for wage claims.

In Halupa v. Sagemedica Inc., O'Brien J., citing Downtown Eatery, described the key consideration in determining whether two entities were common employers is whether a sufficient degree of relationship existed between the entities.

Master Muir, in Shavit v. Top Aces Holdings Inc., articulated the test under the common employer doctrine as whether the employee had a reasonable expectation that the named defendants were each a party to his or her employment contract. Courts should consider who was in control of the employee, whether any particular person or entity acknowledged the plaintiff as an employee, the existence of an employment contract, who the employee performed services for and the level of integration of the various alleged employers.

In Rowland v VDC Manufacturing Inc., Morgan J. held that, in order to establish that two or more legal entities were the common employer of an employee, the employee must establish that the entities were each a party to the employment contract. The employee must also demonstrate that there was effective control of the employee by all of the alleged common employers companies.

On the facts of the case, in O'Reilly v. ClearMRI Solutions Ltd., Zarnett J.A. found that the appellant, Tornado, was not a common employer. O'Reilly was the CEO of ClearMRI Canada and ClearMRI US. His written agreement was with ClearMRI US, but he reported to, and his performance goals were set by, the board of directors of ClearMRI Canada. The appellant, Tornado, stood at the top of the corporate group, and it was the majority shareholder of ClearMRI Canada, which owned ClearMRI US. When his employment ended, O'Reilly was owed substantial sums for salary and other entitlements. O'Reilly brought an action against Tornado alleging that it, along with the ClearMRI companies, were his common employers. The motion judge described the common law doctrine of employer liability as one that requires the court to “look past the immediate bilateral contractual relationship…and recognize that an employee may be employed by a number of different companies at the same time”. A group of companies identified as “concurrent employers” will have “joint and several liability with respect to the rights and entitlements of the employee”. The motion judge identified three factors that should be considered: the employment agreement itself; where the effective control over the employee resides; and whether there was common control between the different legal entities. The motion judge found that Tornado was a common employer because: (1) it was not determinative that there was no employment agreement with Tornado; (2) Tornado exercised a sufficient amount of control over O'Reilly; and (3) there was a common control between the different legal entities. Zarbett J.A. found the motions judge had not articulated the correct test for common employer liability. The correct test was whether there was an intention that Tornado was a party to the employment agreement with O'Reilly on the terms alleged. Zarbett J.A. concluded that the motion judge’s conclusions about control over O’Reilly as an employee did not address the correct test and were thus legally insufficient to support summary judgment. The corporate interrelationships could not fill that gap. Zarbett J.A. set aside the summary judgment.

In Downtown Eatery (1993) Ltd. v. Ontario, the employee was offered a position as manager of the nightclub For Your Eyes Only. A fairly sophisticated group of companies was involved in the operation of the nightclub. Twin Peaks Inc. ("Twin Peaks") was the owner and lessor of the nightclub premises. The Landing Strip Inc. ("The Landing Strip") leased the premises from Twin Peaks. It also owned the trademark for For Your Eyes Only and held the liquor and adult entertainment licences. Downtown Eatery Limited ("Downtown Eatery") owned the chattels and equipment at the nightclub and operated it under a licence from The Landing Strip. Best Beaver paid the nightclub employees, including Alouche. In June 1993, all of these companies were owned and controlled by Bengro Corp. and Harrad Corp., the holding companies for Grosman and Grad. The only entity specifically identified in the written employment contract was For Your Eyes Only. However, the contract also provided that the employees would receive the health care and insurance benefits available "in our sister organization", which was not identified by name. When the employee was dismissed, he commenced an action, in 1993, against Best Beaver on the grounds that Best Beaver Management's name was on the employee's paycheques. In 1996, there was a major reorganization of the companies. Best Beaver ceased to do business. The Court of Appeal found that the corporate respondents were common employers on the following grounds (a) the employment contract was only one factor, and the listed employer in the contract was not a legal entity; and (b) the group of companies functioned as a single, integrated unit in relation to the operation of For Your Eyes Only, which was reflected in the employment contract (with the reference to the sister company paying health benefits).

Law

In O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (CanLII), the Ontario Court of Appeal considered the common law doctrine of common employer liability. The doctrine recognizes that an employee may have simultaneously have more than one employer. Zarnett J.A. found that if an employer is a member of an interrelated corporate group, one or more other corporations in the group may also have liability for the employment obligations. However, and importantly, they will only have liability if, on the evidence assessed objectively, there was an intention to create an employer/employee relationship between the employee and those related corporations:

[2] One avenue exists under the doctrine of common employer liability. This common law doctrine[1] recognizes that an employee may simultaneously have more than one employer. If an employer is a member of an interrelated corporate group, one or more other corporations in the group may also have liability for the employment obligations. However, and importantly, they will only have liability if, on the evidence assessed objectively, there was an intention to create an employer/employee relationship between the employee and those related corporations.

The common employer doctrine is consistent with the doctrine of corporate separateness because a corporation is not held to be a common employer simply because it owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee. Rather, a corporation related to the nominal employer will be found to be a common employer only where it is shown, on the evidence, that there was an intention to create an employer/employee relationship between the individual and the related corporation:

[49] The common employer doctrine does not involve piercing the corporate veil or ignoring the separate legal personality of each corporation. It imposes liability on companies within a corporate group only if, and to the extent that, each can be said to have entered into a contract of employment with the employee: Sinclair v. Dover Engineering Services Ltd., 1988 CanLII 3358 (BC CA), 49 D.L.R. (4th) 297 (B.C.C.A.) (“Sinclair (BCCA)”), at para. 9.

[50] Thus, consistent with the doctrine of corporate separateness, a corporation is not held to be a common employer simply because it owned, controlled, or was affiliated with another corporation that had a direct employment relationship with the employee. Rather, a corporation related to the nominal employer will be found to be a common employer only where it is shown, on the evidence, that there was an intention to create an employer/employee relationship between the individual and the related corporation: Gray v. Standard Trustco Ltd. (1994), 1994 CanLII 7472 (ON SC), 8 C.C.E.L. (2d) 46 (Ont. Gen. Div.), at para. 3; Downtown Eatery (1993) Ltd. v. Her Majesty the Queen in Right of Ontario (2001), 2001 CanLII 8538 (ON CA), 54 O.R. (3d) 161 (C.A.), at paras. 31, 40, leave to appeal refused, [2002] 3 S.C.R. vi (note); Rowland v. VDC Manufacturing Inc., 2017 ONSC 3351, at paras. 12-13.

The test to detemine whether a related corporation is liable for specific employment obligations is based in contractual formation. Specifically, the test is whether the employee and the corporation alleged to be a common employer intend to contract about employment with each other on the terms alleged. To determine whether the required intention to contract was present, what is relevant is how each party's conduct would appear to a reasonable person in the position of the other party:

[51] As illustrated by the issue in this case, where Mr. O’Reilly alleges that Tornado is liable for specific employment obligations, the common employer question is one of contractual formation – did the employee and the corporation alleged to be a common employer intend to contract about employment with each other on the terms alleged? When such an intention is found to exist, no violence is done to the concept of corporate separateness because the corporation is held liable for obligations it has undertaken.

[52] To determine whether the required intention to contract was present, the parties’ subjective thoughts are irrelevant. Nor need the intention necessarily have been reflected in a written agreement. The common law’s approach to contractual formation is objective; intention to contract can be derived from conduct. As the Supreme Court has stated in a similar common law contractual formation context, what is relevant is “how each party’s conduct would appear to a reasonable person in the position of the other party”: Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, 450 D.L.R. (4th) 105, at para. 33.

[53] A variety of conduct may be relevant to whether there was an intention to contract between the employee and the alleged common employer(s). As they bear upon this case, two types of conduct are important. One is conduct that reveals where effective control over the employee resided. The second is the existence of an agreement specifying an employer other than the alleged common employer(s).

[54] The conduct most germane to showing an intention that there was an employment relationship with two or more members of an interrelated corporate group is conduct which reveals that effective control over the employee resided with those members[4] : Downtown Eatery, at paras. 32-33. This is consistent with how the law distinguishes employment from other types of relationships. Control over such matters as the selection of employees, payment of wages or other remuneration, method of work, and ability to dismiss, can be important indicators of an employer/employee relationship: Baldwin v. Erin District High School Board, 1961 CanLII 213 (ON CA), 1961 O.R. 687, at para 11, aff’d 1962 CanLII 527 (SCC), 36 D.L.R. (2d) 244 (SCC); see also Bagby v. Gustavson International Drilling Co. Ltd., 1980 ABCA 227, 24 A.R. 181, at paras. 48-50.

[55] A written agreement that specifies an employer other than the corporation(s) alleged to be the common employers may also be relevant. The extent of its relevance depends on how the existence and terms of the written agreement, in light of the facts, informs the question of whether there was an intention that others were also employers.

Zarnett J.A. considered the leading Ontario Court of Appeal case on common employer liability, Downtown Eatery (1993) Ltd. v. Ontario, and the caselaw that followed. Zarnett J.A. commented that the Court of Appeal, in Downtown Eatery, stated the test as follows: an individual may be found to be an employee of more than one corporation in a related group of corporations, as long as the evidence shows an intention to create an employer/employee relationship between the individual and the respective corporations within the group. To determine that issue, the operative question raised by the facts was where effective control over the employee resides:

[56] These points are illustrated in this court’s leading decision on common employer liability, Downtown Eatery, and the case law which has followed.

[57] In Downtown Eatery, the employee was the manager of a nightclub called “For Your Eyes Only”. The nightclub was operated together by a “highly integrated or seamless group of companies”. One corporation owned the premises; a second owned the trademark and held the liquor and entertainment licences; a third owned the chattels and equipment; and a fourth was the paymaster: at para. 34. The employee’s contract was with the business name For Your Eyes Only, which itself was not a legal entity: at paras. 38-40.

[58] The court held that an individual may be found to be an employee of more than one corporation in a related group of corporations, as long as the evidence shows an intention to create an employer/employee relationship between the individual and the respective corporations within the group: at para. 31. To determine that issue, the operative question raised by the facts was “where effective control over the employee resides”: at paras. 32-33.

[59] In Downtown Eatery, the answer to that question was that each of the commonly controlled corporations that was integrally and directly involved in owning and operating the nightclub, was exercising control over, and was therefore a common employer of, the manager.

Zarbett J.A. further emphasized two points from Downtown Eatery. Firstly, the written contract of employment in that case did not name a legal entity as employer. Instead, the employer was the nightclub, a business operated by the four corporations. Therefore, the written agreement begged the question of who the parties intended the employer to be. Secondly, each of the four corporations was in a direct relationship of control with the employee. None of them were held to be employers simply because they had a relationship with another corporation that was directly involved with the employee:

[60] The court stated at para. 40:

In conclusion, Alouche's true employer in 1993 was the consortium of Grad and Grosman companies which operated For Your Eyes Only. The contract of employment was between Alouche and For Your Eyes Only which was not a legal entity. Yet the contract specified that Alouche would be "entitled to the entire package of medical extended health care and insurance benefits as available in our sister organization". The sister organization was not identified. In these circumstances, and bearing in mind the important roles played by several companies in the operation of the nightclub, we conclude that Alouche's employer in June 1993 when he was wrongfully dismissed was all of Twin Peaks, The Landing Strip, Downtown Eatery and Best Beaver. This group of companies functioned as a single, integrated unit in relation to the operation of For Your Eyes Only. [Emphasis added.]

[61] The two emphasized passages deserve amplification.

[62] First, the written contract of employment in Downtown Eatery, by not naming a legal entity, did not indicate a choice of one entity over another in terms of identifying the employer. Rather, it indicated the employer was the nightclub, a business operated by the four corporations. Although there was a written agreement, it begged, rather than answered, the question of who the parties intended the employer to be.

[63] Second, each of the corporations found to be a common employer was directly involved in the operation of the nightclub that employed the manager. The nightclub was each of their business. Each was thus in a direct relationship of control with the employee who had been hired to manage their business. None were held to be employers simply because they had a relationship with another corporation that was directly involved with the employee. As Hourigan J.A. noted in Yaiguaje, the conclusion in Downtown Eatery “rested more on the plaintiff’s relationship to the group of companies rather than the relationships among the companies in the group”: at para. 69.

[64] In other cases, a common employer allegation has failed due to the presence of a written employment agreement that specified that only one company within the corporate group was the employer: Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 OR (3d) 616, at para. 83; Mazza v. Ornge Corporate Services, 2015 ONSC 7785, 52 B.L.R. (5th) 51 (“Mazza (ONSC)”), at paras. 93-99, aff’d 2016 ONCA 753, 62 B.L.R. (5th) 211 (“Mazza (ONCA)”). In each of these cases, the facts were such that the court could conclude that the employee knew the only entity to whom he could look for fulfillment of employment obligations: Dumbrell, at para. 83; Mazza (ONSC) at paras. 90, 93-94. As this court explained in Mazza (ONCA), the common employer claim was precluded because “[t]he Employment Agreement identified only one employer and contained an express release of claims against affiliated corporations”: at para. 8. In other words, the written agreements in those cases, in light of all the facts, did not permit the conclusion that there was an intention to create an employer/employee relationship with anyone beyond the employer specified in the written agreement.

[65] Nonetheless, as Downtown Eatery shows, a written agreement will not always preclude a finding of common employers. It depends on the terms of the written agreement, and the other facts of the case. The circumstances must reasonably permit the inference that there was an intention that the alleged common employers were also parties to the employment agreement. The inference is not available simply because the corporations are related: As Morgan J. explained in Rowland, at paras. 12-13:

In order to establish that two or more legal entities are his common employer, the Plaintiff must demonstrate that he had a reasonable expectation that the Defendants were each a party to his employment contract…

Where the employee is aware that he was employed by a single employer, the fact of interlocking shareholders with his formal employer does not itself establish a common employer. The onus is on the Plaintiff to demonstrate that there was “effective control over the employee” by all of the alleged common employer companies. There must be evidence of an actual “intention to create an employer/employee relationship between the individual and the respective corporations within the group”. [Citations omitted.]

[...]

Zarbett J.A. summarized the doctine of common employer liability as follows:

To summarize, the doctrine of common employer liability exists consistently with the principle of corporate separateness because it holds related corporations liable for obligations they actually undertook to perform in favour of the employee. It does not hold them liable simply because they have a corporate relationship with the nominal employer. Whether the related corporations actually undertook to perform those obligations is a question of contractual formation – did the parties objectively act in a way that shows they intended to be parties to an employment contract with each other, on the terms alleged? Of central relevance to that question is where effective control over the employee resided. The existence of a written agreement specifying an employer other than the alleged common employer(s) will also be relevant; the extent of the relevance will depend on the terms and the factual context.

In O'Reilly v. ClearMRI Solutions Ltd., O'Reilly was the CEO of ClearMRI Canada and ClearMRI US. His written agreement was with ClearMRI US, but he reported to, and his performance goals were set by, the board of directors of ClearMRI Canada. The appellant, Tornado, stood at the top of the corporate group, and it was the majority shareholder of ClearMRI Canada, which owned ClearMRI US. When his employment ended, O'Reilly was owed substantial sums for salary and other entitlements. O'Reilly brought an action against Tornado alleging that it, along with the ClearMRI companies, were his common employers. The motion judge described the common law doctrine of employer liability as one that requires the court to “look past the immediate bilateral contractual relationship…and recognize that an employee may be employed by a number of different companies at the same time”. A group of companies identified as “concurrent employers” will have “joint and several liability with respect to the rights and entitlements of the employee”. The motion judge identified three factors that should be considered: the employment agreement itself; where the effective control over the employee resides; and whether there was common control between the different legal entities. The motion judge found that Tornado was a common employer because: (1) it was not determinative that there was no employment agreement with Tornado; (2) Tornado exercised a sufficient amount of control over O'Reilly; and (3) there was a common control between the different legal entities. Zarbett J.A. found the motions judge had not articulated the correct test for common employer liability. The correct test was whether there was an intention that Tornado was a party to the employment agreement with O'Reilly on the terms alleged. Zarbett J.A. concluded that the motion judge’s conclusions about control over O’Reilly as an employee did not address the correct test and were thus legally insufficient to support summary judgment. The corporate interrelationships could not fill that gap. Zarbett J.A. set aside the summary judgment:

[4] The appellant, Tornado Medical Systems, Inc. (“Tornado”) stood at the top of a corporate group. It was the majority shareholder of ClearMRI Solutions Ltd. (“ClearMRI Canada”) which itself had a wholly owned subsidiary, ClearMRI Solutions, Inc. (“ClearMRI US”).

[5] The respondent, William O’Reilly, served as the Chief Executive Officer (“CEO”) of ClearMRI Canada and ClearMRI US (together, “ClearMRI companies”). His written employment agreement was with ClearMRI US, but he reported to, and his performance goals were set by, the board of directors of ClearMRI Canada.

[6] When his employment ended, Mr. O’Reilly was owed substantial sums for salary and other entitlements. He brought an action seeking recovery of all outstanding amounts from the ClearMRI companies and Tornado. While Mr. O’Reilly did not have a formal position or written agreement with Tornado, he alleged that it, along with the ClearMRI companies, were his common employers. The action also sought recovery from the directors of Tornado and ClearMRI Canada, including the appellant, Jae Kim (“Dr. Kim”), for six months’ unpaid wages and twelve months’ vacation pay under s. 131 of the OBCA.

[7] Mr. O’Reilly obtained default judgment against the ClearMRI companies. He subsequently moved for summary judgment against the other defendants. His motion was successful.

[...]

[14] Tornado is an Ontario corporation. In 2010, it acquired licence rights to intellectual property that can be used to facilitate the refurbishment and upgrading of Magnetic Resonance Imaging (“MRI”) machines.

[15] Tornado is the majority shareholder of ClearMRI Canada, which is also an Ontario corporation. ClearMRI Canada was formed in 2012 to develop a business of upgrading and refurbishing MRI machines. For this purpose, Tornado assigned, to ClearMRI Canada, its licence rights to the intellectual property.

[16] In addition to the incidents of corporate control over ClearMRI Canada that flowed from its majority shareholding, Tornado had certain specified rights under a Unanimous Shareholder Agreement that related to ClearMRI Canada: Tornado’s consent was required for certain dividends, large capital expenditures, the sale of ClearMRI Canada’s business, any amalgamation with another corporation, or any winding-up, reorganization, or dissolution. Tornado’s consent rights did not, however, extend to changes in management of ClearMRI Canada or its subsidiaries, employment agreements, or dealing with loans from non-arms-length persons – the Unanimous Shareholder Agreement required only the approval of the board of ClearMRI Canada, or a committee of the board, for these matters.[2]

[17] To some extent, the boards of directors of Tornado and ClearMRI Canada overlapped; ClearMRI Canada’s board consisted of five directors, two of whom were also directors of Tornado. Dr. Kim was a director of both Tornado and ClearMRI Canada.

[18] ClearMRI US is a Delaware company, wholly owned by ClearMRI Canada. It was formed in May 2012 to obtain American regulatory approval of the ClearMRI technology and to develop the MRI upgrading and refurbishing business in the United States.

[...]

[19] Mr. O’Reilly served as CEO of ClearMRI Canada from approximately the time of its formation. He was also one of its directors. When ClearMRI US was formed, he also became its CEO and sole director. Mr. O’Reilly did not hold any formal position with Tornado.

[20] On May 22, 2012, Mr. O’Reilly and ClearMRI US signed an agreement confirming the terms of his employment. The agreement named ClearMRI US as Mr. O’Reilly’s employer. The agreement specified that Mr. O’Reilly was to serve as its CEO and was to be paid an annual base salary of $153,000 USD in 2012, increasing to $210,000 USD in 2013. He was also entitled to benefits including paid vacation and to specific payments if he was terminated without notice or cause. He was also eligible to earn a performance bonus of $80,000 USD and to receive other compensation.

[21] Although ClearMRI US was named in the written agreement as the employer, the motion judge found that Mr. O’Reilly was also employed by ClearMRI Canada and Tornado. Her reasons for doing so are discussed below.

[...]

[30] The motion judge was satisfied that this was an appropriate case for summary judgment.

[31] The motion judge described the common law doctrine of common employer liability as one that requires the court to “look past the immediate bilateral contractual relationship…and recognize that an employee may be employed by a number of different companies at the same time”. A group of companies identified as “concurrent employers” will have “joint and several liability with respect to the rights and entitlements of the employee”. The motion judge identified three factors that should be considered: the employment agreement itself; where the effective control over the employee resides; and whether there was common control between the different legal entities.

[32] The motion judge then addressed whether ClearMRI Canada was a common employer of Mr. O’Reilly. She concluded that it was, noting that the issue was not really in dispute and there was already a judgment against it. She found that Mr. O’Reilly reported to the ClearMRI Canada board, which set his performance goals, and that, “[i]n practice, effective control over [Mr.] O’Reilly did reside with ClearMRI Canada”; she further remarked that ClearMRI Canada wholly owned ClearMRI US, and had incorporated it for a specific purpose. She was satisfied they “both had a single relationship with [Mr.] O’Reilly”.

[...]

[35] Next, the motion judge considered whether Tornado was a common employer using the three factors she identified. She stated that it was not determinative that there was no employment agreement with Tornado. She found that Tornado exercised “a sufficient amount of control” over Mr. O’Reilly, as both Tornado and ClearMRI Canada had accepted his offers to defer his salary and to loan funds to ClearMRI Canada, both had assured Mr. O’Reilly that ClearMRI Canada was committed to bringing its product to market, and both shared the business objectives that Mr. O’Reilly was employed to achieve. She found common control between the different legal entities because Tornado had incorporated ClearMRI Canada to develop a specific business; Tornado had a majority controlling shareholder interest; Tornado had consent rights under the Unanimous Shareholder Agreement; there was an overlap in directors; and when it came time to replace a director of ClearMRI Canada, Dr. Kim wished to discuss the replacement with Tornado. Accordingly, she found that Tornado was a common employer, jointly and severally liable for the employment related amounts of the default judgment – everything except the unpaid loan and interest on it.

[...]

[70] The test to determine whether corporations are common employers may be stated in several ways that are in substance the same. For example, as articulated by Wallace J.A. in Sinclair(BCCA): “The issue…reduces itself to determining which company or companies entered into a contract of employment with [the employee] pursuant to which he would provide services in return for his salary and benefits”: at para 8. Or, as adopted in Downtown Eatery, “One must find evidence of an intention to create an employer/employee relationship between the individual and the respective corporations within the group”: at para. 31.

[71] Mr. O’Reilly contended that Tornado owed him the same obligations as ClearMRI US under the written employment agreement – the same salary, benefits, and other employment entitlements. For that contention to succeed, it was necessary to find that Tornado and Mr. O’Reilly intended to contract with each other on those terms.

[72] As discussed below, the motion judge did not address that question. Although she referred to three factors that are relevant to determining whether a common employer relationship exists, she did not articulate the actual test, namely, whether there was an intention that Tornado was a party to the employment agreement with Mr. O’Reilly on the terms alleged. Nor did she apply that test to the factors she considered. In other words, she did not ask, or answer, the right question.

[73] I deal, in turn, with the three factors the motion judge considered through the lens of the test.

The Effect of an Employment Agreement

[74] The first factor the motion judge discussed was Tornado’s absence from Mr. O’Reilly’s employment agreement. She held that this was not determinative. She said: “It is true that O 'Reilly's employment contract does not mention Tornado, and that Tornado did not pay him, but the factor of a contractual relationship is not determinative, or else it would be too simple for employers to evade their obligations towards their employees.”

[75] To the extent that the motion judge suggested that there did not need to be any contractual relationship between Tornado and Mr. O’Reilly in order to consider Tornado a common employer, she erred. The whole point of the common employer inquiry was to determine whether Tornado was a party to an employment agreement imposing the obligations that Mr. O’Reilly sought to enforce. That did not require a written agreement with Tornado, but it did require a determination that a contractual relationship with Tornado on the terms alleged had been formed. The motion judge never adverted to that question.

[76] The motion judge cited Downtown Eatery for the proposition that a contractual relationship is not a decisive factor. However, the passage the motion judge cited spoke to the relevance of a written agreement that did not specifically name the common employers; the court was not suggesting that a corporation can be a common employer without a finding that it and the employee intended to be parties to an employment agreement with each other.

[77] To the extent that the motion judge was addressing the effect of the written agreement specifying only ClearMRI US as the employer, her consideration was incomplete. She did not address the agreement’s fundamental difference from that in Downtown Eatery which, unlike the agreement in this case, neither selected an entity as the employer, nor implicitly excluded any others from consideration. Here, the written agreement specifically named a corporation for which the appellant actually worked.

[78] It was accordingly necessary to assess how the written agreement bore on the question of whether there was an intention that Tornado was a party to the employment agreement with the same obligations as ClearMRI US. This analysis would have to be made in light of all of the evidence.

[79] The motion judge did not, however, undertake this required analysis.

Tornado’s “Control” Over Mr. O’Reilly As an Employee

[80] The second factor the motion judge considered was whether Tornado exercised “a sufficient amount of control” over Mr. O’Reilly. She held that it did, but her conclusion is tainted by her failure to relate the facts to the proper test.

[81] The motion judge relied on several facts which she said she took from Mr. O’Reilly’s uncontested evidence: that Tornado and ClearMRI Canada “both agreed to accept [Mr.] O’Reilly’s offer to defer his salary”; that Tornado and ClearMRI Canada both agreed to accept his offer to loan funds to ClearMRI Canada; that Tornado and Clear

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