The Ontario Court Of Appeal Provides A Clear Solution To The Common Employer Doctrine

• Published date: 28 June 2021
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Contract of Employment, Employee Rights/ Labour Relations, Trials & Appeals & Compensation
• Law Firm: WeirFoulds LLP
• Author: Mr Daniel Wong, Max Skrow and Rapti Ratnayake (Summer Student)

In O'Reilly v ClearMRI Solutions Ltd.¹, the Ontario Court of Appeal clarified when the "common employer doctrine" will ascribe liability to a corporation in respect of an individual employed by another corporation that is controlled by or affiliated with it.

In O'Reilly, the Court held that a corporation is not a common employer merely because it 'owned, controlled or was affiliated with another corporation that had a direct employment relationship with the employee',² and that the doctrine of common employer cannot be applied if there is no intention to create an employer/employee relationship between the individual and the related corporation.

Background:

William O'Reilly served as the CEO for both ClearMRI Solutions Ltd. ("ClearMRI Canada") and ClearMRI Solutions, Inc. ("ClearMRI US", together with ClearMRI Canada, the "ClearMRI Companies"). Mr. O'Reilly's written employment agreement was with ClearMRI US, a wholly own subsidiary of ClearMRI Canada, although he reported to, and his performance goals were set by, the board of directors of ClearMRI Canada.

Another corporation, Tornado Medical Systems, Inc. ("Tornado"), was a majority shareholder in ClearMRI Canada. Mr. O'Reilly had no formal position with Tornado. Under a Unanimous Shareholder Agreement, Tornado had specified rights relating to ClearMRI Canada, but these rights did not extend to changes in the management of ClearMRI Canada or its subsidiaries and employment agreements.

In 2013, Mr. O'Reilly loaned money to ClearMRI Canada, and agreed to defer his salary to remedy the company's cash flow problems on ClearMRI Canada's promise that it would bring its product to market and earn revenue. In 2014, it became evident to Mr. O'Reilly that ClearMRI Canada was no longer committed to bringing its product the market. Mr. O'Reilly claimed that he was constructively dismissed and demanded a payment of $281,315.00 USD from the ClearMRI Companies, Tornado and the directors of ClearMRI Canada and Tornado for unpaid salary and the loan payment. Mr. O'Reilly sought to hold Tornado liable under the common employer doctrine.

On a motion for summary judgment the motion judge, Justice Ferguson, concluded that Tornado was a common employer and was jointly and severally liable for the employment related amounts of the judgment. Justice Ferguson identified three factors that triggered the common employer doctrine and concluded that Tornado exercised 'a sufficient amount of control'³ over Mr. O'Reilly and that there...