The decision in O’Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 (“ClearMRI”) is important for any dentist with more than one DPC as it speaks to how the courts determine common employers. Common employer refers to when two or more corporations, owned by the same person (or entity), operating as separate companies, are seen as employers for the same employee.
In this post, we will break down the decision in ClearMRI, explain what factors the courts look at when determining whether the common employer doctrine applies, and provide tips on navigating it as a dentist hiring employees.
Background
William O’Reilly was the Chief Executive Officer of ClearMRI Solutions Ltd. (“ClearMRI Canada”) and its subsidiary corporation, ClearMRI Solutions, Inc. (“ClearMRI US”). O’Reilly only had a written employment agreement with ClearMRI US but reported to and had his performance goals set by the board of directors of ClearMRI Canada.
Another relevant corporation, Tornado Medical Systems (“Tornado”), was the majority shareholder of ClearMRI Canada and shared board members. O’Reilly had no formal employment position with Tornado, but under a unanimous shareholder agreement, Tornado had clear rights regarding the decisions being made at ClearMRI Canada.
After the termination of O’Reilly’s employment in 2014, he commenced an action claiming unpaid wages, vacation pay, and loan repayment from ClearMRI Canada for a total of roughly $400,000. Upon summary judgment, the motion judge found that ClearMRI Canada directors were jointly and severally liable and that Tornado exercised enough control to be liable as a common employer.
Tornado appealed the decision to the Ontario Court of Appeal (the “ONCA”), claiming that the application of the common employer doctrine was flawed and that Tornado was not a common employer.
The Issues
Ultimately, to determine whether Tornado’s appeal should be dismissed, the following question needs to be answered by the Court:
- Do the facts show that the interconnectedness between Tornado and ClearMRI Canada and ClearMRI US is close enough for the common law doctrine to apply?
The Decision
The ONCA found that the lower court judge who decided that Tornado was a common employer erred in its decision. The appeal court described that there are two factors relevant to an employee/employer relationship that need to be considered when determining whether a corporation is a common employer, and the lower Court failed to analyze these factors.
- Is There an Employment Contract?
If an agreement exists, whether written or unwritten, that specifies that the employee/employment exists OR there are factors indicative of so, there is an intention to create the relationship.
- Does the Corporation Exercise Effective Control?
If the alleged common employer appears to have effective control over the employer (e.g., supervises or manages the individual), this could indicate an intended employer/employee relationship.
These questions are used to determine whether the facts show that the company objectively acted in a way that it intended to be in an employee/employer relationship.
The ONCA court decision found that when interrelated corporations are considered common employers, there must be evidence of the intention among each corporation to create the employer/employee relationship. This is consistent with the principle of corporate separateness. Unless the entity shows it intended to be an employer, the corporation remains a wholly separate and individual entity.
Why Does This Matter?
In some respects, the ClearMRI case decision is a positive outcome for employers, as it clarifies that the common employer doctrine will not be applied too broadly in determining if a company is a common employer.
Nevertheless, dentists must be careful because the courts will still make an objective assessment. For instance, as a dentist with multiple dental practices operated by more than one corporation, preparing written employment agreements for all employees is very important to help clarify who is employed by which corporation and mitigate the risk of having a corporation deemed a common employer (Factor 1). However, keep in mind that just because there is an agreement saying one thing, if the facts demonstrate both corporations are exercising effective control of the employee (Factor 2), it doesn’t matter what the agreement sets out.
Bottom Line
An intercorporate relationship is not enough to determine that the corporations involved are a common employer. However, if you are operating multiple Dentistry Professional Corporations, understanding how the common employer doctrine is applied can help you mitigate the liability risk of all your corporations being liable for an employee of one of the corporations. You should also ensure that your team has proper employment contracts and that the relationship between them and your corporations is clear.
We know employment laws are complex, so we want to help you make informed business decisions. Send us an email or contact any of our lawyers at 416-443-9280 for all your employment needs.
