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Multiple companies under one operation

One business can often be made up of several different corporations for legitimate reasons. One owns the property, one owns the assets, and another employs the employees and actually operates the business. There is nothing illegal or shameful about that. Other businesses entering into contracts with the entity are expected to do their research and know with whom they are dealing. But what about the employees? When they are shuffled from one payroll to the next, what are their rights?
 
Rodney began working as an accountant for a liquidation and auctioneering company in 1973 Over the next 38 years he was shuffled around between five different companies.
 
Every time a new company was started, Rodney set up the payroll, the WSIB accounts and other necessary banking arrangements.  With small variations, each and every company worked under the same brand name. To an outside person, it would appear to be the same organization with slightly changing names.
 
In the fall of 2011, Rodney was asked to set up yet another new company. Before his employment was transferred to that new company he was terminated along with the other employees. He received no pay in lieu of notice or statutory entitlements whatsoever.
 
At one point in this ragged journey, the employer entered into an agreement with Rodney that if he worked until the age of 65, he or his spouse would be entitled to a monthly retirement payment for life of $700.00.
 
Within a month of Rodney being terminated without compensation, the company he had helped to set up but never formally worked for was holding auctions and engaging in business.  It was using the same premises, the same phones, the same desks and the same chairs.  It was using that very same brand name that had been used for decades and the same website. This new company was owned by the son of the man who had owned all the companies Rodney had worked for over the years.
 
Within a few months all of the other employees that had been terminated along with Rodney had been hired by the new company.  Rodney, at the age of 73, had no such luck.
 
Rodney brought a lawsuit against the new company he had never formally worked for but had helped set up as well as all the other companies claiming that they were a “group enterprise” and that they were all responsible for his pay in lieu of notice and honouring his retirement agreement.
 
The problem, of course, was that unless Rodney could get a judgment against that new company he would be out of luck.  All of the other companies were dormant and had no money to pay him. 
 
At trial, the new company argued that since it was owned by a different shareholder and that the last company Rodney had actually worked for had legitimately gone out of business, there was no connection. It was not liable to Rodney.
 
Interestingly, that new company advertised on the first page of its website that it, “conducts more than 100 retail and wholesale liquidations, auctions and orderly liquidation sales.  Our corporate lineage spans more than 54 years and in that time we have repositioned inventory and physical assets valued at more than $2.5 billion…there is no substitute for experience…rely on our experience to insure more successful sales.”
 
The judge  recognized that while the legal right of corporations to carry on business under various corporate entities must be protected, it should not be at the expense of employees. The judge found that the new company was a current incarnation of the business Rodney had worked for for 38 years. The judge found that all of the companies should be considered a common employer.
 
The judge made all of the corporations responsible to provide Rodney  with 24 months’ pay in lieu of notice and honour the retirement agreement. When the new company took the matter to the Ontario Court of Appeal, it lost.
 
The lesson for employers is this: as long as it is done legally and transparently, winding down corporations is fine. The courts, however, take a dim view when employees who have no choice about whose payroll they are on are terminated without compensation when the business is still carrying on under a new guise. Judges know a shell game when they see one.
 
Ed Canning practices labour and employment law with Ross & McBride LLP, in Hamilton, representing both employers and employees. You can email him at ecanning@rossmcbride.com.
 
Ed Canning
Ed Canning
P: 905.572.5809
ecanning@rossmcbride.com