Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
In a wrongful dismissal action against four corporate defendants that were part of a family business, the plaintiff claimed the defendants were common employers, that he was their employee prior to his dismissal, and was therefore owed damages for pay in lieu of notice. The defendants in Scamurra v Scamurra Contracting, 2022 ONSC 4222, conceded the plaintiff was an employee for two of three family businesses; however, they argued that he was an independent contractor for the third. The court disagreed and found the plaintiff was an employee, and that the defendants wrongfully terminated his employment without cause and without sufficient notice (only 6.5 months’ notice was provided but 22 months’ notice was required). Accordingly, the court and found the defendants were common employers and were jointly and severally liable for the damages ($119,860).
The plaintiff is a member of the Scamurra family. The defendants are Scamurra family business ventures that were controlled initially by the plaintiff’s father and subsequently by his brothers. The plaintiff worked for these businesses for 26 years.
From 1986 to 1991, he was a general labourer for SS Contracting, which provides sewer, watermain, and drain services, and has snow plough contracts.
From 1991 until 2005, he worked at Scamurra Banquet Hall (SBH) managing the hall and catering business.1
In 2005, the plaintiff was transferred to another family business, AFJ Disposal Inc. (AFJ), a garbage disposal company. While working there he drove a company truck, hired part-time drivers who reported to him and dispatched them to customers, handled customer requests, and fielded complaints about outstanding invoices referring them to his brother for payment.
In December 2012, the plaintiff’s employment with AFJ was terminated without cause and he was given 6.5 months’ notice. The plaintiff claimed wrongful dismissal against the defendants alleging that they were common employers, and he was their employee for 26 years.
Was the plaintiff an employee or an independent contractor?
The court stressed that caselaw indicated that the central question when considering whether a worker is an employee or an independent contractor is, “…whether the worker who performs services for an entity does so as a person in business on their own account.” It stated further that the caselaw provides that the non-exhaustive list of factors to consider include:
- The level of control the entity exercises over the worker’s activities;
- Whether the worker is limited exclusively to the service of the entity;
- Whether the worker provides their own equipment or has an investment or interest in the tools relating to their service;
- Whether the worker hires their own helpers;
- The degree of financial risk taken by the worker;
- The degree of responsibility for investment and management held by the worker; and
- The worker’s opportunity for profit in the performance of their tasks.
Taking these factors into account, the court concluded that, for the following reasons, the plaintiff was AFJ’s employee:
- AFJ provided the plaintiff with the equipment needed to do the work. He did not use any of his own tools or equipment.
- Although part-time drivers were hired by the plaintiff and they reported to him, he hired them on behalf of AFJ, which compensated them and had the authority to hire and fire them.
- The plaintiff did not have the financial risk related to the AFJ work, nor an opportunity to share in its profits. He was paid a fixed salary, regardless of whether the business “was slow or booming.”
- Although the plaintiff performed his duties with significant independence, he ultimately reported to his brother who monitored his attendance and job performance at AFJ.
- The plaintiff worked exclusively for AFJ for seven years and did not earn income from any other source during that time.
- The plaintiff received two weeks’ paid vacation from AFJ annually.
- Although the plaintiff was not on the AFJ payroll, and statutory deductions were not made by AFJ for taxes, Employment Insurance premiums, or Canada Pension Plan contributions (he was paid bi-weekly by a numbered company owned by his brother that invoiced AFJ for his work), this was not determinative of the nature of the plaintiff’s working relationship with AFJ. The reason AFJ compensated the plaintiff through the numbered company was unrelated to the plaintiff’s employment status.
- He was regularly paid the same amount regardless of how many bins he provided to and retrieved from customers in any two-week period.
- He used an AFJ company vehicle and cell phone.
- He used AFJ’s bins to perform services.
- He received direction from his brother regarding his work activities and followed it.
Was the Plaintiff Wrongfully Dismissed?
The defendants argued the plaintiff was given notice of his termination on June 19, 2012, because he stopped showing up for work without explanation; however, the court concluded that the plaintiff was wrongfully dismissed.
Although the court found it plausible that the plaintiff was distracted from his work in the months leading up to June 2012, and probable that his attendance was poor, it rejected the defendants’ contention that the plaintiff’s absenteeism was extreme and the reason for his dismissal. The court noted there was no evidence of disciplinary warnings and concluded that the plaintiff’s deficient attendance was put forward as a pretext to characterize his wrongful termination as dismissal for just cause.
The court found that the “real reason” for the dismissal was that he accused his brothers of improprieties related to the family estate and business. The plaintiff also demanded a meeting to discuss his allegations and advised his brothers that he had retained counsel who would file an action if a resolution could not be reached. The court noted that ten minutes after these allegations were made, one brother responded: “U our [sic] fired from AFJ and don’t ever step back on our property and bring ur truck back to the office.”
The court concluded that the dismissal was unrelated to job performance or absenteeism and that the plaintiff was dismissed because “he failed to demonstrate the gratitude that his brother . . . felt was due to him, and because he had the temerity to question [his brothers’] management of the family businesses.”
Are the Defendants Jointly and Severally Liable as a Common Employer?
The court concluded that the common employer doctrine applied, and the defendants were jointly and severally liable for damages. Prior to arriving at this conclusion, the court reviewed the caselaw and summarized the test to determine whether the doctrine of common employer applies as follows:
- Is there is a significant degree of interrelationship and common control between the alleged common employers?
- Did the employee hold a reasonable expectation that the other companies were parties to the employment contract? Can it be shown that there was an intention to create an employer/employee relationship between the worker and the related corporation? Did the parties objectively act in a way that showed they intended to be parties to an employment contract? Factors to be considered are:
- The terms of any written contract of employment,
- Whether any person on behalf of the company acknowledged the individual as an employee,
- Who compensated the employee,
- For whom did the employee perform services, and
- Who effectively controlled the employee’s work-related activities?
With regard to the first part of the test, the court concluded that the defendants were intermingled corporations that were commonly controlled, initially by the plaintiff’s father and subsequently by his brothers. Although they were separate corporations, they operated as if one company. The defendant corporations were mutually supportive businesses, referring customers to one another and handling aspects of each other’s businesses. Their ownership and control overlapped, they were run by the same directors, operated out of the same corporate address, shared administrative and bookkeeping operations, and employees of one company provided services to others. Funds were regularly transferred among the corporations to cover financial losses and pay debts and expenses.
With regard to the second part of the test, the court concluded that all four defendants objectively acted in a manner that demonstrated their intention to be parties to the plaintiff’s employment contract. Although they did not all exist when the plaintiff was initially hired in 1986, “as each company was created and the corporate network of family businesses expanded, each acted in a manner that would lead a reasonable observer to infer that they intended to be parties to [the plaintiff’s] employment contract.” The court stated that the plaintiff was “effectively transferred laterally between the family businesses,” and it was reasonable in the circumstances for him to expect that all defendants had an obligation to respect his rights as an employee. In arriving at this conclusion, the court considered the following factors:
- The plaintiff did not have a written employment contract.
- His salary was paid first by SS Contracting, then SBH, and finally AFJ (via a numbered corporation). His paycheque came from the entity to which he was providing the most services.
- In the winter, the plaintiff ploughed snow for SS Contracting without additional compensation from any of the Scamurra companies, including when he was managing the banquet hall and working for AFJ.
- Throughout his working life, the plaintiff was provided with health and dental coverage by SS Contracting.
- The plaintiff was provided with a company vehicle and its lease and insurance were paid for by SS Contracting, even when he was working for SBH and AFJ.
- While employed by AFJ, the plaintiff sometimes paid out of pocket to refuel the company truck, and he was reimbursed by either AFJ or SS Contracting.
- Although the plaintiff generally worked independently at the banquet hall and at AFJ, his father and then his brothers oversaw and monitored his job attendance and performance and controlled all Scamurra companies.
- The terms and conditions of the plaintiff’s employment did not change when he moved from SS Contracting to SBH in 1991 and, although he was given different duties and greater responsibility, he did not receive a salary increase. When he then moved from SBH to AFJ in 2005, his compensation package again remained the same, as did his health and dental benefits and other employment benefits.
Are Damages Owed to the Plaintiff?
What notice period would have been reasonable?
In its reasons, the court reviewed caselaw, which established that the length of a reasonable notice period must be determined on a case-by-case basis, and that only exceptional circumstances support a notice period in excess of 24 months.
The court determined that the length of the plaintiff’s reasonable notice period should be 22 months, influenced by the following factors:
- The plaintiff held a supervisory position within AFJ, with significant responsibility but his position was not senior management.
- The plaintiff acquired his labour-market qualifications on the job and his educational background was unrelated to his work.
- As he dedicated the entire 26 years of his adult professional life to serving his family’s businesses, and since he would be unable to obtain employment references from his brothers, it would be difficult for the plaintiff to secure comparable employment.
- The plaintiff was looking for a job for the first time at age 47 after working only for his family.
What amount of notice did the plaintiff actually receive?
The court concluded that the employment was terminated without cause effective December 31, 2012, but he received notice of the termination on June 19, 2012. AFJ paid his salary and continued to provide his benefits throughout the 6.5-month notice period. The plaintiff was entitled to damages for the remainder of the 22-month reasonable notice period (i.e., 15.5 months), subject to any mitigation.
Did the plaintiff mitigate his losses?
In an effort to replace his annual AFJ income ($73,450), the plaintiff opened a café and catering business in 2013 but it did not succeed. The plaintiff sold the restaurant in 2015 and got a job with an insulation company, which he eventually took over and where he continues to work, earning $52,000 annually.
The court found that although the plaintiff’s restaurant failed, it was not an unreasonable attempt at mitigation. Notably, the court stated that a terminated employee does not fail to mitigate merely because he chooses to take career risks that might not minimize the compensation that his former employer will owe.
Bottom Line for Employers
Scammura provides employers with an excellent example of the analytical process courts engage in when they assess whether a worker is an employee or an independent contractor. The decision reinforces that whether a worker is an employee or an independent contractor is best determined by considering all relevant contextual factors, including the level of control the entity exercises over the worker’s activities and whether the worker is limited exclusively to the service of the entity.
Scamurra also provides employers with an example of the analytical process courts engage in when they consider whether a group of corporations are jointly and severally liable as common employers for damages owing to an employee for wrongful termination. It suggests that if an employer’s affiliate wants to limit the risk that it will have liability to its employees as a common employer, the affiliate should, among other things, avoid conduct that would suggest it has effective control over the employee, e.g., by hiring, providing payment, training, supervising, dismissing, demanding services, and providing benefits.
Finally, Scammura indicates that a court may conclude in a wrongful dismissal action that the employer’s claim that the employee was dismissed for cause is merely an exaggeration to justify dismissal without cause. A court may be especially likely to notice this when there is no evidence of disciplinary warnings under a progressive discipline policy. Accordingly, employers should avoid mischaracterizing the reason for termination as “for cause” when cause does not actually exist.
1 Since SBH eventually ceased operating and was dissolved, it is not named as a defendant in the action.