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Summary Judgement Ruling Establishes Holding Companies are Not Common Employers

The Case

The Superior Court of Justice ruled on the issue of common-employers and personal liability of directors in the context of a wrongful dismissal action. The plaintiff was the manager of a Nissan Infiniti automotive dealership in Ottawa, which was owned and operated by the Tony Graham automotive companies. After he was terminated, the plaintiff sued the dealership, along with the directors and the holding companies associated with the dealership. The defendants brought a motion for summary judgement to have the claims dismissed as against the directors and the holding companies on the basis that they were not employers of the plaintiff and therefore have no place in the action for wrongful dismissal.

In this case, the judge found that a summary judgement was appropriate under the circumstances and ruled in favour of the defendant-moving party to strike the directors and holding companies from the Statement of Claim.

What is a summary judgment?

A motion for summary judgment is an expedited process for dealing with all or part of a claim and it can be brought by either the plaintiff or defendant to an action. Bringing a summary judgment is appropriate in situations where there is no genuine issue requiring a trial, allowing either the plaintiff or defendant to obtain judgment in their favour without having to deal with a lengthy and costly trial. In granting a motion for summary judgment, the judge will typically look at whether the process under rule 20 will allow them to make a well-informed decision given the facts relevant to the issue(s), and whether a summary judgment would be a more effective way of dealing with the matter. Summary judgments are typically used by lawyers as a method of keeping costs down for their clients in matters involving facts that are fairly straightforward or undisputed.

Our Thoughts

This decision is particularly important because it affirms that holding companies are not common employers and will not be held liable for the contractual breaches of their associated operating companies. In this case, despite the fact that holding companies were financially integrated with their operating companies to a “great extent,” the judge found that this was not enough to establish a common-employer relationship. The holding company had neither direct nor indirect control over the employee and therefore should not be held liable for the contractual breaches of their operating company. This is an important precedent to keep in mind, specifically for employers. In certain circumstances, it may be prudent to set up holding companies to limit exposure to liability arising in the course of employment. However, in other instances, courts will break through the corporate fiction to get to the parties responsible.

 Another interesting take-away from this case is the fact that the claim was dropped as against the directors in their personal capacity. The judge found that the directors were acting in their managerial and directorial capacity during the events which serve as the basis for the claim, and therefore cannot be held personally liable. The judge was satisfied that the plaintiff had not brought sufficient evidence to “pierce the corporate veil,” and thereby awarded a summary judgement in favour of the defendants. To have any chance of success in extending liability to the principals of a company in their personal capacity, the plaintiff must bring forth specific evidence suggesting that the actions of the principals were themselves tortious or exhibit a separate identity or interest from that of the company. Personal liability on behalf of officers is rare absent evidence suggesting a tortious act, or conduct amounting to fraud, deceit, dishonesty, or want of authority. 

See: Sproule v Tony Graham Lexus Toyota et al. (2016 ONSC 2220)

The above article is for general information purposes only and does not constitute legal advice. If you have concerns with regard to the foregoing issues, please make an appointment with one of our lawyers or a qualified legal practitioner elsewhere.