



COURT OF APPEAL FOR ONTARIO

CITATION: O'Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385

DATE: 20210607

DOCKET: C68215

Roberts, Zarnett and Sossin JJ.A.

BETWEEN

William OReilly

Plaintiff (Respondent)

and

ClearMRI Solutions Ltd., ClearMRI Solutions Inc.,
    Jeff Hassman,
Jae Kim
,
Stefan Larson, David Stopak,
Tornado Medical Systems
, Inc., Arsen
    Hajian,
Jeff Courtney and Gordon Cheung

Defendants (
Appellants
)

Ted Brook and Paul Macchione, for the appellants Tornado
    Medical Systems, Inc. and Jae Kim

Jacqueline Horvat and Alexandra Chun, for the respondent

Heard: January 29, 2021 by videoconference

On appeal from the judgment of Honourable Justice Jane
    Ferguson of the Superior Court of Justice, dated February 11, 2020, with
    reasons reported at 2020 ONSC 938.

Zarnett J.A.:

i.

INTRODUCTION

[1]

This appeal concerns the scope and application of two avenues of
    recourse that are potentially available when employment entitlements have not
    been honoured.

[2]

One avenue exists under the doctrine of common employer liability. This
    common law doctrine
[1]
recognizes that an employee may simultaneously have more than one employer. If
    an employer is a member of an interrelated corporate group, one or more other corporations
    in the group may also have liability for the employment obligations. However,
    and importantly, they will only have liability if, on the evidence assessed
    objectively, there was an intention to create an employer/employee relationship
    between the employee and those related corporations.

[3]

A second avenue exists under the provisions of s. 131 of Ontarios
Business
    Corporations Act
, R.S.O. 1990, c. B.16 (
OBCA
). This section
    imposes liability on corporate directors, in favour of a corporate employee, for
    up to six months unpaid wages and up to twelve months vacation pay. That
    liability is subject to specific conditions.

[4]

The appellant, Tornado Medical Systems, Inc. (Tornado) stood at the
    top of a corporate group. It was the majority shareholder of ClearMRI Solutions
    Ltd. (ClearMRI Canada) which itself had a wholly owned subsidiary, ClearMRI
    Solutions, Inc. (ClearMRI US).

[5]

The respondent, William OReilly, served as the Chief Executive Officer
    (CEO) of ClearMRI Canada and ClearMRI US (together, ClearMRI companies).
    His written employment agreement was with ClearMRI US, but he reported to, and his
    performance goals were set by, the board of directors of ClearMRI Canada.

[6]

When his employment ended, Mr. OReilly was owed substantial sums for
    salary and other entitlements. He brought an action seeking recovery of all
    outstanding amounts from the ClearMRI companies and Tornado. While Mr. OReilly
    did not have a formal position or written agreement with Tornado, he alleged
    that it, along with the ClearMRI companies, were his common employers. The
    action also sought recovery from the directors of Tornado and ClearMRI Canada,
    including the appellant, Jae Kim (Dr. Kim), for six months unpaid wages and
    twelve months vacation pay under s. 131 of the
OBCA
.

[7]

Mr. OReilly obtained default judgment against the ClearMRI companies. He
    subsequently moved for summary judgment against the other defendants. His
    motion was successful.

[8]

Tornado appeals the judgment against it, arguing that the finding of the
    motion judge that it was liable to Mr. OReilly as a common employer is flawed.
    Tornado argues that the motion judge misconstrued the common employer doctrine,
    effectively finding it liable only because of its corporate affiliation to Mr.
    OReillys contractual employer.

[9]

Dr. Kim appeals the judgment finding him liable as a director of
    ClearMRI Canada. Dr. Kim contends that the motion judge improperly applied s.
    131 of the
OBCA
to hold him liable without evidence that a condition
    to that liability  execution against ClearMRI Canada having been returned
    unsatisfied  had been met.

[10]

Tornado
    and Dr. Kim both argue that the motion judge further erred in determining the
    quantum of their respective liability.

[11]

I
    would allow the appeal by Tornado. The motion judge erred in her articulation
    and application of the common employer doctrine and thus made an extricable
    error of law in concluding that Tornado was a common employer.

[12]

I
    would dismiss Dr. Kims appeal, subject to one variation necessary to respect
    the
OBCAs
conditions for s. 131 director liability.

[13]

Below,
    I set out my reasons for these conclusions.

ii.

BACKGROUND

A.

Tornado and the ClearMRI Companies

[14]

Tornado
    is an Ontario corporation. In 2010, it acquired licence rights to intellectual
    property that can be used to facilitate the refurbishment and upgrading of Magnetic
    Resonance Imaging (MRI) machines.

[15]

Tornado
    is the majority shareholder of ClearMRI Canada, which is also an Ontario
    corporation. ClearMRI Canada was formed in 2012 to develop a business of
    upgrading and refurbishing MRI machines. For this purpose, Tornado assigned, to
    ClearMRI Canada, its licence rights to the intellectual property.

[16]

In
    addition to the incidents of corporate control over ClearMRI Canada that flowed
    from its majority shareholding, Tornado had certain specified rights under a
    Unanimous Shareholder Agreement that related to ClearMRI Canada: Tornados
    consent was required for certain dividends, large capital expenditures, the
    sale of ClearMRI Canadas business, any amalgamation with another corporation,
    or any winding-up, reorganization, or dissolution. Tornados consent rights did
    not, however, extend to changes in management of ClearMRI Canada or its
    subsidiaries, employment agreements, or dealing with loans from non-arms-length
    persons  the Unanimous Shareholder Agreement required only the approval of the
    board of ClearMRI Canada, or a committee of the board, for these matters.
[2]

[17]

To
    some extent, the boards of directors of Tornado and ClearMRI Canada overlapped;
    ClearMRI Canadas board consisted of five directors, two of whom were also directors
    of Tornado. Dr. Kim was a director of both Tornado and ClearMRI Canada.

[18]

ClearMRI
    US is a Delaware company, wholly owned by ClearMRI Canada. It was formed in May
    2012 to obtain American regulatory approval of the ClearMRI technology and to develop
    the MRI upgrading and refurbishing business in the United States.

B.

Mr. OReillys Roles and Written Employment Agreement

[19]

Mr.
    OReilly served as CEO of ClearMRI Canada from approximately the time of its
    formation. He was also one of its directors. When ClearMRI US was formed, he also
    became its CEO and sole director. Mr. OReilly did not hold any formal position
    with Tornado.

[20]

On
    May 22, 2012, Mr. OReilly and ClearMRI US signed an agreement confirming the
    terms of his employment. The agreement named ClearMRI US as Mr. OReillys
    employer. The agreement specified that Mr. OReilly was to serve as its CEO and
    was to be paid an annual base salary of $153,000 USD in 2012, increasing to
    $210,000 USD in 2013. He was also entitled to benefits including paid vacation
    and to specific payments if he was terminated without notice or cause. He was also
    eligible to earn a performance bonus of $80,000 USD and to receive other
    compensation.

[21]

Although
    ClearMRI US was named in the written agreement as the employer, the motion
    judge found that Mr. OReilly was also employed by ClearMRI Canada and Tornado.
    Her reasons for doing so are discussed below.

C.

Deferral of Salary, Non-Payment of Employment Obligations, and the
    Termination of Mr. OReillys Employment

[22]

Cash
    flow problems inhibited the successful launch of the MRI upgrading and
    refurbishment business. Mr. OReilly took certain steps to overcome that
    problem. To assist with the required funding, he agreed to defer his full
    salary commencing in 2013 until ClearMRI Canada started to earn revenue; the
    deferral continued in 2014. The motion judge found that Mr. OReilly had not agreed
    to defer his salary indefinitely, only temporarily, and that he received assurances
    from ClearMRI Canada and Tornado that ClearMRI Canada was committed to bringing
    its product to market. I return to the arrangements for the deferral and the
    assurance in more detail below.

[23]

In
    December 2013, Mr. OReilly also made a $50,000 USD loan to ClearMRI Canada. To
    avoid the appearance of a conflict of interest, he resigned as a director and
    CEO of both ClearMRI Canada and ClearMRI US. However, the motion judge noted
    that in reality he continued in the CEO role. This loan was not repaid.

[24]

In
    April 2014, Mr. OReilly secured a regulatory clearance from the U.S. Food and
    Drug Administration. The motion judge found that this step entitled him to a performance
    bonus of $80,000 USD. However, the performance bonus was never paid.

[25]

By
    the spring of 2014, it was apparent that ClearMRI Canada was no longer
    committed to bringing their product to market. On August 6, 2014, Mr. OReilly
    took the position that he had been constructively dismissed. His lawyer
    demanded payment from ClearMRI Canada and ClearMRI US of $281,315 USD in unpaid
    salary, and of the $50,000 USD loan.

D.

The Action

[26]

In
    October 2014, Mr. OReilly commenced this action against ClearMRI Canada,
    ClearMRI US, Tornado, and individual directors of ClearMRI Canada and Tornado,
    including Dr. Kim.

[27]

The
    claims against the individuals were for six months wages and twelve months
    vacation pay under s. 131 of the
OBCA
. The corporations were each sued
    (as common employers) for all unpaid wages and employment entitlements.
    ClearMRI Canada and ClearMRI US were sued for the unpaid loan.

[28]

On
    September 2, 2015, Mr. OReilly obtained default judgment against ClearMRI
    Canada and ClearMRI US for deferred salary, vacation pay, the performance bonus,
    and the unpaid loan, totalling $381,103.84 USD, plus costs.

[29]

The
    default judgment was not satisfied, and Mr. OReilly moved for summary judgment
    against the remaining defendants.

E.

The Motion Judges Decision

[30]

The
    motion judge was satisfied that this was an appropriate case for summary
    judgment.

[31]

The
    motion judge described the common law doctrine of common employer liability as
    one that requires the court to look past the immediate bilateral contractual
    relationshipand recognize that an employee may be employed by a number of
    different companies at the same time. A group of companies identified as concurrent
    employers will have joint and several liability with respect to the rights
    and entitlements of the employee. The motion judge identified three factors
    that should be considered: the employment agreement itself; where the effective
    control over the employee resides; and whether there was common control between
    the different legal entities.

[32]

The
    motion judge then addressed whether ClearMRI Canada was a common employer of
    Mr. OReilly. She concluded that it was, noting that the issue was not really
    in dispute and there was already a judgment against it. She found that Mr.
    OReilly reported to the ClearMRI Canada board, which set his performance
    goals, and that, [i]n practice, effective control over [Mr.] OReilly did
    reside with ClearMRI Canada; she further remarked that ClearMRI Canada wholly
    owned ClearMRI US, and had incorporated it for a specific purpose. She was
    satisfied they both had a single relationship with [Mr.] OReilly.

[33]

The
    motion judge next considered the liability of the individuals who were
    directors of ClearMRI Canada, including Dr. Kim. She referred to the source of
    directors liability for wages, s. 131 of the
OBCA
, which provides, in
    relevant part, as follows:

Directors
    Liability to employees for wages

(1)

The directors of a corporation are jointly and
    severally liable to the employees of the corporation for all debts not
    exceeding six months wages that become payable while they are directors for
    services performed for the corporation and for the vacation pay accrued while
    they are directors for not more than twelve months under the
Employment
    Standards Act
, and the regulations thereunder, or under any collective
    agreement made by the corporation.

Limitation
    of liability

(2) A director is liable under subsection (1) only if,

(a) the corporation is sued in
    the action against the director and execution against the corporation is
    returned unsatisfied in whole or in part; or

(b) before or after the action
    is commenced, the corporation goes into liquidation, is ordered to be wound up
    or makes an authorized assignment under the
Bankruptcy and Insolvency
    Act
(Canada), or a receiving order under that Act is made against it,
    and, in any such case, the claim for the debt has been proved.  2002, c.
    24, Sched. B, s. 27 (1).

Idem

(3) Where execution referred to in clause (2) (b) has issued,
    the amount recoverable from a director is the amount remaining unsatisfied
    after execution.  R.S.O. 1990, c. B.16, s. 131 (3).

[34]

She
    found that the ClearMRI Canada directors were jointly and severally liable
    under s. 131 of the
OBCA
to Mr.
    OReilly

for six months ofunpaid wages and twelve months
    ofvacation pay, specifically $153,400 USD. As Mr. OReilly was also a
    director, she found that he shared in that liability.

[35]

Next,
    the motion judge considered whether Tornado was a common employer using the
    three factors she identified. She stated that it was not determinative that
    there was no employment agreement with Tornado. She found that Tornado exercised
    a sufficient amount of control over Mr. OReilly, as both Tornado and ClearMRI
    Canada had accepted his offers to defer his salary and to loan funds to ClearMRI
    Canada, both had assured Mr. OReilly that ClearMRI Canada was committed to
    bringing its product to market, and both shared the business objectives that
    Mr. OReilly was employed to achieve. She found common control between the
    different legal entities because Tornado had incorporated ClearMRI Canada to
    develop a specific business; Tornado had a majority controlling shareholder
    interest; Tornado had consent rights under the Unanimous Shareholder Agreement;
    there was an overlap in directors; and when it came time to replace a director
    of ClearMRI Canada, Dr. Kim wished to discuss the replacement with Tornado.
    Accordingly, she found that Tornado was a common employer, jointly and
    severally liable for the employment related amounts of the default judgment  everything
    except the unpaid loan and interest on it.

[36]

Finally,
    she held that if Tornado did not satisfy the judgment against it, the Tornado
    directors individually named in the action would share in the liability of the
    ClearMRI companies directors for the six months wages and twelve months
    vacation pay.
[3]
She said that the judgment against the Tornado directors is to remain in
    abeyance until and unless Tornado does not satisfy the judgment against it.
    There was no similar statement regarding the judgment against the ClearMRI companies
    directors.

[37]

The
    formal judgment indicated that the parties could return to the Court for
    directions concerning the liability of the two Tornado directors if execution
    against Tornado was returned unsatisfied. No similar provision appeared in the
    judgment concerning the liability of the ClearMRI Canada directors, including
    Dr. Kim.


iii.

ANALYSIS

A.

Was Tornado Properly Found to be a Common Employer?

The Arguments

[38]

Tornado argues that although the motion
    judge mentioned effective control over the employee as part of the common
    employer test, nothing that she referred to showed any effective control by
    Tornado over Mr. OReilly as an employee. Tornado submits that the motion judge
    effectively treated Tornados corporate relationship with the ClearMRI companies
    as rendering it liable, which is insufficient in law for a corporation to be liable
    for anothers obligations.

[39]

Tornado also argues that the motion judge
    gave no real consideration to the presence of a written employment agreement
    which specified Mr. OReillys employer, and to the absence of an employment
    agreement with Tornado. It submits that it was necessary to consider whether
    Mr. OReilly had a reasonable expectation that Tornado was his employer  the
    written employment agreement and Mr. OReillys senior role in the ClearMRI
    companies shows he could not have reasonably held such an expectation.

[40]

Tornado also argues that the common
    employer doctrine only applies to wrongful dismissal claims, and that claims
    for unpaid salary against a corporation related to the employer must be made
    under s. 4 of the
Employment Standards Act
, which was not invoked by Mr. OReilly.
    Further, it challenges how the motion judge arrived at the quantum of its
    liability.

[41]

Mr. OReilly argues that the motion judge
    made no reversible error in reaching the conclusion that Tornado was a common
    employer, in holding it liable for unfulfilled employment obligations, and in
    determining the quantum of that liability.

[42]

I begin by discussing the relationship
    between the concept of corporate separateness, under which corporations are not
    liable for debts and obligations of affiliated or subsidiary corporations, and
    the common employer doctrine, which may impose liability on related
    corporations. I also discuss the role of an employment agreement in that
    analysis. I then address why the common employer doctrine applies to claims beyond
    those for wrongful dismissal. Against that backdrop, I explain why I conclude
    that the motion judge erred in granting summary judgment based on her finding
    that Tornado was a common employer. In light of that conclusion, it is
    unnecessary to examine Tornados arguments about quantum.

Corporate Separateness

[43]

A corporation is a distinct legal entity
    with the powers and privileges of a natural person:
OBCA
, s. 15. These powers and privileges
    include owning assets in its own right, carrying on its own business, and being
    responsible only for obligations it has itself incurred.

[44]

The fact that one
    corporation owns the shares of or is affiliated with another does not mean they
    have common responsibility for their debts, nor common ownership of their businesses
    or assets. A corporations business and assets are not, in law, the business or
    assets of its parent corporation:
Yaiguaje v. Chevron Corporation
, 2018 ONCA 472, 141 O.R. (3d) 1 at paras.
    57-58, leave to appeal refused, [2018] S.C.C.A. No. 255;
BCE Inc. v.
    1976 Debentureholders
, 2008 SCC
    69, [2008] 3 S.C.R. 560 at para. 34. Similarly, a parent (shareholder) corporation
    is not liable, as such, for the debts and obligations of a subsidiary:
OBCA
, s. 9

[45]

The fact that corporations are related and
    coordinate their activities does not, in and of itself, change this paradigm. Ontario
    law rejects a group enterprise theory under which related corporations that
    operate closely would, by that very fact, be considered to jointly own their
    businesses or be liable for each others obligations. Although the group might,
    from the standpoint of economics, appear as a unit or single enterprise, the
    legal reality of distinct corporations governs:
Meditrust Healthcare
    Inc. v. Shoppers Drug Mart

(2002), 61 O.R. (3d) 786 (C.A.) at paras. 29-31;
Yaiguaje
, at paras.
    76-77.

[46]

Corporate separateness has exceptions
     the court may pierce the corporate veil
and hold a parent corporation liable for obligations
    nominally incurred by a subsidiary corporation that is a mere façade:

in order to ignore the corporate separateness principle, the
    court must be satisfied that: (i) there is complete control of the subsidiary,
    such that the subsidiary is the mere puppet of the parent corporation; and
    (ii) the subsidiary was incorporated for a fraudulent or improper purpose or
    used by the parent as a shell for improper activity:
Yaiguaje
, at para.
    66. [Citations omitted].

[47]

As the test for
    piercing the corporate veil makes clear, control by one corporation over
    another, on its own, does not make the controlling corporation liable for the
    obligations of the controlled corporation; a fraudulent or improper purpose
    must also be present.

[48]

It is not suggested in
    this case that there are grounds to pierce the corporate veil of any of the
    relevant corporations. Accordingly, the basis on which the common employer
    doctrine operates to hold related corporations liable, while remaining consistent
    with the concept of corporate separateness, is important.

The Common Employer Doctrine

[49]

The
    common employer doctrine does not involve piercing the corporate veil or
    ignoring the separate legal personality of each corporation. It imposes
    liability on companies within a corporate group only if, and to the extent that,
    each can be said to have entered into a contract of employment with the
    employee:
Sinclair v. Dover Engineering Services Ltd.
, 49 D.L.R. (4th)
    297 (B.C.C.A.)
(Sinclair (BCCA))
, at para. 9.

[50]

Thus,
    consistent with the doctrine of corporate separateness, a corporation is not
    held to be a common employer simply because it owned, controlled, or was
    affiliated with another corporation that had a direct employment relationship
    with the employee. Rather, a corporation related to the nominal employer will
    be found to be a common employer only where it is shown, on the evidence, that
    there was an intention to create an employer/employee relationship between the
    individual and the related corporation:
Gray v. Standard Trustco Ltd.
(1994), 8 C.C.E.L. (2d) 46 (Ont. Gen. Div.), at para. 3;
Downtown Eatery
    (1993) Ltd. v. Her Majesty the Queen in Right of Ontario

(2001), 54
    O.R. (3d) 161 (C.A.), at paras. 31, 40, leave to appeal refused, [2002] 3
    S.C.R. vi (note);
Rowland v. VDC Manufacturing Inc.
, 2017 ONSC 3351,
    at paras. 12-13.

[51]

As
    illustrated by the issue in this case, where Mr. OReilly alleges that Tornado
    is liable for specific employment obligations, the common employer question is one
    of contractual formation  did the employee and the corporation alleged to be a
    common employer intend to contract about employment with each other on the
    terms alleged? When such an intention is found to exist, no violence is done to
    the concept of corporate separateness because the corporation is held liable
    for obligations it has undertaken.

[52]

To
    determine whether the required intention to contract was present, the parties
    subjective thoughts are irrelevant. Nor need the intention necessarily have
    been reflected in a written agreement. The common laws approach to contractual
    formation is objective; intention to contract can be derived
from conduct. As the Supreme Court has
    stated in a similar common law contractual formation context, what is relevant
    is how each partys conduct would appear to a reasonable person in the
    position of the other party:
Owners, Strata Plan LMS 3905 v.
    Crystal Square Parking Corp.
, 2020
    SCC 29, 450 D.L.R. (4th) 105, at para. 33.

[53]

A
    variety of conduct may be relevant to whether there was an intention to
    contract between the employee and the alleged common employer(s).
As they bear upon this case, two types of conduct are
    important.
One is conduct that reveals where effective control over the
    employee resided. The second is the existence of an agreement specifying an
    employer other than the alleged common employer(s).

[54]

The
    conduct most germane to showing an intention that there was an employment
    relationship with two or more members of an interrelated corporate group is
    conduct which reveals that effective control over the employee resided with
    those members
[4]
:
Downtown Eatery
, at paras. 32-33. This is consistent with how the
    law distinguishes employment from other types of relationships. Control over
    such matters as the selection of employees, payment of wages or other
    remuneration, method of work, and ability to dismiss, can be important
    indicators of an employer/employee relationship:
Baldwin v. Erin District
    High School Board
,

1961 O.R. 687, at para 11, affd 36 D.L.R. (2d)
    244 (SCC); see also
Bagby v. Gustavson International Drilling Co. Ltd.
,
    1980 ABCA 227, 24 A.R. 181, at paras. 48-50.

[55]

A
    written agreement that specifies an employer other than the corporation(s)
    alleged to be the common employers may also be relevant. The extent of its
    relevance depends on how the existence and terms of the written agreement, in
    light of the facts, informs the question of whether there was an intention that
    others were also employers.

[56]

These
    points are illustrated in this courts leading decision on common employer
    liability,
Downtown Eatery
, and the case law which has followed.

[57]

In
Downtown Eatery
, the employee was the manager of a nightclub called For
    Your Eyes Only. The nightclub was operated together by a highly integrated or
    seamless group of companies. One corporation owned the premises; a second
    owned the trademark and held the liquor and entertainment licences; a third owned
    the chattels and equipment; and a fourth was the paymaster: at para. 34. The
    employees contract was with the business name For Your Eyes Only, which itself
    was not a legal entity: at paras. 38-40.

[58]

The
    court held that an individual may be found to be an employee of more than one
    corporation in a related group of corporations, as long as the evidence shows
    an intention to create an employer/employee relationship between the individual
    and the respective corporations within the group: at para. 31. To determine
    that issue, the operative question raised by the facts was where effective
    control over the employee resides: at paras. 32-33.

[59]

In
Downtown Eatery
, the answer to that question was that each of the commonly
    controlled corporations that was integrally and directly involved in owning and
    operating the nightclub, was exercising control over, and was therefore a
    common employer of, the manager.

[60]

The
    court stated at para. 40:


In conclusion, Alouche's true employer in 1993 was the
    consortium of Grad and Grosman companies which operated
For Your Eyes Only
.
The contract of employment was between Alouche and
For Your Eyes Only
which was not a legal entity.
Yet the contract specified that Alouche
    would be "entitled to the entire package of medical extended health care
    and insurance benefits as available in our sister organization". The
    sister organization was not identified. In these circumstances,
and
bearing in mind
    the important roles played by several companies in the operation of the
    nightclub
, we conclude that Alouche's employer in June 1993 when he was
    wrongfully dismissed was all of Twin Peaks, The Landing Strip, Downtown Eatery
    and Best Beaver. This group of companies functioned as a single, integrated
    unit in relation to the operation of
For Your Eyes Only
. [Emphasis
    added.]

[61]

The
    two emphasized passages deserve amplification.

[62]

First,
    the written contract of employment in
Downtown Eatery
, by not naming a
    legal entity, did not indicate a choice of one entity over another in terms of identifying
    the employer. Rather, it indicated the employer was the nightclub, a business
    operated by the four corporations. Although there was a written agreement, it
    begged, rather than answered, the question of who the parties intended the employer
    to be.

[63]

Second,
    each of the corporations found to be a common employer was directly involved in
    the operation of the nightclub that employed the manager. The nightclub was
    each of their business. Each was thus in a direct relationship of control with
    the employee who had been hired to manage their business. None were held to be
    employers simply because they had a relationship with another corporation that
    was directly involved with the employee. As Hourigan J.A. noted in
Yaiguaje
,
    the conclusion in
Downtown Eatery

rested more on the plaintiffs relationship to
    the group of companies rather than the relationships among the companies in the
    group: at para. 69.

[64]

In
    other cases, a common employer allegation has failed due to the presence of a
    written employment agreement that specified that only one company within the corporate
    group was the employer:
Dumbrell v. The Regional Group of Companies Inc.
, 2007
    ONCA 59, 85 OR (3d) 616, at para.
83
;
Mazza v. Ornge
    Corporate Services,
2015 ONSC 7785, 52 B.L.R. (5th) 51 (
Mazza
    (ONSC)
), at paras. 93-99, affd
2016 ONCA 753
, 62
    B.L.R. (5th) 211 (
Mazza (ONCA)
). In each of these cases, the facts
    were such that the court could conclude that the employee knew the only entity to
    whom he could look for fulfillment of employment obligations:
Dumbrell
,
    at para. 83;
Mazza (ONSC)
at paras. 90, 93-94. As this court explained
    in
Mazza (ONCA)
, the common employer claim was precluded because [t]he
    Employment Agreement identified only one employer and contained an express
    release of claims against affiliated corporations: at para. 8. In other words,
    the written agreements in those cases, in light of all the facts, did not
    permit the conclusion that there was an intention to create an employer/employee
    relationship with anyone beyond the employer specified in the written
    agreement.

[65]

Nonetheless,
    as
Downtown Eatery
shows, a written agreement will not always preclude
    a finding of common employers. It depends on the terms of the written agreement,
    and the other facts of the case. The circumstances must reasonably permit the
    inference that there was an intention that the alleged common employers were
    also parties to the employment agreement. The inference is not available simply
    because the corporations are related: As Morgan J. explained in
Rowland
,

at paras. 12-13:

In order to establish that two or more legal entities are his
    common employer, the Plaintiff must demonstrate that he had a reasonable
    expectation that the Defendants were each a party to his employment contract

Where the employee is aware that he was employed by a single
    employer, the fact of interlocking shareholders with his formal employer does
    not itself establish a common employer. The onus is on the Plaintiff to
    demonstrate that there was effective control over the employee by all of the
    alleged common employer companies. There must be evidence of an actual
    intention to create an employer/employee relationship between the individual
    and the respective corporations within the group. [Citations omitted.]

To summarize, the doctrine of common employer liability
    exists consistently with the principle of corporate separateness because it
    holds related corporations liable for obligations they actually undertook to
    perform in favour of the employee. It does not hold them liable simply because
    they have a corporate relationship with the nominal employer. Whether the
    related corporations actually undertook to perform those obligations is a
    question of contractual formation  did the parties objectively act in a way
    that shows they intended to be parties to an employment contract with each
    other, on the terms alleged? Of central relevance to that question is where
    effective control over the employee resided. The existence of a written
    agreement specifying an employer other than the alleged common employer(s) will
    also be relevant; the extent of the relevance will depend on the terms and the
    factual context.

To Which Claims Does the Common Employer Doctrine
    Apply?

[66]

Tornado
    argues that the common employer doctrine applies only to wrongful dismissal
    claims. In my view, this argument must be rejected.

[67]

Although
    the common employer doctrine has traditionally been applied to wrongful
    dismissal claims, there is no reason in principle to so limit it. Whether a
    corporation is a common employer is a function of whether it is properly
    considered a party to the employment agreement with the employee. Therefore,
    any claims that could be brought by reason of that agreement can be made
    against the common employer. This includes claims for a breach that consists of
    not paying salary, bonus, or other entitlements as much as it includes claims
    for a breach that consists of dismissing the employee without notice or cause.

[68]

Against
    that backdrop, I turn to a consideration of the approach taken by the motion
    judge.

The Standard of Review

[69]

Whether
    a common employer relationship exists is a question of mixed fact and law, as
    it involves the application of a legal standard to a set of facts. Appellate
    deference is generally warranted, but intervention is justified when the judge
    commits an extricable error of law, such as the formulation and application of
    the wrong test, or makes a palpable and overriding error of fact:
Housen v.
    Nikolaisen
, 2002 SCC 33, [2002] 2. S.C.R. 235, at para. 36.

The Motion Judge Did Not Articulate or Apply the
    Correct Test

[70]

The
    test to determine whether corporations are common employers may be stated in several
    ways that are in substance the same. For example, as articulated by Wallace
    J.A. in
Sinclair (BCCA)
: The issuereduces itself to determining
    which company or companies entered into a contract of employment with [the
    employee] pursuant to which he would provide services in return for his salary
    and benefits: at para 8. Or, as adopted in
Downtown Eatery
,

One
    must find evidence of an intention to create an employer/employee relationship
    between the individual and the respective corporations within the group: at para.
    31.

[71]

Mr.
    OReilly contended that Tornado owed him the same obligations as ClearMRI US
    under the written employment agreement  the same salary, benefits, and other
    employment entitlements. For that contention to succeed, it was necessary to
    find that Tornado and Mr. OReilly intended to contract with each other on
    those terms.

[72]

As
    discussed below, the motion judge did not address that question. Although she
    referred to three factors that are relevant to determining whether a common employer
    relationship exists, she did not articulate the actual test, namely, whether
    there was an intention that Tornado was a party to the employment agreement
    with Mr. OReilly on the terms alleged. Nor did she apply that test to the
    factors she considered. In other words, she did not ask, or answer, the right
    question.

[73]

I
    deal, in turn, with the three factors the motion judge considered through the
    lens of the test.

The Effect of an Employment Agreement

[74]

The
    first factor the motion judge discussed was Tornados absence from Mr.
    OReillys employment agreement. She held that this was not determinative. She
    said: It is true that O 'Reilly's employment contract does not mention
    Tornado, and that Tornado did not pay him, but the factor of a contractual
    relationship is not determinative, or else it would be too simple for employers
    to evade their obligations towards their employees.

[75]

To
    the extent that the motion judge suggested that there did not need to be any
    contractual relationship between Tornado and Mr. OReilly in order to consider
    Tornado a common employer, she erred. The whole point of the common employer
    inquiry was to determine whether Tornado was a party to an employment agreement
    imposing the obligations that Mr. OReilly sought to enforce. That did not
    require a written agreement with Tornado, but it did require a determination
    that a contractual relationship with Tornado on the terms alleged had been
    formed. The motion judge never adverted to that question.

[76]

The
    motion judge cited
Downtown Eatery
for the proposition that a contractual
    relationship is not a decisive factor. However, the passage the motion judge
    cited spoke to the relevance of a written agreement that did not specifically name
    the common employers; the court was not suggesting that a corporation can be a common
    employer without a finding that it and the employee intended to be parties to
    an employment agreement with each other.

[77]

To
    the extent that the motion judge was addressing the effect of the written
    agreement specifying only ClearMRI US as the employer, her consideration was
    incomplete. She did not address the agreements fundamental difference from that
    in
Downtown Eatery
which, unlike the agreement in this case, neither
    selected an entity as the employer, nor implicitly excluded any others from
    consideration. Here, the written agreement specifically named a corporation for
    which the appellant actually worked.

[78]

It
    was accordingly necessary to assess how the written agreement bore on the
    question of whether there was an intention that Tornado was a party to the
    employment agreement with the same obligations as ClearMRI US. This analysis would
    have to be made in light of all of the evidence.

[79]

The
    motion judge did not, however, undertake this required analysis.

Tornados Control Over Mr. OReilly As an
    Employee

[80]

The
    second factor the motion judge considered was whether Tornado exercised a sufficient
    amount of control over Mr. OReilly. She held that it did, but her conclusion
    is tainted by her failure to relate the facts to the proper test.

[81]

The
    motion judge relied on several facts which she said she took from Mr.
    OReillys uncontested evidence: that Tornado and ClearMRI Canada both agreed
    to accept [Mr.] OReillys offer to defer his salary; that Tornado and
    ClearMRI Canada both agreed to accept his offer to loan funds to ClearMRI
    Canada; that Tornado and ClearMRI Canada had assured Mr. OReilly that both
    were committed to bringing the ClearMRI products to market; and that Tornado
    shared business objectives that Mr. OReilly was employed to achieve. There are
    several problems with these findings.

[82]

Beginning
    with the offer to defer salary, the motion judge misapprehended Mr. OReillys
    evidence. Mr. OReilly did not say his offer to defer his salary was accepted
    by Tornado. Rather, he said that [t]he Board of Directors [of ClearMRI Canada]
    discussed and approved of the arrangement to defer my salary until we are
    receiving revenue at its meeting of February 27, 2013 This evidence does not
    indicate that Tornado was exercising control over Mr. OReilly as an employee.

[83]

Second,
    with respect to the loan, the motion judge did not relate her reliance on this
    to her later conclusion that the loan was a private commercial debt and not a
    debt related to employment duties. The motion judge did not explain, nor is it
    apparent, why Tornados involvement in agreeing to the loan, which she found to
    be unrelated to employment duties, was relevant to whether it was exercising
    control over Mr. OReilly as an employee. For similar reasons, Tornados offer that
    Mr. OReilly take shares in ClearMRI Canada in satisfaction of the loan  an
    offer Mr. OReilly did not accept  does not assist in showing that effective
    control over Mr. OReilly, as an employee, resided with Tornado.

[84]

Third,
    Mr. OReillys evidence about an assurance was that at the time he offered to
    defer his salary, he was reassured by ClearMRI, Clear MRIs directors, Tornado
    and Tornados directors, and had no reason to doubt that ClearMRI [Canada] was
    committed to bringing the product to market and subsequently earning
    significant revenue. The motion judge did not explain, and it is not apparent,
    why the provision of this assurance about what his employer, ClearMRI Canada,
    was committed to do, constituted Tornado exercising control over Mr. OReilly
    as an employee.

[85]

The
    fourth fact the motion judge relied on, shared business objectives between Tornado
    and the ClearMRI companies, impermissibly strayed across the boundaries of
    corporate separateness. A shareholders objectives may be aligned with that of
    the corporation, in that the corporations success may accrue to the benefit of
    the shareholder. However, the business remains that of the corporation. An
    employee of a corporation is not controlled by a shareholder of that
    corporation simply because the employee is working for the success of the
    corporation, and the shareholder hopes that such success will occur.

[86]

Stepping
    back from the specific findings, the key question was whether there was
    evidence of an intention to create an employment agreement between Tornado and
    Mr. OReilly containing the obligations Mr. OReilly sought to enforce. The
    motion judge did not relate the evidence about control over Mr. OReilly to this
    critical question. She did not consider whether the evidence about control showed
    an intention that Tornado was one of Mr. OReillys employers at the time Mr.
    OReilly commenced employment in 2012, or that Tornado was somehow added as one
    of his employers at a point after that.

Corporate Relationships

[87]

The
    third factor the motion judge considered was whether there was a sufficient
    relationship between Tornado and the ClearMRI companies to apply the common employer
    doctrine. She found that there was, relying on Tornados majority ownership and
    incidents of corporate control, Tornados consent rights under the Unanimous
    Shareholder Agreement, and a desire of Dr. Kim to consult Tornado about a proposed
    replacement to ClearMRI Canadas board of directors.
[5]


[88]

That
    corporations to which the common employer doctrine is applied are related to
    each other, members of a corporate group, or commonly controlled, is a feature
    of the case law. It might usefully be described as a necessary, but not a
    sufficient, factor for the application of the common employer doctrine. The
    corporate interrelationships in this case were such that the common employer
    doctrine qualified for consideration. But the corporate interrelationships do
    not, on their own, justify applying the doctrine. If they did, the common
    employer doctrine would lose its consistency with the concept of corporate
    separateness.

[89]

In
    some cases, the corporate set-up may shed light on with whom the employee has
    contracted, because it brings into sharper focus where effective control over
    the employee resided. For example, in
Downtown Eatery
, all of the
    commonly controlled corporations were directly operating the business that
    employed the manager. In
Sinclair
, the employee was required to work for
    two companies even though on the payroll of only one. Or the employee may have
    been transferred from company to company within a group in a manner that may indicate
    the employment agreement was with the parent corporation:
Bagby
, at
    para. 46.

[90]

These
    features were not present here. The motion judge did not consider or explain
    why the aspects of the corporate relationship between Tornado and the ClearMRI
    companies indicated an intention that Tornado was a party to the employment
    agreement with Mr. OReilly. In the absence of something that shows such an
    intention, share ownership and its incidents, including the power to elect
    directors and the alignment of financial objectives between parent and subsidiary
    corporations, are insufficient to establish common employer status on the
    parent. The motion judge referred to an overlap in directors, but there was no
    suggestion of confusion about the capacity in which directors were acting when
    they interacted with Mr. OReilly concerning employment. And while the motion
    judge relied on Tornados consent rights under the Unanimous Shareholder
    Agreement, those rights did not extend to employment agreements or changes in
    senior management  matters reserved to the ClearMRI Canada board.

[91]

Thus,
    on the key question of whether there was an intention that Tornado was a party
    to the employment arrangement with Mr. OReilly  even accepting the finding
    that the written agreement was not dispositive  the motion judges conclusions
    about control over Mr. OReilly as an employee did not address the correct test
    and were thus legally insufficient to support summary judgment. The corporate
    interrelationships could not fill that gap.

Conclusion on Common Employer Liability

[92]

Accordingly,
    I would set aside the summary judgment against Tornado, and substitute an order
    dismissing the motion for summary judgment against it.

B.

Dr. Kims Appeal

[93]

In
    her reasons, the motion judge found Dr. Kim liable for six months wages and
    twelve months vacation pay on the basis that he was a director of ClearMRI
    Canada. Although he was also a director of Tornado, the formal judgment only
    addresses his liability as a director of ClearMRI Canada.

[94]

Dr.
    Kims primary argument on appeal is that even though ClearMRI Canada had not
    paid the judgment against it, the conditions to his liability in s. 131(2) of
    the
OBCA
are quite specific, and there was no evidence they were
    fulfilled. There was no evidence that ClearMRI Canada was in liquidation,
    ordered to be wound-up, or was formally bankrupt as contemplated by s.
    131(2)(b). Nor was there evidence that an execution against ClearMRI Canada was
    returned unsatisfied as contemplated by s. 131(2)(a).

[95]

The
    issue is how s. 131 is to be interpreted in this case, given that it
    contemplates the director and the corporation being sued in the same action,
    yet provides that a directors liability is conditional on, for example, an
    execution against the corporation being returned unsatisfied, a step that would
    occur after judgment.

[96]

In
    a case where the issue of liability of both the corporation and the directors
    comes up for consideration at the same time, and judgment is given against the
    corporation, any judgment against the director may have to be conditional on
    the occurrence of a subsequent event. That was how the motion judge, having
    found Tornado to be liable, approached the matter in respect of the Tornado
    directors. She directed the parties to return to address the responsibility of
    two Tornado directors (but not Dr. Kim) if execution against Tornado was
    returned unsatisfied.

[97]

Mr.
    OReilly obtained judgment against ClearMRI Canada sometime before he brought a
    motion for summary judgment against Dr. Kim. Dr. Kim argues that Mr. OReilly could
    have included evidence in the summary judgment motion that execution had been
    returned unsatisfied against ClearMRI Canada if that were the case. Since he did
    not, Dr. Kim argues that no judgment at all should have been given against him.
    In any event, the judgment does not reflect that Dr. Kims liability is
    conditional on s. 131(2) events occurring.

[98]

I
    reject the argument that no judgment at all should have been granted against
    Dr. Kim. Nothing in s. 131 of the
OBCA
puts a time limit on when the
    conditions in s. 131(2) can be fulfilled. But the formal judgment should be
    amended to provide that the liability of Dr. Kim in para. 3 is conditional on
    an execution against ClearMRI Canada being returned unsatisfied, or one of the
    events referred to in s. 131(2)(b) occurring in relation to ClearMRI Canada. The
    parties should have leave to return to the motion judge for directions if any
    issue arises on this point.

C.

Quantum Issues

[99]

The
    appellants made various arguments regarding the quantum of the judgments
    against them. Given the disposition of Tornados appeal, I address two that could
    apply to Dr. Kim.

[100]

First, they argue that
    the motion judge did not consider the fact that Mr. OReilly resigned in December
    2013, and that this should affect the quantum of his entitlement. I would
    reject that argument. The motion judge found that, notwithstanding the formal resignation,
    Mr. OReilly continued to work as CEO in reality. This reality governs his
    compensation entitlement.

[101]

Second, it is argued
    that the agreement to defer specified the circumstance under which payment
    would resume, namely, the business earning revenue, and this never occurred. Mr.
    OReilly gave evidence, however, that revenue was earned. In my view, there was
    evidence on which the motion judge could properly view the deferral as
    non-permanent, such that the entitlement to claim salary and other entitlements
    was not waived and was in place when the revenue was earned.

[102]

Finally, it is argued
    that the motion judge simply accepted the amounts in the default judgment.
    There was evidence before the motion judge on the quantum of Mr. OReillys
    entitlements as they pertained to Dr. Kims liability. As well, his liability
    is derivative of that of ClearMRI Canada, which had been determined by
    judgment. I would not interfere with the quantum of the judgment against Dr.
    Kim.


iv.

CONCLUSION

[103]

Subject to the
    variation noted in para. 98 above, I would dismiss the appeal of Dr. Kim. I
    would allow Tornados appeal and set aside the summary judgment against it.

[104]

The parties made
    submissions on costs but did not specifically address the mixed result I have
    arrived at. If the parties cannot agree on costs, they should make written
    submissions limited to three pages each, within ten days of the release of
    these reasons.

Released: June 7, 2021 L.R.

B. Zarnett J.A.

I agree. L.B.
    Roberts J.A.

I agree. Sossin
    J.A.





[1]

Only the common law doctrine of common employer liability was
    invoked by the respondent in this case. Section 4 of the
Employment Standards Act
,
    2000, S.O. 2000, c. 41 provides for circumstances in which separate persons are
    treated as one employer. It is not necessary to comment on how the section
    might have applied in this case, a point on which the parties did not agree.



[2]
The motion judge described this latter category of decision as falling within
    Tornados consent rights at para. 13 of her reasons, but this appears to
    misread sections 2.12 and 2.13 of the Unanimous Shareholder Agreement.



[3]
The motion judge subsequently varied her judgment to delete one of the
    individuals (Stefan Larson) as he had not been a director of either Tornado or
    ClearMRI Canada at the relevant time.



[4]

This is a different question from the question of corporate
    control, which, at its most basic, refers to the ability of a shareholder to
    elect the majority of a corporations board of directors:
OBCA
, s. 1(5). The fact
    that one corporation controls a second corporation does not equate to control
    by the first corporation over the second corporations employees.



[5]

Neither the director being replaced, or the replacement, was
    Mr. OReilly.


