Employee/Employer Relationship: Piercing the Corporate Veil

Braiden v. La-Z-Boy Canada Ltd. – Ontario Court of Appeal – June 12, 2008

An employee/employer relationship exists even though an agreement may be between the employer and another company; consideration must be given for an employee to agree to give up their right to common law notice.

The June 12, 2008 decision by the Ontario Court of Appeal in Braiden v. La-Z-Boy Canada Ltd. [2008] O.J. No. 2134 (“Braiden“) demonstrates the Court’s position on two important topics relevant to both employees and employers. Specifically, the Court held that the corporate veil will be pierced when true employee/employer relationships exist and that an employee must receive consideration to make an agreement which removes their right to common law notice valid.

In Braiden, the employee had worked for the employer for twenty-three years. In 1995, after fourteen years of service, the employer decided that it would enter into annual written agreements with its sales agents. The first agreement that was given to the employee contained a new provision indicating that either party could terminate the signed agreement, without cause, on sixty days notice in writing to the other party. This agreement also stated that the sales agents were not agents or employees of La-Z-Boy.

Similar agreements were signed annually until 1997 when the employer required the employee to incorporate a company. From this point on, the annual agreements were between the employer and the established company instead of the employee. In 2003, the employer terminated the employee pursuant to the sixty day notice provision. The employee claimed wrongful dismissal.

The Trial Judge found in favour of the employee and awarded twenty months notice. In rendering a decision, the Trial Judge found that given the extent of control the employer had over the activities of both the employee and the employee’s company, there existed an employee/employer relationship between the two parties. Additionally, the Trial Judge found that the sixty day notice provision was null and void because it violated the minimum amount of notice required in the Employment Standards Act, 2000 (“ESA, 2000”). The employer appealed the Trial Judge’s decision.

Upholding the Trial Judge’s decision, the Court of Appeal found there to be an employee/employer relationship between the two parties. The Court commented that “there is no other conclusion available but that [the employer] used the Agreements to secure the personal services of [the employee], as sales agent, even though the Agreements in the later years of the relationship were with [the employee’s company].” The Court also upheld the Trial Judge’s decision that the sixty day notice provision of the written agreement was null and void, although the reasoning differed from the Trial Judge’s. The Court found that the provision was more than the minimum requirement stated in the ESA, 2000, however, “on the face of the Agreement, there is no indication that [the employee] received any consideration for giving up his right to reasonable notice at common law. Further, there is nothing in the record to show that any fresh consideration flowed to [the employee] in exchange for his giving up that right.”

Braiden illustrates two important points that should be brought to the attention of both employees and employers. Firstly, employers are not permitted to sidestep an employee/employer relationship by forming an agreement between themselves and a company instead of the employee. If it is obvious that the agreement is intended to obtain the services of a specific employee and not the company, then the Court is willing to pierce the corporate veil in order to recognize the true relationship that exists. Secondly, the Court’s decision indicates the importance of consideration in order to make an agreement binding. An employer is not permitted to introduce a new provision into an agreement or employment contract without providing the employee with some form of consideration.

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