Rahman v Cannon: Common Employer & Termination Clause Updates Part II

Written by Danielle Murray

In a?previous blog post, we wrote about the recent?Rahman v. Cannon Design Architecture Inc?case. Here’s a recap of the Ontario Court of Appeal’s decision:

• an employee’s level of sophistication has no bearing on whether a termination clause is enforceable
• the language in with-cause termination provisions needs to be carefully worded and abide by requirements in the?Employment Standards Act?(“ESA”)

And more importantly:?

• subsidiary and parent companies of an employer can be considered “common employers” if there is a certain level of integration between the companies, making them jointly and severally liable to the employee?

In this blog post, we will dive deeper into the Court’s finding that the three respondent companies were common employers.?

Quick Recap of the Facts

Ms. Rahman, the plaintiff, was a “Senior Architect, Principal and Office Practice Leader” at CannonDesign for over four years. She was terminated without cause and sued her employer, Cannon Design Architecture Inc. (“CDAI“), as well as Cannon Design Ltd., and The Cannon Corporation, claiming damages for wrongful dismissal. She asked the court to declare that: (1) the with-cause termination provision in her employment contract violated the ESA and as a result, the entire termination section in her contract was void; and (2) all three companies were her common employers given that they were closely interconnected, and as a result, they should be jointly and severally responsible for her termination entitlements.

The Summary Judgment Decision on Common Employment

The motion judge concluded that Ms. Rahman had been employed by CDAI alone and dismissed the action against Cannon Design Ltd. and The Cannon Corporation. The judge found that CDAI was her only employer because it was the company that offered her employment and paid her. In his view, the fact that CDAI was a subsidiary within a business grouping did not justify a joint employer finding. In other words, the companies were not joined together as a group (which can often help employees get access to deeper pockets), but rather, only the one company was on the hook for the damages.

The Decision on Appeal

The Court of Appeal overturned the motion judge’s decision and concluded that:

• the with-cause termination provision in Ms. Rahman’s employment contract did violate the ESA and as a result, the termination section was void (we elaborate on this in our previous blog post)
• the 3 respondents were in fact to be grouped together as common employers and were jointly and severable liable toward Ms. Rahman

The Respondents were Common Employers

CDAI was Ms. Rahman’s employer, and is a subsidiary of The Cannon Corporation, a company registered in Delaware with its principle office in Buffalo, New York. Cannon Design Ltd. is a corporation registered in Toronto, where its principal offices are located.

In concluding that all three respondents were Ms. Rahman’s common employers, the Court of Appeal noted a high level of integration among the respondents, including the facts that:?

• They all used the logo “CANNONDESIGN”. The logo appeared on both public-facing documents, including CannonDesign’s website, and internally.?
• They all operated on CannonDesign’s “Single Firm Multiple Offices” business strategy, which required all of CannonDesign’s many offices to be interdependent and work in conjunction with one another.
• Upon being hired, Ms. Rahman signed an offer letter printed on “CANNONDESIGN” letterhead, where she was asked to join CannonDesign, “a legal entity of [CDAI], as a Principal”.
• Ms. Rahman also signed an agreement between her and the Cannon Corporation, which was entitled “THE CANNON CORPORATION SENIOR VICE PRESIDENT AND PRINCIPAL OFFICER AGREEMENT”.
• The first line read: “AGREEMENT between The Cannon Corporation and its subsidiary companies including [CDAI] (the “Company”) and (“Employee”) (Farah Rahman)”.
• As a condition of employment, Ms. Rahman was required to own shares in The Cannon Corporation.
• Both the offer letter and the agreement were presented to Ms. Rahman and executed by representatives of The Cannon Corporation.
• Ms. Rahman’s bonus was calculated based on CannonDesign’s performance as a whole and not only on CDAI’s performance. A significant part of her annual bonus was paid in shares in The Cannon Corporation.?
• Ms. Rahman signed at least one services agreement as Principal, Office Practice Leader for Cannon Design Ltd.
• CannonDesign’s website listed all employees, including Ms. Rahman, by reference to the “CANNONDESIGN” or “CD” logo.
• Relevant communications from the respondents to Ms. Rahman were on CANNONDESIGN letterhead, including pay statements and correspondence.
• Ms. Rahman’s termination Letter was on “CANNONDESIGN” letterhead.
• The Cannon Corporation’s Executive Director was Ms. Rahman’s direct supervisor.
• Ms. Rahman regularly attended meetings with other The Cannon Corporation managers.

Based on the factors noted above, the Court found that the respondents were sufficiently intertwined and exerted sufficient control over Ms. Rahman to be considered common employers.?

Takeaways

The Rahman decision is a reminder that many factors are considered when determining whether subsidiary or parent companies are common employers of an employee. If these companies have enough factors that make them sufficiently intertwined with the employer, and if there is a high level of integration between the companies, they could be held jointly and severally liable toward this employee.?

If you have any questions about what constitutes a common employer, or about terminations,?please contact us!