Employee’s Length of Service Not Interrupted by Creative Use of “New” Corporate Structures

contracts length of service

The Ontario Court of Appeal recently released a decision confirming that courts will not be fooled by different corporate structures when an employee has, in reality, been employed with the same employer for years. 

The Case

In Theberge-Lindsay v. 3385022 Canada Inc. (Kutcher Dentistry Professional Corporation), a dental hygienist worked for her employer for approximately 19 years, from 1993 until her termination without cause in 2012. Over this period of time, the hygienist was asked to sign three different employment agreements, with two different corporate entities, all of which limited her entitlements on dismissal to the statutory minimums required by the Employment Standards Act, 2000 (the “Act”). The dentist in this case restructured his dental practice in “various ways to minimize income taxes and split income”, including through the use of a management company and, later, a professional corporation.

In March of 2005, the hygienist provided notice of her resignation to the dentist, which was to take effect on July 7, 2005. However, in May, 2005, she changed her mind and, with his agreement, continued working for the dentist. 

When the hygienist’s employment was terminated in December, 2012, the dentist provided her with only one week’s salary. This was consistent with her entitlements under the Act – if the hygienist was viewed as an employee with only one year of service with the newly created professional corporation, which she had signed an agreement with in 2011.

Lower Court Decision

The trial judge had no issue concluding that, at all times between 1993 and 2012, the hygienist had been employed by the dentist, albeit under various different names and corporate structures. It was clear that she had worked at the same location, performed the same job, and was under the management of the dentist on an interrupted basis that entire time. 

As a result, the court also found that none of the three employment agreements were enforceable, since there was no fresh consideration provided to the employee when they were signed. Rather, she was simply being offered “continuing employment” with the dentist.

Finally, the court concluded that the employee’s resignation had no impact on the continuity of her service, as there had been no actual break in service at that time.

In light of all of the above, the trial judge concluded that the hygienist was entitled to a notice period of 15 months at common law.

On Appeal

The dentist appealed the decision, arguing, among other things, that the trial judge had failed to take proper account of the hygienist’s resignation in 2005.

The Court of Appeal upheld the trial judge’s finding that the 2011 agreement was not binding on the hygienist and that her length of service was definitely longer than one year. However, it agreed with the dentist that the hygienist’s resignation had the effect of creating a break in her service in 2005, even though there was no actual gap in her employment.

The Court found that the hygienist’s offer to again be employed and the dentist’s acceptance of that offer formed valid consideration for the employment agreement signed on July 1, 2005, setting out the terms of her “new” employment relationship with the dentist. As a result, the hygienist’s service could only be calculated from June onwards and, further, the July 1, 2005 effectively limited her entitlements to those set out under the Act. The award of 15 months was therefore reduced to only 7.5 weeks.

Takeaways

This case is a good reminder that an employee’s total length of service with an employer will likely be considered unless there is a clear break in service during that time. This applies even where an employer changes their identity over the course of the relationship, especially when that is the only thing that changes about the employee’s otherwise continuous employment. It is also an excellent refresher on the importance of fresh consideration when entering into a new contract with an existing employee. Even where the employee signs the agreement (and, in fact, even when they obtain legal advice before signing), the agreement will still be void for lack of consideration.

Finally, for employees, this case provides a warning about the impact of resigning from your employment. Even where there is no actual break in service, an unequivocal resignation will still create a break in the employment relationship. As a result, if an employee wants their prior service recognized for purposes of the “new” employment relationship, they should get confirmation in writing from their employer that this will be the case.

Brittany Taylor

Since being called to the Ontario Bar in 2013, my practice has been dedicated to assisting both employers and employees to manage their workplaces. My approach to workplace issues is one that is pro-active and preventative. I take great satisfaction in assisting employees and employers to identify and deal with potential issues before they have an opportunity to evolve into serious headaches for both parties. I also take great pride in acting as a vigorous advocate on behalf of my clients, whether at the bargaining table or beyond to the trial stage.