Common Employers in Class Actions

by Bennett Jones LLP

In mid-December, Justice Paul Perell released an interesting decision involving wage claims made by post-doctoral fellows at Sunnybrook Hospital (Pasian v Academic Clinicians’ Management Services, 2013 ONSC 7787).

The plaintiff class is comprised of former post-doctoral fellows who worked at Sunnybrook Hospital between 2005 and 2008. The fellows were paid a stipend for their fellowship. The class members alleged that there fellowship stipends were free of all income taxes and deductions. The payment of the stipend and other payroll functions were administered by Academic Clinicians’ Management Services—effectively a back-office for physicians and physician groups at Sunnybrook. The physicians or physician groups—not ACMS—entered into employment agreements with the fellows.

In 2000, as a result of a CRA ruling, ACMS paid the fellowship stipend to the fellows and withheld only income tax (not CPP and EI premiums). In 2006, ACMS changed its practice and stopped withholding income tax as well unless a fellow requested the withholding. In 2007, CRA ruled that ACMS should have withheld CPP and EI. ACMS decided to also withhold income tax. Eventually, ACMS decided to enter into employment agreement with the fellows directly.

The plaintiffs argued that ACMS was their employer all along and should re-pay them for any withholdings (though, in most cases, CRA has not re-assessed the fellows’ income and, as such, there were no withholdings) on the basis that there was an implied contractual term between the fellows and ACMS that their stipend would be free of income tax.

The plaintiff class moved to certify the action as a class proceeding; ACMS moved to dismiss the action on summary judgment. ACMS was successful on both motions: the action was dismissed and, in any event, Justice Perell wouldn’t have certified the class.

The decision is instructive for two reasons:

  1. Class actions often seem to turn on the common issues criterion of section 5(1) of the Class Proceedings Act. Enterprising plaintiffs’ counsel can usually amend the pleading to state the cause of action better or amend the class definition or find a better representative plaintiff, right up the certification hearing. So it’s no surprise that battleground is whether the legal and factual issues are common or individual. This decision is a great example though of how common issues and the preferable procedure criterion go together. Though Justice Perell found that there were common issues, he also found that the essential issues are purely individual.
  2. Though it was probably unexpected by the parties, Justice Perell has rewritten the law, at least slightly, on common employers. Courts in Ontario and British Columbia have held that different legal entities may all be an individual’s employer at law where there is an element of “common control”. Justice Perell would have found that ACMS was the fellows’ employer even without this element. In his view, the test for public sector employers is whether the legal entity is a constant in all of the possible employment relationships.

For employment lawyers and public sector employers especially, this decision and any appeal should be carefully watched as it may upend the typical understanding of the common employer doctrine.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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