Ontario Superior Court of Justice – Divisional Court

Algo Group Inc. v. Ontario (Labour)

Date: 2000-12-15

Counsel: P. Neena Gupta, for the appellants; Murray Klein, for the respondent, Ministry of Labour; Voy T. Stelmaszynski, for the respondent, Laura Trachuk, Vice-Chair.

(746/99)

Reasons for Decision

[1] Lang, J. [orally]: With the consent of the respondents, the applicants request an order dispensing with service of the materials on the individual employees. On the basis of counsels' submissions, we are satisfied that the individual employees received notice of this proceeding, have chosen not to appear today and that their interests are represented by counsel for the respondents, who support their position.

[2] It is common ground that the applicable standard on this application for judicial review is that of reasonableness. In this case the adjudicator/referee acted under s. 68 of the Employment Standards Act to interpret and apply s. 12 of that Act. She determined that the businesses of the applicants were related to the business of One + One Fashions Inc. and thus the applicants were liable for termination and severance pay to One + One employees.

[3] Re Refac Industrial Contractors Inc., April 9, 1990, E.S.C. 2703 (Referee Brown), was given to us as the leading case setting out the criteria for a finding of liability on the part of the related corporation. Those criteria applied by the adjudicator and accepted by the parties as appropriate are:

(i) There must be two or more business entities involved in the form of a corporation, individual, firm, syndicate or association or any combination thereof.

(ii) The activities, businesses, works, trades, occupations, professions, projects or undertakings must be associated or related.

(iii) The person claiming to be an employee of a common employer must have been or must presently be an employee of any one of the corporations, individuals, firms, syndicates or associations during the period of time for which the benefits are claimed or the violation of the Act or regulations took place.

(iv) The intent or effect of the arrangement must be to defeat, either directly or indirectly, the true intent and purpose of the Act.

[4] The adjudicator also referred to Re Vragovic, February 2, 1995, E.S.C. 9544 (Adjudicator Novik), and quoted the following:

"Section 12 is a difficult provision to interpret: its scope is far reaching but its emphasis is unclear. Different referee decisions have focused on different factors and aspects of the inter-relationship between entities. In my view, the relevant questions to ask in this case are whether Epro and Royal Gold are associated or related companies, and if so, whether the effect of their being related defeats the true intent and purpose of the Act."

[5] The only Divisional Court authority to analyze this issue confirmed the applicability of s. 12 where there was a "close functional interdependence": 550551 Ontario Ltd. et al. v. Framingham et al. (1991), 49 O.A.C. 376; 4 O.R. (3d) 571 (Div. Ct.). The applicants concede that the Re Refac criteria numbers 1 and 3 were met; they argue that criteria 2 and 4 were not met.

[6] The question is whether the adjudicator reasonably applied the criteria to the facts of this case. In considering the matter, the adjudicator found that Algo's relationship with One + One went far beyond that of a mere investor to the extent that the relationship was one of partners who were, in effect, carrying on a retail business in common. In coming to that determination, the adjudicator said in paragraph 29:

"Algo closely supervised the finances of the Lavie One Holdings companies, including One + One, on an ongoing basis. It held a majority of positions on the board and three officer positions. The fact that it was involved in the business and not merely an investor is highlighted by the fact that when it made the initial purchase the parties agreed that it had to co-sign all expenditures, including pay cheques. The fact that Algo was an active partner in this business is also underlined by the fact that it procured the line of credit with its own bank and it was an Algo representative who attended the bank's annual review. Mr. Kaner, whom Algo claims operated the company, according to all of the testimony had little involvement with any financial matters. Mr. Chankowsky and Mr. Jonkas, who was essentially hired by Algo, handled all of the financial matters. A company's financial affairs are obviously a very, if not, the most, significant part of its operations. Algo was also prepared to get involved in other personnel matters such as the hiring of Mr. Roberge. On occasion it did interfere in other operational matters such as the negotiation of leases."

[7] In addition to specific factors referenced by the adjudicator, the financial statements in the record support the adjudicator's conclusion that there was substantial functional interdependence between the companies. It was reasonable for the adjudicator to conclude that their financial affairs, and to a large extent their operational affairs, were conducted in common.

[8] The adjudicator also found that the fourth criteria was satisfied because the effect of the arrangement defeated the remedial purpose of the legislation. In so determining, the adjudicator referred to the applicants' significant operational control. Her conclusion and the reasons for it were reasonable and are supported by the evidentiary record. For these reasons, we conclude that the adjudicator was reasonable in her application of the agreed criteria to the facts of the case. The Application for judicial review is accordingly dismissed.

Application dismissed.