Family-Owned Business Ordered to Pay Substantial Damages to Former Manager

Written on behalf of Peter McSherry
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Family-owned businesses make up a large portion of the Canadian economy and allow family members to work together on shared projects while supporting themselves financially. However, family businesses are not exempt from typical business risks and employment disputes, particularly when there is a lack of formality regarding the terms of each person’s role in the business. A recent case before the Ontario Superior Court of Justice dealt with issues of pay entitlement and business ownership when a claim was advanced by the former common-law partner of one of the business’ co-owners.

Family members incorporate pet business

In Seepersaud-Singh v. Pet Social, the employer was a pet supply retailer and grooming business that was co-owned by three brothers. One of the brothers, “MS,” was involved in a common-law relationship with the plaintiff employee, “SS.” SS had met MS when she was just 16. She had left home and had dropped out of school at that time. They had three children together, and because SS was responsible for providing care for their children, she decided to start a dog-breeding business out of her home. She said the business made a significant amount of money, all of which she gave to MS.

In 2012, MS and the other co-owners incorporated the business, which subsequently became the employer. SS said that the money she had given the husband from her business was used to start the new one. Therefore, she believed she was also an owner of the business. This belief, coupled with MS’s abuse towards SS, resulted in her not collecting any wages over the four years that she worked for the company. Leading up to her leaving the business in December 2015, the relationship between SS and MS also ceased.

SS then brought a claim against the corporation, MS and his two brothers claiming damages for unpaid wages as an owner throughout her time with the business. In the alternative, she sought to be considered an employee of the business.

Insufficient evidence to conclude that the plaintiff was an owner

SS told the Court that the home-based business she previously ran was very successful. However, despite claims that she was actively involved in the conception and commencement of the new business and that revenue from her previous business was used to help fund its creation, the Court had insufficient evidence before it to support a finding that she was also an owner. The Court acknowledged that she could be considered an investor in the business, but there were no documents to help determine how much of the invested money came from her previous business.

The Court then looked at whether or not SS should be considered to have been an employee of the business. She told the Court that she did not sign an employment agreement. Instead, she explained that she had considered herself an owner and did not believe it was necessary to have an employment contract.

Was the plaintiff an employee of the business?

To better determine whether the plaintiff was an employee of the business, the Court looked at the work she did. She was involved in much of the legwork that got the business up and running, and once the store was operational, she found herself working anywhere from 13-16 hours per day. She described her functions as managerial, telling the Court she was the public face of the company and described herself as an owner. She was heavily involved in the promotion of the store, as well as its eventual second location, which opened after two years. She also appeared in several media interviews and represented herself as an owner to advertise the business.

SS’s version of events was corroborated by her mother and was not challenged by the defendants. SS’s mother stated that her daughter was always at the business and was referred to as the owner and manager by the employees, while the actual business owners were rarely at the store itself. SS also hired staff and negotiated their rates of pay as she better understood the appropriate compensation structure for the employees than the other owners did.

Based on the evidence before it, the Court determined that the plaintiff was an employee of the company and in particular, a manager.

Plaintiff claims damages for unpaid wages

The employee’s claims that she never received pay were not challenged by the owners of the business, and no evidence was offered to suggest that the business had paid her. Therefore, based on the Court’s finding that she was an employee, the Court determined that she was entitled to damages for unpaid wages throughout the four years she worked for the company.

In order to calculate how much money was owed to her, the Court applied a minimum wage rate of $10.25 per hour to a 40-hour work week. The Court then calculated that the plaintiff would have earned approximately $22,172 per year, including vacation time. However, despite the Court’s finding that the plaintiff was a manager of the business, there was no evidence to help determine what a manager would have earned otherwise. Therefore, the Court added an additional $10,000 per year to her calculated income. The Court also accepted that she worked overtime and added an additional calculation of 15 hours of overtime per week during the company’s first year in operation, with 10 hours a week in the subsequent three years.

Ultimately, the Court held that the employee was owed damages of $130,291.20 resulting from unpaid wages owed to her over four years, including vacation pay and overtime hours.

Contact Employment Lawyers Peter A. McSherry in Guelph for Advice on Pay Entitlement and Severance Packages

Experienced Guelph employment lawyer Peter A. McSherry has extensive experience advising clients on their rights and entitlements to overtime pay entitlement, reviewing severance package offers, and representing terminated employees in cases of wrongful dismissal claims. Our trusted team will assess your circumstances and provide you with honest advice to help you move forward following an employment-related dispute. To schedule a confidential consultation with one of our team members, call our office at 226-780-6947 or contact us online.