Employment contracts provide the foundation for the relationship between employees and employers. Even in a small family business, having a clear understanding of the terms of the working relationship and the rights and responsibilities of each party can help avoid misunderstandings and conflicts. A recent case before the Ontario Superior Court of Justice serves as an example of the potential disputes and resulting consequences that can arise when these terms are not clearly defined in a family business.

Plaintiff seeks damages for unpaid wages at pet retail and grooming business

In the case of Seepersaud-Singh v. Pet Social, the plaintiff was in a common-law relationship with one of the defendants. She had three children with him and was a stay-at-home mom who received social assistance. She started a dog breeding business from her home, which she claimed was very successful. She indicated that the revenue generated by the company was provided to her partner to start Pet Social Inc.

The corporate defendant, Pet Social Inc., was a pet supply retailer providing grooming services. The plaintiff claimed that the company was incorporated in April 2012. However, her statement of claim listed the incorporation date as October 2011. She stated that she was an owner of Pet Social Inc., as she had invested money and labour into the business from its conception but received no remuneration.

The plaintiff commenced a claim against all defendants for damages resulting from unpaid wages, overtime and vacation pay. Alternatively, the plaintiff sought a declaration that the defendants had breached their good faith obligations and an order for damages to be determined at trial. Further, in the alternative, she sought a declaration that she had a constructive trust in Pet Social Inc., in addition to punitive, aggravated, and/or moral damages of $150,000.

Plaintiff claims she is the owner of the family business

The plaintiff claimed she was an employee or a contractor dependent upon the corporate defendant. Beyond her responsibilities relating to daycare, grooming services, and sales, she was also actively involved in the groundwork leading up to the company’s launch, working between 13-16 hours a day. She was presented as the owner in media interviews and claimed the defendants asked her to change her name so their names could also be represented in the media events. The plaintiff also claimed that she made “deals” and was listed as a business owner on a Business Improvement Area list. Additionally, she served as the local Residents Association to help promote the business.

Finally, the plaintiff argued that the defendants did not like dogs but enjoyed making money; therefore, she was involved in the employee contract negotiation as she better understood the compensation structure for groomers. She also managed and supervised the store for four years. Much of this evidence was corroborated by her mother, particularly concerning the first year of the business.

Court finds plaintiff is manager, not owner

Concerning her own compensation, the plaintiff testified that she never received any money for her work at Pet Social Inc. and was not allowed to have money “at home or at work.” She stated that one of the defendants told her that “it was degrading for a woman to be asking for money,” which was not denied by the defendant at trial. However, it was noted that the plaintiff’s common-law partner (another one of the defendants) took care of the plaintiff’s bills and financial needs, and the plaintiff was told that “this is family.”

The Supreme Court of Ontario noted that the evidence supported a finding that the plaintiff was a manager at the business. Under section 11(1) of the Employment Standards Act, Pet Social Inc. had a statutory obligation to establish a pay period and provide pay statements. However, there was no evidence to suggest that the plaintiff ever received any wages from Pet Social Inc.

Damages for unpaid wages calculated in the absence of an employment contract

The Court found that while the plaintiff was a credible witness and believed she was an owner of the business, there was no evidence to establish that she had an ownership interest in the company, nor was there evidence regarding the amount of money that was invested into the company from her previous business venture. Therefore, the Court held that she was an employee, specifically a manager, who had not been remunerated for her services for four years.

Based on the absence of an employment contract between the parties, the Court held that the plaintiff, in her capacity as an employee of Pet Social Inc., was entitled to unpaid wages in accordance with the statutory minimum wage set out in the Employment Standards Act, which was $10.25 an hour. To calculate the plaintiff’s damages for unpaid wages, the Court assumed that she worked full-time at 40 hours per week for the duration of the year, with vacation pay calculated at a rate of 4% of her gross wages. This calculation resulted in unpaid wages of $22,172.80 annually.

Court awards damages over $130,000 for unpaid wages

Despite the Court acknowledging that the plaintiff was a manager of the business, no evidence was presented at trial with respect to a manager’s typical earnings. Therefore, the Court awarded the plaintiff an additional $10,000 a year in addition to her minimum wage calculation to account for her role and resulting duties and responsibilities. Upon final calculation, the Court found that the plaintiff was entitled to $130,291.20 in damages. The Court further awarded the plaintiff with overtime at 15 hours a week during the first year in business and 10 hours a week during the subsequent years.

Documenting employment terms is essential, even in a family business

The Court declined to award the plaintiff aggravated and/or punitive damages. The Court understood the plaintiff’s testimony regarding her “escape” from the situation with her common-law partner as her quitting the family business. While the circumstances of the plaintiff’s work with Pet Social Inc. were complex, particularly as they related to physical assaults on the plaintiff by her partner, she was not terminated in a traditional sense. The Court found that the arguments and case law relied on by the plaintiff did not support this aspect of her claim or apply to the facts at hand.

This decision reminds employers, particularly family business owners, that regardless of the circumstances, it is critical to clearly define the terms of an employment relationship of those involved in the business, even if they are family members. If these terms are not explicitly set out, it can expose individuals to exploitation and may result in future legal disputes between employees and employers. Further, these risks can be mitigated by working with an experienced employment lawyer who can help ensure that your employment contracts are sound, and in the event of a dispute or claim of wrongful dismissal, they can help employers protect their interests.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Trusted Advice on Employment Disputes

The employment lawyers at Grosman Gale Fletcher Hopkins LLP in Toronto regularly advise employers and employees on their rights and obligations throughout the employment relationship and termination process. We assist with employment contracts, guidance on severance package entitlements and advice on wrongful dismissal claims. Contact us online or call us at 416-364-9599 to schedule a confidential consultation with a member of our team.