The Defensive Line: Defence Law Briefing – August 2022

Combined Operations

Employment Pitfalls in Joint Ventures

One of the more unique elements of the defence and security industry in the context of labour and employment law is the extent to which joint ventures and partnerships are utilized. The need for these is obvious. Companies come together and each brings their own expertise to respond to requests for proposals and execute on larger projects. These partnerships often last over a period of several years.

The obvious, larger example here is the Canadian Surface Combatant (“CSC”) program. Just at the design level, the upper-level collaboration on this project involves Lockheed Martin Canada, CAE, L3Harris, BAE Systems, MDA and Ultra Electronics. Some or all of these companies will be working together with other companies further down the line in the design process, and all of this is before Irving Shipbuilding and their partners cut the first piece of metal.

These types of joint ventures or partnerships, albeit rarely as a large as the CSC program, are pervasive throughout defence and security. Indeed, they are generally a necessity in projects large and small. However, from the perspective of labour and employment law, this necessity can carry some complications and unexpected surprises for employers.

Uncertain Employer

When entering joint ventures or partnerships with other companies to respond to requests for proposals, and also after winning a contract, each member of the joint venture will typically be assigning some of their own employees to the project. This can be anyone from software developers and engineers to labourers and administrative employees.

In some instances, the companies participating in the particular project, or some of them, will have jointly formed a new corporation exclusively for the purpose of executing that project, though this is not always the case. That said, and in either event, an interesting question can often be raised about which corporate entity or entities are liable for the employees assisting with the project.

It is often assumed that the company who originally contributed the specific employee or employees to the project remains the only one that is liable for them at law in the event of a termination, disability and other relevant events. However, that is often not the case. The common law, which is applicable across most Canadian provinces, recognizes what are often called “common employers”. This arises where an employer is a member of an interrelated group of companies and one or more of the other companies in the group becomes jointly liable for the employment related obligations of the original employer.[1] There are several factors that a court may look at in determining whether or not two or more companies have become employers in common and, to help understand this, consider an example familiar to the defence and security industry.

In the development of a new weapons system, Company A contributes a team of software developers who will work closely with the engineers of Company B. Company A’s employees will develop guidance and targeting software for the new system. In order to do this effectively, the software developers and engineers need to work closely together. With this in mind, it is determined that at least some developers will work on Company B’s premises. The development cycle is anticipated to be two to three years.

During this time, the software developers continue to be paid by Company A, but Company A’s management has little-to-no other involvement in their workday. During their time off-site, these employee’s schedules are set by Company B, they take instruction from Company B, and for all intents and purposes they are treated as though they work at Company B.

In this type of scenario, Company B begins to expose itself to a real risk that it will be deemed to be an employer in common with Company A. This means that, in the event that the employment of one or more of the software developers needs to be terminated, amongst a host of other potential issues, Company B may become equally liable with Company A to pay the employee damages under another contract that Company B had no input in creating in the first place. It is a difficult position to be in for Company B.

It is easy to see how this type of problem can creep-up throughout the life of a project. It can even become an issue in joint ventures where multiple companies have created a new corporation. If the new corporation is deemed to be an employer in common with one or more of the shareholding companies, then those shareholding companies are still indirectly liable for that employee. Further, unless each individual company’s employees remain confined to their home company’s office and they are only given direction by their home-company manager, it continues to be possible for a common employer issue to arise.

All of this said, there are some ways that defence and security companies entering into joint ventures can try to limit their exposure to the employees of other companies:

1- Limit Control

As was likely obvious from the discussion already, and to the extent this is possible in a given circumstance, participant companies can limit their liability to the employees of other companies by restricting their control over those employees. Do not volunteer oversight of a particular function involving the employees of others unless necessary or otherwise particularly advantageous to do so. Control over matters such as the selection of employees, payment of wages or other remuneration, method of work, and termination decisions are important indicators of whether a particular company has become an employer in common.[2] Generally speaking, the less control a company has over the employee, the less likely it will be to be deemed an employer in common.

2- Draft Clear Contracts

Drafting effective employment contracts, while not determinative, can also help preclude a finding of common employment.[3] When a company enters a joint venture, there may be an opportunity to draft employment agreements that will be used by the joint venture for the employees on the relevant project. In doing this, it may become possible for the contract to stipulate which joint venturer will be responsible for legal liabilities to which employees. This contract should include an express release of employment claims against the affiliated corporations.[4] If the employee knows the only company they can look to for certain items is the company listed in the agreement, then the employee may become precluded from enforcing the contact against the other associated companies.[5]

In addition to these types of direct employment contracts, which can become complicated where an employee is already employed by one of the relevant companies, it will also be very important to ensure that the agreements entered into with the other joint venturers provide added protection. For example, even though a contract with another company may not directly impact a future issue with a specific employee or group of employees, it might be possible to bargain for certain indemnities with the other companies. This can mean getting the other companies to agree to cover damage awards made against your company or your company’s legal fees in the event that it is sued by another company’s employee. This does not eliminate the issue, but can certainly be of assistance where it can be bargained for.

Important Takeaways

Joint ventures and partnerships are often an important and integral part of doing business in the defence and security industry. However, entering into these relationships can lead to certain pitfalls when it comes to labour and employment law. Whether companies affiliated through a joint venture are liable for the other companies’ employment obligations can be a question of contractual formation; but either way, of central importance is which company or companies exercise effective control over the employees in question. The less direct control, the lower the potential for liability.

If you or your company have any questions about how best to handle employee relationships when embarking on a proposal or project with partner companies, you can always contact the lawyers at Emond Harnden LLP, below. We are dedicated exclusively to labour and employment law in support of employers.

[1] O’Reilly v. ClearMRI Solutions Ltd., 2021 ONCA 385 at para 2.

[2] Baldwin v. Erin District High School Board,1961 CanLII 213 (ON CA), , at para 11, aff’d 1962 CanLII 527 (SCC); Bagby v. Gustavson International Drilling Co. Ltd.1980 ABCA 227, at paras. 48-50.

[3] Supra note 1 at para 65.

[4] Mazza v. Ornge Corporate Services, 2015 ONSC 7785, at paras 93-99, aff’d 2016 ONCA 753.

[5] Dumbrell v. The Regional Group of Companies Inc.2007 ONCA 59, at para 83.

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