A recent Ontario superior court case had an unusual set of facts but a universal message: employment agreements should be used even when (and perhaps especially when) you are dealing with a family business. Having an employment contract and defining the scope of a family member’s work for the business avoids legal complications and ensures all parties are protected.
In Seepersaud-Singh v. Pet Social, 2023 ONSC 4174, the court awarded $130,000 in unpaid wages to the plaintiff, who was an unpaid employee of a family business that her common-law partner owned, and his brothers (who collectively became the defendants).
The facts of this case are unique and specific. The plaintiff claimed that the idea of the business, Pet Social, came from her initial dog breeding business she had started while she was a stay-at-home mom with her three kids. After realizing how profitable the pet business was, her partner and his brothers became interested in getting involved. She claimed that her profits from the initial business were funneled into the new business, and she assumed that she was a part owner. Thus, she did not sign any employment agreements. She testified that she held herself out as an owner in media interviews, worked at the store every day doing both employee duties like grooming, sales, and daycare, as well as managerial responsibilities like negotiating contracts, supervising the store and sitting on various boards and agencies to help promote the profile of the business.
The plaintiff claims that she was in an abusive relationship with her partner. She claims she was never paid any salary, given any portion of the profits and generally received no remuneration. This fact was not challenged. She claimed she was not allowed to have money at home or work, and the defendant told her that she was family, and she had a roof over her head. When the plaintiff ended their relationship in 2015, she sued for unpaid wages, including overtime and vacation pay.
The court found insufficient evidence to determine she was an owner but did find that she was clearly an employee who had not been paid for the past four years. Because there was no employment contract, the court decided unpaid wages should be based on full-time hours at the statutory minimum wage set out in the Employment Standards Act. She was awarded an additional $10k a year in recognition of her managerial role, as well as overtime pay in the amount of 15 hours a week for the first year and 10 hours a week for the subsequent years. In total, the plaintiff was awarded $130,291.20 in damages.
Takeaway for Business Owners and Employees
While this situation is unique, it is easy to see how, in setting up a family business, defining individual roles and creating employment contracts can be either unintentionally forgotten or avoided because of power dynamics or fear of starting uncomfortable conversations among family. As this case demonstrates, there is risk to both employers and employees in a situation where the roles are not clearly defined. It can be tough to bring this up when everyone is still getting along – it often just doesn’t feel necessary. However, clearly defining people’s roles, even if it is assumed that people understand what they are, will protect the individuals involved and the business from unexpected complications down the line. It’s always better for all involved to have the conversations and written agreements done early and then amend the contracts if needed as the business grows, then assume it will all work out in the future.