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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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Canada | Publication | August 10, 2022
Family businesses often start out informally, in an environment of trust and cooperation, where planning for future conflict might go against the grain. Founders and successors may be reluctant to see their siblings, children or extended family as employees, and to formalize and supervise their roles within the business.
However, failure to manage expectations from the outset of the working relationship can lead to costly disputes. Disagreements about job performance or operation of the business are no longer simple family matters. Those conflicts have lasting impacts, not only on the relationships of those involved, but also on personal finances, careers and professional reputations. Given what is at stake, family business owners should plan and operate with employment law issues in mind, just like any other business venture.
A recent wrongful dismissal decision in Ontario, Scamurra v Scamurra Contracting, 2022 ONSC 4222, shows how the gaps in employment planning can emerge when a dispute erupts in a family business.
The plaintiff was one of several siblings who inherited interests in various family businesses from their father. He worked for those businesses for 26 years without a written agreement formalizing his role. The siblings had a falling out after the plaintiff accused two brothers of diverting assets and funds to themselves at the expense of the wider family. Through their control of business operations, those same two brothers terminated the plaintiff’s employment and he sued the family businesses for wrongful dismissal damages.
How the family businesses were operated undermined the family business’ defences and increased their liabilities. The court rejected their arguments that:
Further, since the plaintiff did not have an employment agreement, there was no contractual limitation on his termination entitlements as an employee. The court concluded he was terminated without cause and entitled to 22 months’ notice of termination (less 6.5 months previously provided), for a total of $119,860 in damages. The family businesses were jointly and severally liable for those damages.
Regardless of the kinship of those involved, family business owners should take the time to plan their operations through an employment law lens.
Among other things, this means:
These are just a few of the many employment law issues that business owners should consider as they involve their families in their business ventures. Although it may be tempting to adopt an informal working arrangement, it is important to remember that family businesses are ultimately subject to the same employment law considerations as any other business. Planning ahead and taking proactive steps to formalize working relationships can minimize the risk of costly disputes down the road.
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