Director’s Liability for Unpaid Wages

In Canada, corporations are treated as separate entities, creating a “corporate veil” protecting individuals within a corporation, including directors, from liability. There are certain scenarios that can “pierce” the corporate veil, exposing a director to personal liability.

In a situation where an employee is owed unpaid wages, the corporate veil may be pierced for a director, where the director(s) may be liable for the unpaid wages.

The Canada Business Corporations Act (“CBCA”), Ontario Business Corporations Act (“OBCA”) and the Employment Standards Act, 2000 (“ESA”) outline the liability of a director for unpaid wages, as there are different conditions to note under each Act:

Canada Business Corporations Act The employee must seek their remedy against the corporation before the director, and initiate the claim within six months of the wages being due.
Ontario Business Corporations Act The director is held liable if the corporation is sued but cannot afford to pay, or before the corporation and director are sued, the corporation has gone into liquidation, was ordered to wind up, or filed for bankruptcy.
Employment Standards Act, 2000 Proceedings against the employer does not have to be exhausted before an employee can proceed against their director.

 

The Oppression Remedy

An oppression remedy is a mechanism in the OBCA and CBCA that protects the interests of shareholders and other stakeholders against wrongful corporate conduct.

The Supreme Court of Canada in BCE Inc v Debentureholders, 2008 SCC 69 identified two questions to determine whether oppression existed:

  • Does the evidence support the reasonable expectation asserted by the claimant?
  • Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard” of a relevant interest?

Directors should be cautious as they may be held personally liable for unpaid wages where an employee is not paid, if it is found that their conduct amounts to unfair prejudice or disregard for the wages that an employee is due.

Unpaid Wages and Constructive Dismissal

In situations where an employee is not paid wages over an extended period of time, it may lead to an additional claim aside from the oppression remedy against a particular director and may amount to a claim of constructive dismissal against the corporation. As such, claims of unpaid wages should not be disregarded, as it could result in additional, and bigger legal disputes down the line.

If a director becomes aware of unpaid wages, disregarding the complaint may expose them to personal liability due to the fiduciary duty directors owe to employees.

Avoiding Liability Issues as a Director

Taking proactive steps may minimize the risk of a claim against unpaid wages against directors. Acting honestly, in good faith, and diligently, will help minimize risk of liability.

A claim management system may help companies keep track of the remuneration paid, as well as whether there are claims for unpaid wages. Such a system would also permit for proper documentation of the claim, including how the claim was handled.

Directors can limit their liability by ensuring that they attend board meetings and are kept in the loop with regards the corporation’s financial stability and of any complaints and the financial stability of the corporation. Participating in meetings and ensuring that questions are being asked to identify any problematic areas may assist in their defence of being diligent and proactive in addressing any issues. Maintaining an adequate agenda and minutes of meetings may also demonstrate when the directors of a corporation became aware of any claims.

Given that a director’s liability can be significant, it is prudent to take steps to avoid any personal liability.

Contact Us

If you are an employer and have questions regarding director’s liability, or an employee who has questions about claims for unpaid wages or salaries, our team of experienced legal professionals at Achkar Law can help. Contact us by phone toll-free at 1-(800)771-7882 or email us at [email protected] and we would be happy to assist.

If you are a small or medium size company looking for full-service support, visit our CLO program page for our strategic solutions.

*******************

Disclaimer: This blog is not intended to serve as, or should be construed as legal advice, and is only to provide general information. It is in no way particular to your case and should not be relied on in any way. No portion or use of this blog will establish a lawyer-client relationship with the author or any related party. Should you require legal advice for your particular situation, fill out the contact form, call 1-(800)771-7882, or email [email protected].