Preparing for the Worst as a Director

Recent numbers regarding the economic performance of Canadian businesses are regrettably disastrous, although not yet reflective of the impact that will hopefully follow the recent affirmative steps such as wage subsidies, discussed further below.

Over one-third of companies have suffered a revenue loss of more than 40% compared to the same quarter one year ago. More than one million workers became unemployed in the month of March.

This is not the moment to be a director of an Ontario company. Ontario law requires that all directors are personally responsible for unpaid salary and vacation pay to a cap of 6 months’ salary for each employee. Director liability for such payments ceases immediately upon the tendering of a resignation. The claim can be enforced through the Ministry of Labour. Making matters worse for Directors, this is not typically an insured liability.

This is not a “soft” obligation as is the case in British Columbia which allows for a “due diligence” defence to its cap set at 2 months’ salary for each employee. This would appear to be an appropriate defence in the current situation. The current health crisis and its impact on businesses are far from the context of a director sneaking out in the middle of the night and taking the company vault with them.

It would appear unfair to allow such a claim against a Director given this unpredictable economic collapse, but this is the state of Ontario law. It should be amended to parallel the B.C. statute and given the recent flurry of legislative reform, this may well happen.

Directors are also responsible for unpaid source deductions under federal law. These sums include tax at source on employee wage payments, CPP, and EI. These payments are normally due on the 15th of the month for the prior month. Canada does, however, thankfully, like B.C., have a “due diligence” defence for such claims. The same applies to the liability of directors for unpaid corporate HST.

Canada Emergency Wage Subsidy (CEWS) Update

Canada has now passed the legislation for the wage subsidy program. Applications opened as of April 27 and full details are now available. The subsidy is retroactive to March 15 and allows eligible companies to receive the 75% wage subsidy for up to 12 weeks. It is an important initiative to encourage employers to rehire staff, avoid further terminations and also to encourage new hires. It is also intended to motivate employers to continue to pay employees who are unable to work for medical or other COVID-19 related reasons.

Companies which are sole proprietorships, limited companies, not-for-profit and charitable corporations are eligible. Public entities are not permitted access to this funding. As mentioned previously, the threshold for a decline in revenue has been reduced to 15% for March and remains at 30% for the remaining time periods.

The measurement of the decline in revenue may be based on a month to month comparator against the same months in 2019 or alternatively, to contrast revenue of the given month against the average of January and February of 2020.

It is expected that persons who have received the personal emergency funding (CERB) who have been rehired will cancel this claim and repay sums received where the individual has been rehired.

The eligible payment is the greater of (1) 75% of the prior income of the employee to a cap of $847 per week and (2) the lesser of (a) the prior income up to the cap of $847 weekly or (b) 75% of the employee’s prior income.

The payment generally will be 100% of the first 75% of prior income. There is also an expectation, but not a requirement, that the employer will pay the difference to bring the salary back up to the prior sum.

Companies will also be allowed reimbursement to the same cap of 75% of salaries paid to newly hired employees in this period. There is no maximum sum that may be paid to the company as an overall sum.

In addition, employers will be allowed a refund of employer-paid sums for EI and CPP for employees laid off and where the employer is entitled to the above wage subsidy. Whether you are an employer or the employed, this is a very important initiative that can save and indeed, create, many jobs.

Source Deductions

Canada has also allowed for a reduction of 10% of tax deductions at source for all employees, which is, in effect, a subsidy to employers. This will run for three months.

Get Advice and Know Your Rights

This is not the moment to fall behind in the rapidly changing environment of new government laws and initiatives. Stay up to date. This is the precise time to rely upon timely and solid advice. We are here to provide real-time practical insight to the law as it applies to each individual client, no matter your perspective. For advice on this issue and all employment law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.