Corporations often carry debts making them liable to their creditors. This debt liability generally does not apply personally to the directors of a corporation. However, that does not apply in all cases. When the subject of a debt is unpaid wages, Ontario allows for the piercing of the corporate veil, meaning the directors could become personally liable for wages owed to employees. The Employment Standards Act (ESA), the Ontario Business Corporations Act (OBCA), and the Canada Business Corporations Act (CBSA) all stipulate that directors can be held accountable in these circumstances. Ontario courts have also held that directors can be responsible for unpaid wages. The Ontario Court of Appeal has recently decided such a case.
Employee Brings Claim Against Company and Directors
The employer terminated the employee in 2018. The employee began working as a security guard for the employer. He then moved to different positions until 2018, when he was fired. The company claimed it had fired the employee for cause because he had been accused of punching another employee’s time-card. The employee claimed that the employer made a false allegation and failed to conduct a proper investigation. Further, the employee claimed that his dismissal was a reprisal because he raised concerns about health and safety and manufacturing. He claims he also took steps to organize a labour union.
The employee brought a claim for wrongful dismissal damages, moral damages, and punitive damages. However, he did not just bring the action against three corporations alleged to have been his common employer, but also against two individual corporate directors.
Motion Judge Strikes Several Claims, Orders Employee to Pay Costs
The employer and two directors, the respondents, brought a motion to strike certain claims. The motion judge decided to strike some pleadings with leave to amend and some without leave to amend.
The motion judge made several findings. She found that s. 131 of the Ontario Business Corporations Act only provided for a director’s liability for debts for services performed and vacation pay accrued. She did not find that this applied to severance pay, termination pay, or damages for wrongful dismissal. Accordingly, it was found that a cause of action was not established under s. 131 of the OBCA. The motion judge also rejected the claim under s. 81 of the Employment Standards Act, which held that directors were liable for unpaid wages, as she found it had no reasonable prospect of success.
Lastly the motion judge found that the employee did not have standing to bring a claim under s. 248 of the OBCA. The motion judge concluded that the employee had not pleaded how the conduct of the directors affected his ability to recover judgment against the respondents. The motion judge also awarded costs to the respondents for almost $15,000. The employee appealed the motion judge’s decision.
Court of Appeal Allows Employee to Amend Claim
The Court of Appeal decided to allow the appeal in part. The Court decided to allow the motion judge striking of the employee’s s. 81 ESA claim without leave to amend, and her striking of the s. 248 OBCA claim with leave to amend. However, the court disagreed with the motion judge’s striking of the employee’s s. 131 OBCA claim because it found that it should not have been struck without leave to amend.
Section 131 of the OBCA sets out a director’s liability for wages. The section states that:
“The directors of a corporation are jointly and severally liable to the employees of the corporation for all debts not exceeding six months’ wages that become payable while they are directors for services performed for the corporation and for the vacation pay accrued while they are directors for not more than twelve months under the Employment Standards Act, and the regulations thereunder, or under any collective agreement made by the corporation.”
The Court of Appeal found that the employee did plead that he was entitled to three weeks’ vacation pay at the time of his dismissal. Even though the employee only pleaded this in one paragraph, as a claim under s. 81 of the ESA, the claim for vacation pay is a claim that he can assert against the individual respondents under s. 131 of the OBCA. Accordingly, the court found a reasonable cause of action under s. 131 of the OBCA.
While the Court of Appeal did not strike the cost award against the employee, it did reduce the amount of costs to $8,000.
Unpaid wages could lead to claims against directors personally. In situations in which an employee is owed wages, it is advisable for both the employer and employee to seek legal advice.
For advice on employer liability and other employment or labour 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.
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