Corporate Directors Can Be Personally Liable For Unpaid Wages

Liam McMunagle
Posted April 13, 2021 Category: Businesses

Some corporate directors may be under the impression that they can rarely be personally liable in wrongful dismissal actions based on the common understanding that corporations generally afford limited liability.

However, in Abbasbayli v. Fiera Foods Company (“Abbasbayli”), the Ontario Court of Appeal recently held that corporate directors may indeed be personally liable for statutory claims for unpaid wages under both employment standards and corporate legislation.

Factual Background

In Abbasbayli, a former employee brought a civil action for, among other things, three weeks of unpaid vacation pay against two individual corporate directors under the Employment Standards Act, 2000 (the “ESA”) and Ontario’s Business Corporations Act (the “OBCA”), as well as a claim for ‘relief from oppression’ under the OBCA. A motion judge held that none of these claims could proceed to trial as currently pled, only allowing the former employee to amend and possibly proceed with his oppression claim.

Appeal Decision

Unpaid Vacation Pay under the ESA

The Court of Appeal agreed with the motion judge that the former employee could not claim against the corporate directors for unpaid vacation pay under s. 81 of the ESA. This provision only affords personal liability in four specific circumstances, none of which applied in the case at bar:

  1. the employee has filed a claim in the employer’s receivership or bankruptcy;
  2. an employment standards officer has ordered that the employer is liable for wages (unless the amount has been paid or the employer has applied to have it reviewed);
  3. an employment standards officer has ordered that a director is liable for wages (unless the amount has been paid or the employer has applied to have it reviewed); or
  4. the Ontario Labour Relations Board has issued, amended or affirmed an order requiring the employer or director(s) to pay unpaid wages.
Unpaid Vacation Pay under the OBCA

The Court of Appeal held that the motion judge was mistaken in preventing the former employee from claiming against the corporate directors for unpaid vacation pay under s. 131 of the OBCA. This provision states that a corporate director may be liable for up to six months’ wages and up to one year’s accrued vacation if:

  1. the corporation is sued as well as its directors and fails to pay the wages itself; or
  2. the corporation is involved in certain insolvency proceedings and the employee’s claim has been proved.

According to the Court of Appeal, the former employee’s claim that he was owed three weeks’ vacation pay (as opposed to damages) supported a reasonable civil cause of action against the directors; s. 131 of the OBCA explicitly contemplates a corporation and its directors being sued for unpaid wages, although personal liability only arises if the corporation has first failed to satisfy a judgement for payment on its own.

Relief from Oppression under the OBCA

The Court of Appeal agreed with the motion judge that the former employee could seek relief from oppression under the OBCA,so long as the claim was amended to specify the  reasonable expectations violated by the directors’ allegedly oppressive conduct. Notably, the Court of Appeal held that even a non-shareholding former employee may be able to claim “oppression” as defined under the OBCA. However, the Court clarified that wrongful dismissal alone often fails to provide standing to bring such a claim. The Court also made it clear that allowing the former employee to plead this claim did not mean that it would ultimately be acceptable at trial. Nonetheless, at the pleadings stage of the action, the former employee was allowed to advance this claim if properly amended.

Takeaways

Abbasbayli reminds corporate employers that their directors may be personally liable for unpaid wages, including vacation pay, even when such claims are unavailable under s. 81 of the ESA. In addition to or instead of a claim under the ESA, former employees may also claim against corporate directors under the OBCA, whether more straightforwardly under s. 131 or more creatively under s. 248.

Despite the Court of Appeal outlining different means of possibly holding corporate directors liable, Abbasbayli also establishes boundaries for these potential avenues. In order to avoid unnecessarily broad discovery and trial processes, employers should consider whether there are grounds to strike similar claims against corporate directors in light of the Court’s guidance.

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Liam McMunagle
Posted April 13, 2021 Category: Businesses

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