Directors’ Liability for Unpaid Wages

Employees can be compensated in a variety of ways: hourly rate, salary, commissions, bonuses, and sometimes a mix. The Employment Standards Act, 2000 as well as many business corporations acts, ex. Ontario Business Corporations Act provide for personal liability of directors of a corporation for employees ‘wages’. The term ‘wages’ includes salary or hourly rates for time worked, commissions earned, statutory termination pay, vacation pay etc. Recently, in a different context, the Ontario Court of Appeal, in Bain v UBS, 2018 ONCA 190 (CanLII) even recognized a performance-based bonus to be caught by the definition of ‘wages’.

The issue of director liability most often comes up in the context of bankruptcy when a claim against a corporation for these amounts will go unpaid, and the employee is then able to claim against the directors personally. That said, it is not uncommon for terminated employees to not only claim for wrongful dismissal damages due to their termination but for unpaid wages as well. In this case, it is possible to use the relevant sections under the Employment Standards Act and the Ontario Business Corporations Act to claim directly against the company and its directors for the wages owing prior to the employee’s termination.

The case of Ricci v Chippingham Financial Group Ltd., 2017 ONSC 6958 (CanLII) confirmed that claiming against directors personally does not arise only if the claims against the employer have been exhausted, the employer is in bankruptcy, has been ordered to be wound up, goes into liquidation or has a received order made against it. In other words, claims against a director personally are not a ‘last resort’ for employees and can be used more proactively.

Justice Kohnen confirmed that these sections of the statutes operate to allow an employee to commence a lawsuit against directors for unpaid wages even if the lawsuit against the corporate employer for wrongful dismissal is ongoing and if the employer is not in liquidation, receivership or bankruptcy. Essentially, there is no bar for an employee to commence a proceeding for unpaid wages against directors.

Accordingly, the employer was ordered to produce its financial records in order to determine if in fact it was going bankrupt and had the finances to honour its debt to the plaintiff. The Court found the documents were relevant to determine who could provide the plaintiff with his unpaid wages and payment on account of his common law reasonable notice.

That said, the corporation does remain responsible for the wages unless unable to satisfy the debts and then the employee can collect against a director, however the above establishes that there is no bar to litigating against directors.

Every lawsuit is different and has unique facts that can raise multiple causes of action at law. Monkhouse Law is a full-service workplace law firm. If you have questions about a workplace-related issue, please contact Monkhouse Law today.

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