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Whether Director or Business owner is personally liable for unpaid wages?

The recent hike in terminations and layoffs due to COVID-19 demands a clear and precise answer to questions related to unpaid wages and their collection. The question of personal liability of those involved in the managing of the business is of central importance. Can an employee claim their wages from Director? Whether a shareholder is liable for wages? How to proceed where there are doubts that Company can pay the amount owed?

Part XX of the Employment Standards Act, SO 2000 addresses these questions. Section 79 of the Act defines that Director means a director of a corporation and includes a shareholder who is a party to a unanimous shareholder agreement. Generally, the shareholder can be a director for the purpose of imposing personal liability for unpaid wages. However, you shall be aware that not every business owner may fit that definition as some exemptions apply.

Section 81 of Employment Standards Act, SO 2000 provides pre-conditions for imposing personal liability on Directors. They are as follow:

a) the business is insolvent, and the employee has filed a claim with the receiver and such claim was not paid; or

(b) the Ministry of Labour (employment standards officer):

- has made an Order that a corporation is liable for wages and such Order was not paid or appealed; or

- has made an order that a director is liable for wages and such Order was not paid or appealed; or

(d) after the appeal, the Labour Board confirmed that a business or the directors must pay wages and such Order has not been paid by a business.

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The Act also allows an employee to submit a claim against the Director or shareholder right away. In simple words, the employee does not have to wait until mentioned above conditions will be satisfied and may claim wages from a Director or owner and the business simultaneously.

The Ontario Superior Court of Justice in Ricci v Chippingham Financial Group Ltd, [2017] OJ No 6314, 2017 ONSC 6958 comes to a conclusion that the employee is entitled not only to commence a proceeding, but he may also effectively advance and receive the satisfaction of his claims without having to wait for these pre-condition to be satisfied. In para 16. of the judgement M. Koehnen J stated:

“16. Subsection 81(2) does not limit an employee's ability to prosecute litigation once it has been commenced. On the contrary, it suggests that the pre-conditions to liability in s. 81(1) do not pose any other restriction on litigation. A party has the absolute right to commence and prosecute litigation. Any limitation on those rights requires clear and specific language. Section 81(2) does not contain any limitation of any right. What it does, is make clear that s. 81(1) is not intended to restrict an employee's right to litigate.”

The proper legal advice is required for a successful claim against the Director or owner of the business. There are many limitations that exist when it comes to the Director's personal liability. Among others, the meaning of the term “wages”, the extent of personal liability and other restrictions must be addressed.

We are at SAV Paralegal Services will be happy to assist.

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