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DIRECTORS’ PERSONAL LIABILITY FOR EMPLOYEE WAGES

When you file a wrongful dismissal claim against your employer for severance, you expect to able to collect on your judgment against your former employer. However, a collection might become problematic and challenging if your former employer takes steps, through its directors, to frustrate your judgment or divert assets away from the company.

Fortunately, the law does not allow an employer to avoid its liabilities to a former employee so easily. In fact, under certain circumstances, the law enables you to go after the directors personally pursuant to the Business Corporations Act [the Act] as discussed below.

Under section 242 of the Act, a complainant may apply to the court for a remedy for the corporation’s oppressive or unfair conduct. The “complainant” includes shareholders, directors, and creditors, or any other person the court finds appropriate. As such, an employee, who was not a director or a shareholder, may come under the definition of the “complainant”.

In Downtown Eatery (1993) Ltd. v Ontario, 2001 CanLII 8538 (ONCA), the Plaintiff obtained a judgment for wrongful dismissal damages against a company but discovered that the directors of the company caused the Company to go out of business and transferred its assets to other companies prior to the trial. In this case, the court found that the directors’ reorganization unfairly disregarded the plaintiff’s interests, who stood to obtain a judgment against the company and allowed the Plaintiff to enforce his judgment against the directors.

In Churchill v Aero Auction Sales Inc., 2019 ONSC 4766, the plaintiff worked at the company which was owned by her common-law partner. However, when their relationship broke down, the plaintiff was terminated. In this case, the court found that the plaintiff became a creditor of the company when her common-law partner withheld her wages, and the common-law partner’s action was oppressive in ceasing operations of the company and transferring all of its assets to a related company to make the judgment hollow.  In this case, the court also found that the common law partner acted in bad faith and awarded aggravated damages in the amount of $75,000. Among other things, the court noted that the common law partner falsely alleged that the plaintiff abandoned her job and used his control of the company to advance his personal financial interest to gain leverage in their family law dispute.

Similarly in Halupa v Sagemedia Inc., 2019 ONSC 7411, the plaintiff filed an action against two corporations, under the doctrine of common employment, and against the sole director of both corporations. In this case, the court found the director liable for the plaintiff’s damages, including lost wages, pay in lieu of notice and vacation pay, as well as damages for bad faith conduct in the manner of dismissal. The court concluded that the director reallocated the business’ resources in a way that preferred his personal interests over other employees.

For further inquiries, please contact Osuji & Smith Lawyers. Our top-rated business lawyers will be able to assist.

Author: Justin (HJ) Kwon

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