The operation and interpretation of Ontario’s Employment Standards Act, 2000 is carried out by the provincial Ministry of Labour, Immigration, Training and Skills Development, which is empowered to hear and determine complaints of alleged violations of the Act and to issue orders to remedy any violations that are confirmed to have occurred. 

Orders issued by the Employment Standards Officers who investigate and resolve complaints commonly comprise Orders to Pay Wages, which direct that the employer must pay the employee a certain amount of compensation to rectify a violation of the Act.

While most Canadians know that employees may seek remediation of any violation of the Act via a complaint to the Ministry, fewer are aware of what such orders may entail, including assessing the personal responsibility of a corporation’s director to pay any compensation owed to the wronged employee.

In this blog, we explore the personal liability of directors of corporations for wages confirmed by the Ministry as improperly unpaid or otherwise withheld from an employee.

Employer Ignores Order to Pay Wages, Director Subsequently Directed to Pay Compensation Personally

The case of Mankiewicz v Polanski involved a complaint made by an employee to the Director of Employment Standards regarding unpaid wages and vacation pay that he alleged were due him to work he had undertaken on behalf of the respondent employer. Unfortunately, the Employment Standards Officer assigned carriage of the complaint could not establish communication with the employer to gain insight into the employer’s perspective concerning the allegations made by the complainant employee. As such, the Employment Standards Officer was forced to investigate the basis of the information provided by the employee only, without the benefit of the employer’s own evidence and position.

Relying upon the evidence provided by the employee, the Employment Standards Officer (ESO) determined that the employee had worked for the employer from August 1, 2021, to February 1, 2023, according to an agreement that his wages were $4,000 per month. The ESO further determined that the employee in question had only been paid partial wages for the month of December 2022 ($3,000 unpaid) and had been paid nothing at all in respect of January 2023 ($4,000 unpaid). As such, the ESO established that the employer had contravened the Act by failing to pay the employee appropriately. As such, the ESO issued an Order to Pay Wages in favour of the employee that amounted to $8,008 (comprising $7,000 in unpaid wages, 4% vacation pay in the amount of $280, and $728 in administrative costs).

When the employer failed to comply with the Order to Pay, the ESO issued a Director Order to Pay against the applicant, in this case, in her personal capacity as one of the members of the employer’s board of directors, because it was established that the applicant had been one of the directors of the employer at the time that the liability for unpaid wages arose. The applicant, unhappy that she had been directed to pay out such funds personally, applied to the Ontario Labour Relations Board for review of the Director Order to Pay that had been issued against her.

Applicant Asserts Absolution of Liability Due to Honorary Nature of Directorship

The applicant asserted that she should be absolved of all liability for the employee’s unpaid wages because she had never been a ‘real’ member of the employer corporation’s board of directors but had merely served in an honorary capacity. For its part, the Director of Employment Standards countered that no such distinction between real and honorary directors exists in Canadian law.

The applicant asserted in the alternative that if she was liable for the unpaid wages, then her liability should be reduced because the complainant employee had not worked for the employer during the entire duration of the period covered by the Order to Pay Wages, the ESO’s findings concerning the duration of the employee’s tenure with the corporation were incorrect, and because she had not been a director of the impugned corporation during December of 2022 and thus was not responsible for any compensation related to that month.

Defining the Existence of Honorary Directors in Canadian Law

Section 81 of the Employment Standards Act, 2000, dictates that corporation directors may be held personally liable for monies owed to employees of the corporation of which they are directors in the event that the corporation itself fails to pay orders related to such compensation.

Section 105(3) of the Canada Business Corporations Act, which governs the creation and operation of all corporations in Canada, dictates that at least 25% of the members of a corporation’s board of directors must be Canadian citizens. As the language used in the clause is imperative, no method exists by which any corporation can avoid this requirement.

In this case, the applicant testified that she had only accepted the position of director of the employer corporation to satisfy this clause of the CBCA, as the other members of the employer’s board of directors at the relevant time were not Canadians. The applicant asserted that she had never carried out any of the duties of a director and had never been employed by the corporation in any capacity. As such, she had acted only in an honorary capacity rather than as a true director. The Board rejected the applicant’s argument because section 81(1) of the Employment Standards Act, which, as indicated above, governs the personal liability of directors to pay monies owed to employees of the corporation for whom they serve as directors, does not distinguish between active and inactive (or real and honorary, as the case may be) directors. As such, the Board was satisfied that the Employment Standards Act recognizes only one class of directors, and therefore, honorary directors do not exist in Canada to apply for that Act.

Determination of Whether Director Liable for Entire Amount of Compensation Owed by Corporation to Employee

The Board considered the applicant’s testimony and the documentary evidence that indicated that the applicant had not been named as a director of the employer corporation during the month of December 2022 and concluded that she had not been named as a director during that month. Hence, the applicant was not liable to pay the compensation owed to the employee for the month of December 2022. However, she still had to pay the $4,000 in compensation ordered for January 2023 and 4 per cent vacation pay thereon, totalling $4,160. 

As a result, the Board amended the Director Order to Pay issued by the ESO such that the applicant was ordered to personally pay the employee only $4,160 rather than $7,280.

Contact the Haynes Law Firm Today to Discuss Unpaid Wages

Directors of corporations may face personal liability for employment standards orders arising from complaints against the company. Navigating these complex legal issues requires careful consideration and proactive steps to protect your personal interests. 

The Haynes Law Firm in Toronto provides experienced legal counsel to directors of corporations in Ontario, offering guidance on assessing personal liability risks, developing strategies to mitigate exposure, and representing directors in legal proceedings. Contact us today for a confidential consultation by phone at (416) 593-2731 or online.