The directors' liability provisions of the Employment Standards Act, 2000 essentially mirror those in the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"), but, unlike the OBCA's directors' liability provisions, may be enforced through administrative action under the Employment Standards Act, 2000, rather than protracted and expensive civil proceedings. The intention of Part XX (Liability of Directors) is to allow for more efficient enforcement of existing directors' liability, rather than to expand the scope of that liability.

Section 79 - Definition

This section defines "director" for purposes of Part XX (Liability of Directors).

Director of a corporation

A director of a corporation is elected by the corporation's shareholders and sits on its board of directors to oversee its business. (Note that when a business is initially incorporated, the directors - referred to as "first directors" - are not elected. Rather, they are named as directors and hold director positions until elections are held.)

Information returns that are required to be filed by the corporation with the Ontario Ministry of Government and Consumer Services (or, if it is federally incorporated, Corporations Canada) are publicly available and should contain the names and addresses of the current directors. If these are not up to date, then the Minute Book from the meetings of the Board of Directors should indicate who the current directors are.

With respect to companies incorporated under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA") or the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA"), if there is no registered director because all of the directors have resigned or have been removed by the shareholders without replacement, a person who manages or supervises the management of the business and affairs of the corporation is, subject to certain exceptions, deemed to be a director. See s. 115 of the OBCA and s. 109 of the CBCA.

The OBCA and CBCA provisions mentioned in the preceding paragraph would not apply in the case where a corporation's sole director dies. If subsequent to the director's death, the business of the corporation is managed or supervised by someone who does not become a director, it will be a question of fact as to whether that individual is acting as an agent of the corporation (in which case, subject to s. 137 of the Employment Standards Act, 2000, he or she would have no personal liability) or is instead acting as a sole proprietor to whom the corporation's business has been transferred (in which case there would be personal liability). If the individual is acting as an agent of the corporation, wages earned by employees, including wages earned after the individual began acting, would be owed by the corporation (though the estate of the deceased director would also be liable for those wages earned up until the director's death, subject to the limits in Part XX). If the individual is acting as a sole proprietor to whom the corporation's business was transferred, wages earned by employees up to the time of transfer would be owed by the corporation (again, with the estate of the deceased director also liable for those wages earned up until the director's death, subject to the limits in Part XX), while wages earned from the time of transfer onwards would be owed by the sole proprietor.

Shareholders

Section 79 also includes in the definition of "director," for purposes of Part XX, a shareholder who is a party to a unanimous shareholders agreement ("USA").

An USA is an agreement whereby the shareholders may validly restrict, in whole or in part, the powers of the directors to manage the business and affairs of the corporation.

Under the USA, the shareholders have the rights, powers and duties of directors to manage the business and affairs of the corporation to the extent set out in the agreement, and the directors are relieved of their duties and liabilities to the same extent. Thus the shareholders acting under a USA generally stand in the place of the directors. USAs are recognized by both the OBCA and the CBCA.

Typically, unanimous shareholder agreements are used in closely-held, private corporations where there are only a few shareholders. The shareholders that are parties to the USA could be either individuals or corporations. Where the shares are held in trust for an individual, that individual may be found to be a director if he or she controls how the trustee votes his or her shares. See Vaszi v. Ontario (Ministry of Labour), 2000 CanLII 12592 (ON LRB).

Section 80 - Application of part

Application of part - s. 80(1)

This and the other subsections in s. 80 deal with Step 1 (determining whether directors are excluded from the application of Part XX) in the four step process for applying Part XX.

Section 80(1) indicates that shareholders who are parties to a unanimous shareholders agreement are subject to Part XX only to the extent that the actual directors are relieved under the applicable corporations legislation of liability to pay wages to the corporation's employees.

Section 108(5) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA") states:

Section 146(5) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 ("CBCA") states:

Accordingly, a unanimous shareholders agreement may have the effect of imposing liability on shareholders under Part XX of the Employment Standards Act, 2000 (and relieving the actual directors of their Part XX liabilities), but only to the extent that the actual directors of the corporation are relieved of their obligations for wages under the OBCA or CBCA.

Generally speaking, unanimous shareholders agreements come to the attention of an employment standards officer when he or she notifies a director of potential liability under the Act; a director who alleges that his or her liabilities for wages are relieved by such an agreement will be asked to provide a copy of that agreement.

Non-Application - s. 80(2)

This section is identical to s. 58.19(3) of the former Employment Standards Act.

This section indicates that Part XX does not apply to directors of corporations to which:

  • Part III of the Ontario Corporations Act, R.S.O. 1990, c. C.38 applies, or
  • The Ontario Co-operative Corporations Act, R.S.O. 1990, c. C.35 applies.

As such, those types of directors do not have any liabilities as directors under the Employment Standards Act, 2000.

Part III of the Ontario Corporations Act applies to not-for-profit corporations.

The Co-operative Corporations Act is provincial legislation that governs such entities as housing co-ops. It applies to corporations incorporated as cooperatives and carrying on business on a co-operative basis. The phrase "cooperative basis" is defined in s. 1(1) of the Co-operative Corporations Act as follows:

Same - s. 80(3)

Section 80(3) states that Part XX does not apply to directors (or persons performing similar functions as a director) of a college of a health profession or of a college of a group of health professions that is established or continued under an Ontario statute. As such, those types of directors do not have any liabilities as directors under the Employment Standards Act, 2000.

For example, the College of Physicians and Surgeons of Ontario is established under the Regulated Health Professions Act, 1991, S.O. 1991, c. 18. Accordingly, Part XX does not apply to the directors of the College of Physicians and Surgeons of Ontario.

Same - s. 80(4)

Section 80(4) provides that Part XX of the Act does not apply to directors of corporations that are incorporated in another jurisdiction (usually federally-incorporated companies that are subject to provincial labour jurisdiction and are doing business in Ontario) if they:

  • Have purposes similar to those corporations mentioned in s. 80(2) (i.e. not-for-profit corporations, and corporations such as housing co-ops); and
  • Are carried on without the purpose of gain.

Directors are exempt from the application of Part XX only if all three conditions set out in paragraphs (a), (b) and (c) are met. See, for example, Pensler v. Adams, 2012 ONSC 2369 (CanLII) where the Divisional Court dismissed an application for review of Pensler v. Adams, 2011 CanLII 32018 (ON LRB), a decision by the Ontario Labour Relations Board in which the Board rejected the director's argument that s. 80(4) should be interpreted as exempting directors from Part XX if any of paragraphs (a), (b) or (c) apply.

Section 81 - Director's liability for wages

Directors' liability for wages - s. 81(1)

This section deals with step two in the four step process for applying ESA Part XX, which is determining whether one of the circumstances in which directors will be liable exists.

Subsection 81(1) sets out the four circumstances in which directors' liability for certain unpaid wages is established.

Joint and several liability

Subject to s. 81(7) the liability is joint and several. Joint and several liability does not mean that every director is necessarily liable for all of the monies that a single director is liable for under the Employment Standards Act, 2000. Rather, it means that each individual director can be ordered to pay the full amount of liability as opposed to apportioning the total liability amongst the directors. Each individual director's liability is ascertained by applying ss. 81(3)-(7), which entails having regard to the dates the director was a director.

When more than one director’s order to pay ("DOTP") is issued because there are multiple directors, all of whom have liability, the joint and several liability principle will often result in the sum total of those DOTPs exceeding the amount owed to the employee or employees. If the application of the joint and several liability principle results in more money being recovered from the directors than was owed to the employee(s), the excess is refunded to the directors on a pro rata basis.

Example – individual directors have same liabilities:
  • Corporate employer failed to pay or appeal an order for $1200 in unpaid vacation pay
  • Unpaid vacation pay accrued at the rate of $100 per month during each month in 2011
  • Director A was a director throughout 2011
  • Director B was a director throughout 2011
  • Officer applied s. 81(3)-(7) and determined liability of each individual director:
    • Director A: $1200 in vacation pay
    • Director B: $1200 in vacation pay
  • Total amount ordered: $2400 in vacation pay

The joint and several liability principle means that the officer can issue orders to the directors for the full amount of their individual liability (i.e., a DOTP to Director A for $1200 and a DOTP to Director B for $1200) even though the total amount ordered ($2400) exceeds the amount owed to the employee ($1200).

Example – individual directors have different liabilities:
  1. Corporate employer failed to pay or appeal an order for $1200 in unpaid vacation pay
  2. Unpaid vacation pay accrued at the rate of $100 per month during each month in 2011
  3. Director A was a director from January 1 - June 30, 2011
  4. Director B was a director throughout 2011
  5. Officer applied s. 81(3)-(7) and determined liability of each individual director:
    • Director A: liable for $600 in vacation pay
    • Director B: liable for $1200 in vacation pay
  6. Total amount ordered: $1800

The joint and several liability principle means that the officer can issue orders to the directors for the full amount of their individual liability (i.e., a DOTP to Director A for $600 and a DOTP to Director B for $1200) even though the total amount ordered ($1800) exceeds the amount owed to the employee ($1200).

When directors’ liability is established

The four circumstances in which director's liability for certain unpaid wages is established are as follows:

Court-appointed receivership or bankruptcy

A director becomes liable for certain unpaid wages where the employee has filed a proof of claim directly with the court-appointed receiver or the trustee, and the claim remains unpaid. Note that the amount that can be ordered to be paid under a DOTP may be affected by payments made under the federal Wage Earner Protection Program (“WEPPA”) - see the discussion of WEPPA Payments in s. 81(7) below.

Unpaid order to pay against employer

A director becomes liable for certain unpaid wages if an employer to whom an order to pay wages was issued neither pays the order in full nor files an application for review under ESA Part XXIII, s. 116.

Unpaid order against directors

This provision works in concert with ESA Part XXII, s. 107. It means that where an employment standards officer issued an order to pay to some but not all of the directors of a corporation, and the order(s) to pay remain(s) unpaid, and neither the employer nor the director has applied to have it reviewed, the other director(s) who were not yet issued an order become liable for the unpaid wages.

Board decision

A director becomes liable for certain unpaid wages if a decision of the Ontario Labour Relations Board orders the employer or director(s) to pay wages to the employees, and the amount ordered has not been fully paid.

Employer primarily responsible - s. 81(2)

Subsection 81(2) provides that the employer is primarily responsible for the employee's wages, but the proceedings against the employer do not have to run their full course before an order to pay can be issued against a director.

See also Re v. Sagar Aggarwal, a director of 1189508 Ontario Ltd.. This decision, made under the former Employment Standards Act, also ruled that the Ministry need not first execute against the assets of a more active director before turning to a director who took no active part in the business.

Wages - s. 81(3); vacation pay - s. 81(4); holiday pay - s. 81(5); overtime wages - s. 81(6)

These subsections deal with step three in the four-step process for applying ESA Part XX: establishing which types of unpaid wages directors are liable for.

Directors are liable for:

  • Vacation pay pursuant to s. 81(4);
  • Public holiday pay pursuant to s. 81(5);
  • Overtime pay pursuant to s. 81(6); and
  • Regular earnings pursuant to s. 81(3).

Note that “regular earnings” is a non-statutory term used to refer to all wages other than vacation pay, public holiday pay, overtime pay, termination pay (or vacation pay on termination pay) and severance pay, and amounts that are deemed to be wages under the Employment Standards Act, 2000. Regular earnings would be, for example, earnings derived from hourly wages, salary, commission earnings, piecework earnings, shift premiums, and non-discretionary bonuses. It also includes any top-up required to be paid under ESA Part XV, s. 60(1)(b).

Directors are not liable for:

  • Termination pay or severance pay, whether the termination and severance pay is owing under the Employment Standards Act, 2000 or under a contract of employment.
  • Vacation pay that is payable on termination pay in lieu of notice. This is because this sort of vacation pay is derivative of termination pay, and directors are not liable for termination pay. In contrast, because directors are liable for the wages to which an employee is entitled during a working period of notice, including any top-up required to be paid under ESA Part XV, s. 60(1)(b), they will be liable for the vacation pay earned on such wages.
  • Amounts that are deemed to be wages under the Employment Standards Act, 2000. For example, unpaid benefit plan contributions during the notice period pursuant to ESA Part XV, ss. 60(3) and 62(2), and amounts owing under the equal pay for equal work provisions pursuant to ESA Part XII, s. 42(5).
  • Amounts that are not wages as defined in ESA Part I, s. 1, for example, tips or other gratuities, discretionary bonuses, expenses, travelling allowances.
  • Administrative costs that are ordered to be paid in a corporate employer order to pay wages.
  • Non-wage compensation that is ordered to be paid in a corporate employer order to compensate.

Directors' maximum liability - s. 81(7)

This section deals with step four in the four-step process for applying Part XX: determining the quantum of unpaid wages a director is liable for.

The wording of s. 81(7) is consistent with the directors' liability provision in s. 131(1) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). The OBCA provision must be enforced through civil proceedings, whereas s. 81 liability can be enforced with the relatively expeditious and inexpensive administrative proceedings provided for in the Employment Standards Act, 2000.

The recoverability of unpaid wages through a DOTP is limited by ESA Part XXII, s. 111, which states that an employee cannot recover wages (including vacation pay) that came due more than two years preceding the date the complaint was filed or an inspection commenced. Because s. 111 also applies to corporate employer orders to pay wages, for practical purposes, the determination of an individual director's liability starts by referencing the monies that were assessed to have been owing by the corporate employer within the confines of s. 111. Accordingly, to determine each individual director's maximum liability:

  1. Ascertain what the corporate employer's liabilities are within the confines of s. 111 - both in terms of amounts and the dates;
  2. With respect to those monies that the corporate employer is liable for under s. 111, as ascertained above, apply s. 81(7), which provides that:
    • With respect to any unpaid regular earnings, public holiday pay and overtime pay:
      • Each individual director is liable for those amounts that became payable while they were director, up to a maximum amount.
    • The maximum amount is a theoretical number that is determined by calculating what the employee's regular earnings (i.e., not including vacation pay, public holiday pay, overtime pay, termination pay or severance pay) would be over a period of six months. For example, if an employee has an annual salary of $50,000, the maximum the director could be liable for with respect to unpaid regular earnings, public holiday pay and overtime pay is $25,000.
  3. With respect to any unpaid vacation pay:
    • Each individual director is liable for the unpaid vacation pay that accrued while they were a director, up to a limit.
    • The limit is: a director is only liable for up to 12 months of the unpaid vacation pay that the corporate employer was liable for under s. 111 that accrued while the director was a director. Note that the 12 months do not have to be consecutive.

Limitations on recovery

Directors' liability under s. 81 for wages other than vacation pay is limited to debts not exceeding six months' wages, as described in s. 81(3), that became payable while they were directors. The word “debts” is a substantially broader term than wages, but the reference to s. 81(3) makes it clear that liability is imposed only for debts that fall within the definition of wages - in fact, only a sub-group of them, since there is no directors' liability for termination pay, severance pay or amounts that are deemed to be wages. The real significance of the use of the word debts is that it repeats wording that is used in s. 131 of the OBCA and in other business corporations legislation that imposes liability on directors for amounts owed to employees; it thereby effectively incorporates the case law under that legislation. That case law is clear that the limitation of all debts not exceeding six months' wages was intended to create merely a quantitative limit and not a limitation based on the nature of the debt; in other words, all debts owed to employees were covered, whether or not they were wages, though subject to certain other limitations, but the liability could not exceed an amount equivalent to six months' wages. See, for example, Proulx v. Sahelian Goldfields Inc.., 2001 CanLII 6255 (ON CA).

As noted above, liability imposed under s. 81 is very definitely limited to wages, but the fact that the language in which liability is imposed echoes that used in business corporations legislation shows that the phrase “six months' wages” was intended merely to set a limit on quantum and was not meant to require that the wages in question have been payable in any particular six months or any particular six-month period, although insofar as any individual director's liability is concerned, the wages must have become payable while that director was in office. However, note that the ESA Part XX, s. 111 limitations imposed on an officer's authority to issue an order to pay may have an impact on recoverability through such an order.

Unlike the reference to six months' wages in s. 81(7), the reference to two years in ESA Part XXII, s. 111 do not establish limitations based on an amount; rather they establish limitations relating to when the wages in question became due.

The limitation on the recovery of vacation pay in ESA Part XX, s. 111 is related to when the vacation pay came due. Subsection 81(7) limits directors’ liability for vacation pay to what was accrued while they are directors, for up to 12 months. That means the officer must first determine what vacation pay came due in the two years preceding the date the claim was filed, as only that vacation pay is recoverable under ESA Part XX, s. 111. The officer would then apply s. 81(7) with the result that the director's liability for the vacation pay recoverable under ESA Part XX, s. 111 would be limited to that portion that accrued while the director was a director, to a maximum of 12 months of accrued vacation pay.

For example, assume an employee had commenced employment on February 1, 2016 and resigned on March 1, 2017. They have not taken any paid vacation or received any vacation pay during their entire period of employment. When they did not receive any of the outstanding vacation pay on March 15, 2017, the payday following their resignation, they filed a claim for it under the Employment Standards Act, 2000 on April 15, 2017. As all of the vacation pay that accrued during the course of their 13 month employment was due on March 15, 2017, it was all recoverable under s. 111(1). However, in issuing an order against a corporate director of the employer, the director's liability is limited to the vacation pay that accrued while they were a director, to maximum of 12 months of accrued vacation pay. In this case, assuming the director was a director for the full period of the claimant's employment, the director would be liable for any 12 of the 13 months of accrued vacation pay, as per s. 81(7).

Determining quantum – Examples

Example 1
Facts

A corporate employer order to pay was issued with respect to a claimant who had an annual salary of $40,000 for:

  • $1500 in regular earnings, $2000 in overtime pay and $300 in public holiday pay, all of which became payable in 2017
  • $400 in vacation pay all of which accrued in 2017
  • The corporate employer did not pay or appeal the order.
  • The director was a director throughout the 2017 calendar year.
Determining quantum of director liability:

Start with the corporate employer assessment - this will be the maximum potential liability for an individual director. In this example, this is:

  • $1500 regular earnings
  • $2000 overtime pay
  • $300 public holiday pay
  • $400 in vacation pay

Regular earnings, overtime pay and public holiday pay:

  • Was the director a director when any or all of the regular earnings, overtime pay and public holiday pay became payable? Yes. The director was a director when all of those monies became payable.
  • Therefore, the director is liable for all of those wages (other than vacation pay) that were part of the corporate employer assessment up to the limit of the amount that is equal to six months' worth of regular earnings.
  • With an annual salary of $40,000, six months' regular earnings is $20,000.

Accordingly, the director is liable for all of the unpaid regular earnings ($1500), overtime pay ($2000), and public holiday pay ($300).

Vacation pay:

  • Was the director a director when any or all of the vacation pay that the corporate employer is liable for accrued? Yes. The director was a director when all of the vacation pay accrued.
  • Therefore, the director is liable for the unpaid vacation pay that was part of the corporate employer assessment, subject to the limit of 12 months' vacation pay accrual.
  • The vacation pay at issue accrued during 12 months of 2014.

Accordingly, the director is liable for all of the unpaid vacation pay ($400) and a DOTP can be issued for that amount.

Example 2 - Vacation pay due was accrued over more than 12 months
Facts
  • The officer found that the corporate employer owed the claimant $2700 in vacation pay, all of which came due on January 1, 2017 and within the 2 years prior to the claim being filed.
  • This unpaid vacation pay had accrued at a rate of $150 per month, over 18 months.
  • The corporate employer did not pay or appeal the order.
  • The director was a director in all 18 months in which the unpaid vacation pay accrued.
Determining quantum of director liability:

Start with the corporate employer assessment, as limited by s. 111(1). This is the maximum potential liability. In this example, this is $2700 in vacation pay.

  • Was the director a director when the vacation pay accrued? Yes. The director was a director when all of the unpaid vacation pay for which the corporate employer was liable accrued.
  • Accordingly, the director is liable for all of the unpaid vacation pay that was the subject of the corporate employer assessment, as limited by s. 111(1), subject to the director liability limit of 12 months' accrued vacation pay.
  • The vacation pay at issue accrued during 18 months.
  • Directors are liable only for unpaid vacation pay that accrued during 12 months.

Therefore, the director is liable only for $1800 in unpaid vacation pay (12 months × $150 per month), and a DOTP can be issued for that amount.

Note: if the amount of vacation pay that accrued monthly changed over the course of the 18 month period, the officer is able to select which 12 months to use when determining the limit on the director's liability.

Transitional provisions

On February 20, 2015, the Stronger Workplaces for a Stronger Economy Act introduced a number of transitional provisions that imposed limitations on recovery. Subsections 111(3.1) to (8) imposed a six-month limitation period on unpaid wages that became due before February 20, 2015, and a 12-month limitation period for repeated contraventions and vacation pay that became due before February 20, 2015. Subsection 103(4) imposed a cap of $10,000 on the amount of wages an employment standards officer could order for a single employee with respect to wages that came due prior to February 20, 2015. Subsection 103(4.1), which was also added to s.103 by the Stronger Workplaces for a Stronger Economy Act, 2014 effective February 20, 2015, eliminated the $10,000 cap with respect to orders for unpaid wages that come due on or after that date. Subsections 103(4) and 103(4.1) and ss. 111(3.1) to (8) were transitional provisions and were repealed on February 20, 2017.

Although these sections are now repealed, it is Program policy that the $10,000 cap and limitation periods imposed by the transitional provisions continue to apply to wages, repeated contraventions and vacation pay that became due before February 20, 2015, even if any associated orders are issued after February 20, 2017. This is to preserve the vested legal rights of the parties at the time the contravention occurred. This is relevant in situations where a period of time lapses between the time a claim is filed and the time a claim is investigated.

Note, however, that the $10,000 cap imposed on orders against employers by s. 103(4) with respect to wages that came due prior to February 20, 2015 is not applicable to orders issued against directors under s. 106 or s. 107. Accordingly, the $10,000 cap does not apply to orders against directors.

See ESA Part XXII, s. 103 and ESA Part XXII, s. 111 for further discussion on the transitional provisions.

Determining quantum under transitional provisions - Examples
Example 1 - All wages came due prior to February 20, 2015 and entitlement is less than $10,000
Facts

A corporate employer order to pay was issued with respect to a claimant who had an annual salary of $40,000 for:

  • $1500 in regular earnings, $2000 in overtime pay and $300 in public holiday pay, all of which became payable in 2014.
  • $400 in vacation pay all of which accrued in 2014.
  • The corporate employer did not pay or appeal the order.
  • The director was a director throughout the 2014 calendar year.
Determining quantum of director liability:

Start with the corporate employer assessment as limited by the six month/12-month limitation periods set out in s. 111(3.1), (4) and (3.2), without regard to the $10,000 cap on orders to pay wages that became due prior to February 20, 2015. This will be the maximum potential liability for an individual director. In this example, this is:

  • $1500 regular earnings
  • $2000 overtime pay
  • $300 public holiday pay
  • $400 in vacation pay
Regular earnings, overtime pay and public holiday pay:
  • Was the director a director when any or all of the regular earnings, overtime pay and public holiday pay became payable? Yes. The director was a director when all of those monies became payable.
  • Therefore, the director is liable for all of those wages (other than vacation pay) that were part of the corporate employer assessment within the confines of the six month/12-month limitation periods without regard to the $10,000 cap on orders to pay wages that became due prior to February 20, 2015 up to the limit of the amount that is equal to six months' worth of regular earnings.
  • With an annual salary of $40,000, six months' regular earnings is $20,000.

Accordingly, the director is liable for all of the unpaid regular earnings ($1500), overtime pay ($2000), and public holiday pay ($300).

Vacation pay:
  • Was the director a director when any or all of the vacation pay that the corporate employer is liable for accrued? Yes. The director was a director when all of the vacation pay accrued.
  • Therefore, the director is liable for the unpaid vacation pay that was part of the corporate employer assessment as limited by the 12-month limitation period in s. 111(3.2), subject to the limit of 12 months' vacation pay accrual.
  • The vacation pay at issue accrued during 12 months of 2014.

Accordingly, the director is liable for all of the unpaid vacation pay ($400) and a DOTP can be issued for that amount.

Example 2 - All came wages due prior to February 20, 2015 and corporate liability exceeds $10,000

Although the proof of claim is not subject to s. 111 limitations, the DOTP is, so before determining an individual director's liability, s. 111 must be applied. For example:

Facts

A proof of claim was filed with respect to an employee who had an annual salary of $40,000 for:

  • $1500 in regular wages, $2000 in overtime pay and $300 in public holiday pay, all of which became payable in 2014.
  • $400 in vacation pay all of which accrued in 2014.
  • $8,000 in termination and severance pay that became payable on December 31, 2014.

The director was a director throughout the 2014 calendar year.

Determining quantum of director liability:

Start with the corporate employer assessment as limited by the six-month/12-month limitation periods regarding wages that became due prior to February 20, 2015, but without regard to the $10,000 cap that applies to wages. This is the maximum potential liability for an individual director. In this example, this is:

  • $1500 regular earnings
  • $2000 overtime pay
  • $300 public holiday pay
  • $400 in vacation pay
  • $0 for termination and severance pay as directors are not liable for these amounts

With respect to regular earnings, overtime pay and public holiday pay:

  • Was the director a director when any or all of the regular wages, overtime pay and public holiday pay became payable? Yes. The director was a director when all of those monies became payable.
  • Therefore, the director is liable for all of those wages (other than vacation pay) that were part of the corporate employer assessment as limited by the six month/12-month limitations in s. 111 (3.1) and (4) on wages that became due prior to February 20, 2015 without regard to the $10,000 cap, up to the limit of the amount that is equal to six months' worth of regular earnings.
  • With an annual salary of $40,000 six months' regular earnings is $20,000.

Accordingly, the director is liable for all of the unpaid regular earnings ($1500), overtime pay ($2000) and public holiday pay ($300).

With respect to vacation pay:

  • Was the director a director when any or all of the vacation pay that the corporate employer is liable for accrued? Yes. The director was a director when all of the vacation pay accrued.
  • Therefore, the director is liable for the unpaid vacation pay that was part of the corporate employer assessment as limited by the 12-month limitation period in s. 111(3.2), subject to the limit of 12 months' accrued vacation pay.
  • The vacation pay at issue accrued during 12 months.

The director is liable for all of the unpaid vacation pay ($400) and a DOTP can be issued for that amount.

Example 3 - All wages due prior to February 20, 2015 and director liability exceeds $10,000
Facts
  • The officer found that the corporate employer owed the claimant $12,000 in overtime pay, $1,000 of which became payable each month of 2014. The officer issued an order to the employer for $10,000 in overtime pay, plus the administrative fee, in accordance with s. 103(4).
  • The claimant has an annual salary of $40,000.
  • The corporate employer did not pay or appeal the order.
  • The director was a director throughout 2014.
Determining quantum of director liability:

Start with the corporate employer assessment, as limited by the six month/12 month limitation periods in s. 111(3.1) and (4) regarding wages that became due prior to February 20, 2015, without regard to the $10,000 cap on the corporate order. This is the maximum potential liability. In this example, this is $12,000 in overtime pay.

  • Was the director a director when all or part of the overtime pay became payable? Yes. The director was a director when all of the overtime pay became payable.
  • Therefore, the director is liable for all of the overtime pay that was part of the corporate assessment as limited by s. 111(3.1) and (4) without regard to the $10,000 cap, up to the limit of the amount that is equal to six months' worth of regular earnings.
  • With an annual salary of $40,000, six months' regular earnings is $20,000.

Accordingly, the director is liable for $12,000 and a DOTP can be issued for that amount.

Resignation of directors

Timing and validity of resignations

In determining a director's potential liability, the timing and validity of any resignation of directorship must be examined. The rules around resignations are:

  • Resignation of a director must be in writing - see s. 121(2) of the OBCA
  • Resignation can be valid even though the director did not sign the resignation document - see Navas v. Blakemore, 2005 CanLII 1844 (ON LRB)
  • Effective date of a resignation is:
    • Date that the written resignation is received by the corporation (or the date specified in the resignation, if that is later) - see s. 121(2) of the OBCA; or
    • In the case of first directors of a corporation, resignation is not effective unless and until a successor is elected or appointed

Whether (and when) a director has resigned is a question of fact.

In Navas v. Blakemore, where the director communicated his resignation orally to the Vice President/Executive Director and asked for a letter acknowledging his resignation. The Vice President/Executive Director provided the director with a letter dated November 14 that was addressed to the director and signed by the Vice President/Executive Director, which read in part: "Re: Acceptance of Directorship Resignation: Luis, as requested, I have removed you as a Director of NGMA Products effective immediately." The corporate filings were not updated to reflect any resignation. The Ontario Labour Relations Board, relying on an Stewart v. Canadian Broadcasting Corp., 1997 CanLII 12324 (ON SC), ruled that the November 14 letter that originated from the company satisfied the statutory requirement that there be a "written resignation . . . received by the corporation."

Also see Pollock v. Somes, 2006 CanLII 18686 (ON LRB), where the Ontario Labour Relations Board accepted a fax return report together with oral evidence from the director as to the content of the fax transmission to conclude that written resignations were received by the corporation on the date indicated on the fax return report, despite what the corporate filings indicated.

Impact of resignation on liability for unpaid wages

Subsection 81(7) indicates that directors will only be liable for wages other than vacation pay that become payable while they are directors of the corporation. Wages become payable on the regular pay day of the employer, as established by the practice of the employer.

For example, if a director resigns in the middle of a pay period, that director would not be liable for the unpaid wages that became due on the payday following their resignation.

Impact of resignation on liability for unpaid vacation pay

Subsection 81(7) states that directors are liable for vacation pay that accrued while they were a director.

For percentage-based vacation pay (e.g., the Employment Standards Act, 2000 minimum standard of either four or six per cent of earnings), a director would be liable for vacation pay calculated on wages the employees earned while they were a director. It is the date the vacation pay was accrued that is relevant to the director's liability, not the date it was to have been paid.

Example:
  • Employee accrued vacation pay on all wages as they were earned during the calendar year 2014.
  • Employer was required to pay the vacation pay that accrued during 2014 by October 31, 2015.
  • Director resigned on January 1, 2015.
  • Director would be liable for all the vacation pay that had accrued during 2014 even though they resigned before it came due.

For service-based vacation pay (e.g., 1½ days of paid vacation for every month of service), a director would be liable for vacation pay that accrued based on service that occurred while they were a director. Again, a corporate employer's liability for vacation pay is determined by when the vacation pay was due, but a director's individual liability for some or all of that vacation pay is determined by when that vacation pay was accrued.

Absolute liability

The liability against directors is an absolute liability. This is also known as strict liability.

This means that once it is established that an individual was a director at the relevant time, there is no basis for relief against that person's liability, not even if the director shows that they exercised due diligence.

Directors may argue that they are not liable because they have not been active as a director for years, or that were only ever a director in name only and had no influence over the company. Unless that person can rebut the presumption that they were a director during the relevant period, that person is liable as a director under Part XX even if they did not play any active role in the corporation at the time the liability arose.

See for example Arcese Inc. v. Alves, 2007 CanLII 35668 (ON LRB) where the Ontario Labour Relations Board ruled that two directors were liable even though they maintained that they were not the directing minds of the company. They argued that they were directors in name only and had no control or influence over the company, no signing authority, no voting power, and disagreed with many of the actions of the other two directors. The Board ruled that the Employment Standards Act, 2000 "makes no distinction between directors that control a company and those who are directors in name only", and upheld the orders that were made against them.

WEPPA payments

When an officer is issuing a DOTP where the corporate employer is formally insolvent, the amount that can be ordered to be paid under the DOTP may be affected by payments made under the federal Wage Earner Protection Program Act, SC 2005, c. 47, s. 1 ("WEPPA").

Offset

Where a claimant has received a WEPPA payment and the officer is issuing a DOTP, it is the Program's position that the officer must offset the WEPPA amount from the amount of the DOTP. If the WEPPA payment only accounts for a portion of the wages owed, the DOTP is issued for the outstanding balance to the extent that a director is liable for the outstanding amount.

Allocation of payment

A regulation under the WEPPA establishes that WEPPA payments are allocated first to wages, second to disbursements of a traveling salesperson under certain conditions, third to vacation pay, fourth to termination pay, and lastly to severance pay.

It is the Program's position that officers must abide by the characterization of the WEPPA payment as supplied by the trustee, who is bound to follow the federal regulation regarding the allocation of the payment.

Wage definitions

The question has arisen as to how to account for the difference in the definition of wages in the WEPPA versus the Employment Standards Act definition. In particular, wages under the WEPPA includes "gratuities accounted for by the employer" and the Employment Standards Act definition excludes tips and gratuities. This raises the question of how the WEPPA payment should be characterized where a claimant is owed gratuities from the employer and is also owed wages as defined in the Employment Standards Act.

It is the Program's position that, in a situation where gratuities are an issue, the WEPPA payment be allocated based on the same proportion as the claim accepted by the trustee.

For example, if an employee is owed $2500 in wages as defined in the Employment Standards Act and $2500 in gratuities accounted for by the employer and is paid a $3000 WEPPA payment, then the WEPPA payment could reasonably be seen as allocated 50/50 between the Employment Standards Act defined wages owed to the employee and the gratuities owed to the employee, barring evidence to the contrary in any given case.

6.82% deduction

Pursuant to a regulation under the WEPPA, the WEPPA program automatically deducts 6.82% from any amount that is owed to employees. This means that an employee will never be made absolutely whole through a WEPPA payment. Accordingly, there will always be an outstanding amount that could be the subject of a DOTP.

For example, assume an employee has a legitimate claim for $1000 in unpaid wages that attracts director liability. If the WEPPA program makes only a $931.80 payment (due to the regulation requiring a 6.82% reduction), then a director could be ordered to pay $68.20 so that the claimant could be made whole.

Interest - s. 81(8) – Repealed

Contribution from other directors - s. 81(9)

Subsection 81(10) indicates that if there is a conflict between a limitation period in another statute regarding directors' liability and the limitation periods in ESA Part XXII, s. 114, the limitation period in the Employment Standards Act, 2000 applies, unless the other statute states specifically that the limitation period in that other Act is to prevail over the Employment Standards Act, 2000.

Section 114 states that no order to pay wages, fees or compensation (or notice of contravention) will be issued:

  • If the employee filed a complaint more than two years after the date the complaint was filed; or
  • If the employee did not file a complaint but the contravention regarding that employee was discovered during the course of an investigation into a complaint filed by another employee more than two years after the date the complaint was filed by the other employee; or
  • If no complaint was filed but the contravention was discovered during the course of an inspection by an employment standards officer more than two years after the inspection was commenced.

Subsection 131(2) of the OBCA states:

Similar provisions appear in s. 81(2) of the Business Corporations Act, R.S.O. 1990, c. C.38, which governs non-profit corporations.

It is clear that there is a conflict between the limitation period in the Employment Standards Act, 2000 and the limitation periods in s. 131(2) of the OBCA, and s. 81(2) of the Ontario Corporations Act. Since the OBCA and the Corporations Act do not expressly state that they are to prevail over the Employment Standards Act, 2000 in the event of a conflict, the limitation periods in the Employment Standards Act, 2000 will apply with respect to the Ministry's ability to issue an order against a director under the Employment Standards Act, 2000. If proceedings are taken under the OBCA or the Corporations Act, the limitation periods in those statutes would apply.

Section 82 - No relief by contract, etc.

No relief by contract, etc. - s. 82(1)

This section is identical to s. 58.28(1) under the former Employment Standards Act.

Section 82(1) provides that a director cannot contract out of liability under the Employment Standards Act, 2000, whether such purported relief is contained in the articles of incorporation, the corporate by-laws, a resolution of the Board of Directors, or the shareholders, or by way of contract. This is in keeping with the general no waiver or no-contracting out provision in s. 5(1) of the Employment Standards Act, 2000.

See, for example, Otema Store Interiors Ltd. v. Aitkaliyev, 2008 CanLII 20823 (ON LRB) where the director of Otema Store Interiors Ltd.. argued that he had no liability under Part XX because a corporation had purchased the assets of Otema Store Interiors Ltd. and a memorandum of understanding that was part of the sale agreement stipulated that the purchaser would pay those employees who were hired by the purchaser any vacation pay that was owing to the employees at the time of the sale. The director of Otema Store Interiors Ltd. argued that he had divested himself of Employment Standards Act liabilities by way of the memorandum of understanding and should not be held liable for vacation pay that he admitted was owing to the claimants at the time of the sale. The Ontario Labour Relations Board disagreed. It ruled that s. 82 precluded the Board from giving any weight to the Memorandum of Understanding and affirmed the Director Order to Pay.

What amounts to an exception to the "no contracting out" prohibition occurs where there is a unanimous shareholders' agreement ("USA") that relieves the directors of liability for wages and vacation pay. In such a case, the shareholders and not the actual directors are considered to be the "directors" for the purposes of liability under Part XX. See also the discussion of the definition of directors in s. 79 of the Act, which includes shareholders under a USA, in ESA Part XX.

Indemnification of directors - s. 82(2)

This section is substantially the same as s. 58.28(2) of the former Employment Standards Act.

Section 82(2) mirrors corresponding provisions in corporations legislation, such as the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, which state that a corporate employer may agree to reimburse a director or former director (or his or her heirs) for amounts incurred as a result of directors' liability provided that the director acted honestly and in good faith with regards to the best interests of the employer, and if the proceedings involve a fine or monetary penalty, where the director reasonably believed that he or she was not breaking the law.

Section 83 - Civil remedies protected

This section is substantially the same as s. 58.29 in the former Employment Standards Act.

Section 83 states that Part XX does not affect any civil remedies that a director may have against any person or vice-versa. If, for example, an employee wishes to sue a director under the directors' liability provisions of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"), the Ontario Corporations Act, R.S.O. 1990, c. C.38, or the Canada Business Corporations Act, R.S.C. 1985, c. C-44, the employee can do so. However, this provision should be read with reference to ss. 97 and 98 of the Employment Standards Act, 2000 which state that an employee has to choose between filing a claim with the Ministry and commencing a civil action in court for the same matter. For example, if an employee filed a claim with the Ministry under the Act for vacation pay, that employee could not subsequently commence a civil action under the OBCA for that vacation pay. Please refer to ESA Part XXII for a more detailed discussion of ss. 97 and 98. Where a director is relieved of responsibility for wages and vacation pay because there is a unanimous shareholders' agreement, this is consistent with this section, because in such a case the shareholders and not the actual directors are considered to be "directors" for purposes of liability under Part XX.