A while back we wrote a post about the general liability of directors and officers for non-compliance with employment laws. In this post, we’re going to dive a bit deeper into director and officer liability for non-compliance with employment standards laws across the country.
It’s important to remember that in many provinces director liability applies to all directors – whether the employer is a for profit business, a non-profit or a charity. Directors of non-profits and charities may not realize that they are taking on a risk of personal liability when they agree to join a volunteer board of directors. It is critical that these directors understand their liability and that they are actively managing that risk.
One thing to note at the outset – where directors have personal liability, their liability is generally “joint and several”. This means that each director is liable for the amount owing, but also that the payment of the amount owing can be recovered by any one or more of them.
Director Liability by Jurisdiction
Let’s look at director liability in each jurisdiction.
Directors of a corporation are jointly and severally liable to employees for unpaid wages earned for up to 6 months, except where:
- the person was not a director when the unpaid wages were earned;
- the director believes on reasonable grounds that the corporation can pay the debts as they become due; or
- the debts are payable to employees for services performed while the corporation is under the control of a receiver, receiver-manager or liquidator.
Directors and officers are personally liable for up to 2 months’ unpaid wages for each employee, if they were a director or officer at the time employee wages were earned or should have been paid. This does not apply to a volunteer director or officer of a charity (meaning someone who receives reasonable out-of-pocket expenses but no other remuneration for services performed for the charity).
Directors and officers of a corporation are not personally liable for:
- termination pay or money payable in respect of individual or group terminations, if the corporation is in receivership or is subject to insolvency proceedings; or
- vacation pay that becomes payable or money that remains in an employee’s time bank after the director or officer ceases to hold office.
Directors and officers may also be liable to administrative penalties for violations of the Act. Any officer or director who authorizes, permits or acquiesces in a contravention of the Act is liable to a penalty. Monetary penalties start at $500 and subsequent contraventions of the same requirement within 3 years may be subject to fines of up to $10,000.
Directors of a corporation or co-operative are jointly and severally liable for up to 6 months’ wages and other amounts to which employees are entitled under Part III of the Code, to the extent that:
- the entitlement arose during the particular director’s incumbency; and
- recovery of the amount from the corporation is impossible or unlikely.
Directors and officers may also be liable to administrative penalties for violations of the Act. Any officer or director who directed, authorized, assented to, acquiesced in or participated in a violation is a party to the violation and liable to a penalty.
Directors of a corporation may be jointly and severally liable with the corporation for unpaid wages subject to the following limits:
- wages other than vacation allowance earned or that became due and payable within the last 6 months in which the person was a director, and
- vacation allowance that accrued or became due and payable within the last 22 months in which the person was a director.
If a corporation commits an offence under the Code, every director that authorized, assented to, permitted, participated or acquiesced is also guilty of the offence regardless of whether the corporation has been prosecuted or convicted.
Directors of for profit corporations may be jointly and severally liable for unpaid wages, subject to the following caps:
- not exceeding 6 months’ wages that became payable while they were directors; and
- up to 12 months of vacation pay or pay in lieu of vacation owing to an employee or former employee
that accrued or became due and payable while the person was a director.
Directors are relieved of liability if they exercised reasonable care and diligence.
Newfoundland and Labrador
Directors of for profit corporations are jointly and individually liable for wages where:
- the employer is insolvent and the employee has filed a claim for up to 2 months of unpaid wages;
- the Director of Labour Standards has issued a determination that the employer or director is liable for wages (subject to an application for review); or
- the Labour Relations Board has issued/affirmed an order requiring the employer or the directors to pay wages.
This liability is subject to the following:
- directors are not liable for termination pay;
- vacation pay is the greater of the minimum vacation pay provided in the Act and the amount contractually agreed to by the employer and the employee;
- holiday pay is the greater of the amount payable per the Act/regulations and the amount contractually agreed to by the employer and the employee;
- overtime wages are the greater of the amount in the Act and the amount contractually agreed to by the employer and the employee; and
- directors are not liable for unpaid wages where they exercised care, diligence and skill to ensure that wages were paid, as a reasonably prudent person would have exercised in comparable circumstances.
Directors cannot be relieved of liability through contract, articles of incorporation or by-laws.
The employment standards legislation in Nova Scotia does not impose personal liability on directors.
Under the Employment Standards Act, 2000, directors of for profit corporations may be jointly and severally liable for unpaid wages (not including termination pay and severance pay), vacation pay, holiday pay, and overtime wages, subject to following caps:
- all debts not exceeding 6 months’ wages that became payable while they were directors; and
- vacation pay accrued for up to 12 months while they were directors.
Employment standards officers may order a director to pay unpaid wages. Directors who fail to comply with such an order, may be guilty of an offence and liable for a fine of up to $50,000.
Directors of not-for-profit corporations are also liable for employee wages. Under the Not-for-Profit Corporations Act, 2010, directors are jointly and severally liable to the employees for all debts not exceeding:
- 6 months’ wages for services performed for the corporation that become payable while they are directors; and
- vacation pay for not more than 12 months under the Employment Standards Act, 2000 or under any collective agreement entered into by the corporation accrued while they are directors.
A director is only liable for those amounts if the corporation is sued in the action against the director and:
- the employees cannot fully recover what is owing to them from the corporation, in which case the directors are only liable for whatever amount is outstanding; or
- before or after the action is commenced, the corporation goes into liquidation, is ordered to be wound up or declares bankruptcy, or a receiving order under that Act is made against it, and, the claim for the debt has been proved.
Prince Edward Island
Directors of for-profit corporations may be jointly and severally liable for unpaid pay (which includes vacation pay, pay in lieu of vacation, gratuities and benefits) to a maximum of 6months that became payable while they were directors if either:
- the corporation is insolvent and employee has made a claim for unpaid wages; or
- corporation has failed to abide by an Inspector’s orders to pay unpaid wages
Directors of not-for-profit corporations and directors that exercise reasonable care/due diligence to ensure that pay owing to employee was paid are not subject to this liability.
Any contract, or corporate articles, by-laws or resolutions which purport to relieve a director from this liability are void.
Directors of corporations may be jointly and severally liable for up to and including 6 months’ wages that became payable while they were directors.
Managing the Risk
There are several things that directors can do to manage their risk.
First, directors must become informed, and stay informed. They need to be informed about the business, and about their obligations as an employer. This is particularly important to avoid penalties for offences under the Acts. In several provinces, even a director who acquiesces in conduct that is contrary to the Act will be subject to an administrative penalty.
Second, ensure that the corporation has financial reserves to cover any potential exposure. Consider both the period of wages that directors are liable for and the type of payments (for example, are directors liable for vacation pay as well as wages). This varies from province to province.
Finally, obtain directors and officers liability insurance (D&O insurance). D&O insurance can provide coverage for some of these risks. The exact scope of coverage varies with the policy.
How Compliance Works Helps Board of Directors
Directors and officers need to ensure that their organization is complying with its legal obligations as an employer. This means ensuring the organization has the resources it needs to understand its obligations and stay on top of changes to the law.
Compliance Works explains current employment legislation and stays on top of changes to employment laws – across the country. Use Compliance Works to quickly answer questions with confidence, knowing that all of the requirements have been pulled together in one easy summary.