Employment and Labour Law Blog: Company Directors are Liable


Since I wrote the article warning all employers that the soldiers of the Employment Standards Branch are marching, a number of persons have asked about enforceability.  

Bottom line: the directors of the company violating the Act are liable.  The Act is quite clear that the directors are jointly and severally liable for wages.  Those wages are restricted to all debts to employees not exceeding 6 months of wages. That is a lot of money.

Wages does not include termination pay or severance pay.  But, the directors are also responsible for vacation pay to the amount contractually agreed upon or the legislative minimum.  The directors are also responsible for holding pay as agreed upon with the employee or under the Employment Standards Act. Vacation pay at a minimum is 4% or 6% of wages.  One week of earnings essentially represents 2% of annual income.

Statutory holidays are 9 in number or 1.8 weeks of regular work, another 3.6%.  Thus, for unpaid vacation and holiday pay, the director’s obligations could be 7.6% of annual wages for employees with less than 5 years of service and 9.6% for those with more than 5 years of service.  The directors are also liable for unpaid overtime pay.

These obligations fail upon the director when the employer is insolvent or when the employment standards officer makes an order against the company.  Therefore, the prudent director wants to ensure no circumstances arise which would justify an order. Also, the officer can decide to order the director to pay unless the Company pays.

The director will also be liable if a Review Board has issued an order against the Company and it has not been paid.

For these reasons, the wise director will monitor the payment practices of his Company to ensure compliance with the Employment Standards Act.  A failure to do so can result in personal liability. It was the intention of the legislature to impose this obligation upon the directors so they will be duly diligent about the statutory compliance of the employer.

With respect to the ability of the Employment Standards officer, that officer can make whatever order driven by the facts.  If the employer disagree, it may pay the amount to the Director plus a 10% administration fee. In return for placing the money with the Director, the employer may have a de novo hearing.  This is an expensive process. It would be more expensive if the original investigation and order involved all the employees of a Company, not just a single complainant.

Directors should be aware that the practice of the Branch, if a case cannot be settled quickly is to perform a broad review.  If the Branch comes in, it looks at the practices applicable to all employees. Thus, the potential liability for violations can be enormous.

Again, a diligent director wants assurance from the operators of the Company, that the minimum standards are being met.  It is as easy for a director to make that inquiry as for an officer to being an investigation. But it is must more expensive to appeal an Employment Standards Order than it is for a director to insist on proper compliance by the Company.

So it follows, if a Company director knows the Employment Standards Branch is marching, than the prudent action is to insist upon statutory compliance.  This is the best way for the director to avoid personal liability.