Employee Wages Awarded Against Director's Estate Using Oppression Remedy
Typically, if a corporation fails to pay employee wages the employee can only sue a director personally under certain limited conditions. Those conditions limit the duration of unpaid wages (six months) and imposes a limitation period or deadline by which a claim must be commenced (six months). If the claim is brought under the OBCA or CBCA, attempts to collect from the corporation must be exhausted (under the ESA a claim against the corporation does not have to be exhausted before bringing a claim against a director).
Recently, an Ontario Superior Court judge granted oppression remedy against the Estate of the sole director of two corporations who had failed to pay employee wages and related employee amounts (vacation pay, termination pay). The claims were commenced against the director as oppression remedy claims and, following the death of the director, continued against his Estate. The judgment was granted by way of uncontested summary judgement.
According to the plaintiff employees' evidence, they had been hired by the director and sole shareholder to manage two different hotels owned by separate corporations. From the beginning payment of wages had been problematic. The director used the corporate entities interchangeably and held himself out as the "Director of the Dewji [director's surname] Group of Hotels."
Based on the uncontested evidence, the judge found that both employees had been constructively dismissed due to non payment of wages over an extended period of time. The judge considered the employees proper complaints under the oppression remedy because they were creditors of the corporations. The corporations were closely held with a single director who failed to pay the employees what they had been promised from the "get go". Moreover, the judge speculated that the director "must have known that he was not in a position to pay [the employees] what they were due." As such, the judge found that the director had been oppressive in conduct that failed to meet the reasonable expectations of the employees and granted judgment against the director's Estate for past wages and other employment amounts including termination pay.
The judge refused to grant punitive damages.
Unfortunately, the decision is sparse on analysis or reasoning giving rise to the use of the oppression remedy as relief for employee wages and employment amounts.
The Lesson: Directors of closely held corporations must continue to be diligent about their use of closely held corporations. Although the reasoning was, as noted, sparse, the judge was troubled by the director's interchangeable use of the corporations as well as his inability to pay the employees from the "get go". As always, a director who uses a corporate entity as an extension of him or herself with the appearance of doing so in order to escape legal and financial responsibility will be more likely to incur personal liability.
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