Corporate Directors Found Liable for Employees’ Unpaid Wages

by & Cristina Lavecchia, Editors, First Reference

The Saskatchewan Labour Relations Board (Board) notes that the following case is a “cautionary tale” for corporate directors. That is, the corporate directors in this case, unfortunately, “failed to scrutinize rigorously” the information provided to them by management and effectively left the day-to-day workings of the business’ operations solely to the owner, much to their detriment.

Background

A business operating in Saskatchewan did not do as well as hoped and was on the verge of collapse.

Three wage assessments were issued against various combinations of directors of the business (the appellants) respecting three employees. Collectively, the assessments totaled $52,753.83.

The appellants appealed against such wage assessments. The appeal adjudicator allowed the appellant’s appeals in part. Two of the three impugned wage assessments were reduced for various reasons. As a result, the appellants’ liability was reduced to $43,138.45.

Subsequently, the appellants decided to appeal the appeal adjudicator’s decision before the Board.

The appeal

The Board allowed the appellants’ appeals in part.

1. One of the issues that the Board had to address was whether the appeal adjudicator erred when she concluded that the employees had not been paid in accordance with section 2-35 of the Saskatchewan Employment Act (Act).

In this respect, the Board referenced the appeal adjudicator’s reasoning, which stated:

“…the Appellants argue that a BRI share was issued to each of them on October 10, 2012 (ER12), that they did no pay for these shares, and that the value of each share was $10,000. Accordingly any claim for wages must be discounted by this amount.

Even if shares were issued in exchange for unpaid wages, I cannot take the value of the shares into account as payment for wages. … an employer must pay all wages to an employee in Canadian currency by cheques or deposit to the employee’s account and that any agreement allowing for payment of wages in any other manner is void (section 2-35 of new Act and section 49 of old Act). The issuance of BRI shares has no bearing on these appeals.”

The Board also noted the appeal adjudicator’s review of the unusual history that surrounded cheques given to employees, and those same employees being told not to cash them because of lacked funds to cover those cheques. Per the Board, it was clear from the appeal adjudicator’s analysis that she “clearly understood the requirements of the Act respecting how wages are lawfully to be paid in Saskatchewan and applied those requirements to the facts as she found them. As a result, her analysis of, and conclusions on, this issue satisfies the reasonableness standard.” See paragraph 58 of the decision.

As a result, the Board concluded that this particular appeal failed.

2. Another issue that was considered was whether a former corporate director was jointly and severally liable for unpaid wages.

The Board flags us to subsection 2-68 of the Act, which stipulates that a corporate director is only jointly and severally liable for unpaid wages “while they are corporate directors.”

The individual in question ceased being a corporate director for part of the time relevant in this case. The Board reiterated the appeal adjudicator’s acknowledgement of this fact:

“The only way a director is not liable for wages is if he or she was not a director when the wages were earned. The evidence establishes all named directors were directors during the relevant time period. The only director with reduced liability is Debra Faul. According to the evidence, she resigned as director on April 25, 2012 (ER5). Therefore, she is not responsible for any portion of David Ireland’s wages or for the portion of Thomas Hanwell and Dwight Siman’s wages covering April 25 to April 30, 2012…In the end, liability is joint and several but Debra Faul’s liability is reduced by 1 weeks’ pay for Thomas Hanwell and Dwight Siman.”

As such, two wage assessments were amended.

Takeaway

The corporate directors in this case had characterized themselves as “outside” directors, and therefore argued that they should not be held liable for any of the unpaid wages as assessed against them. They maintained that because they were remote from the daily workings of the business, it would be unfair and unjust to hold them liable for any of the unpaid wages, and that the owner should be the director solely liable under the wage assessments.

The appeal adjudicator and Board did not seem to agree with the corporate directors. Simply put, the appeal adjudicator and Board found that the law is the law, and that “unfairness” of holding the corporate directors responsible for outstanding wages given the owner’s actions could not factor into the decision.

“…Both the Saskatchewan Employment Act and its predecessor provide that directors of a corporation are jointly and severally liable to an employee for all debts due for services performed, not exceeding six months’ wages, while they were directors (section 2-68 [the Act] and section 63 [the Labour Standards Act]). The Acts also provide that “wages” includes (sic) vacation pay and pay in lieu of notice.

…I do not control who is or is not named in a Wage Assessment. The Director of Employment Standards makes that decision. With respect to director’s liability, the legislation is clear. I am bound by the legislation. Lack of involvement in the corporation is not a defence. Due diligence is not a defence. The misappropriation of funds by one of the directors or secret agreements between and employee(s) is not a defence. When it comes to unpaid wages, there is no defence.” See paragraph 19 of the decision.

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