Corporate Directors Dragged Into Wrongful Dismissal Fight

Written by Daniel Standing LL.B., Editor, First Reference Inc.

At first glance, Abbasbayli v Fiera Foods Company, 2021 ONCA 95 appears to be concerned mainly with the law around striking pleadings. On further analysis, however, it offers important advice to employers on the matter of personal liability of corporate directors.

Background

The plaintiff in this lawsuit sued his former employer for wrongful dismissal. Fiera Foods was in the business of selling frozen dough and baked goods. The plaintiff was hired in 2002 and progressed through several jobs: security guard, lead hand and boxing line operator. He was terminated allegedly for cause in March 2018 when the company alleged that he had punched a colleague’s time card. The plaintiff claimed the company improperly investigated the incident and said that he was fired out of reprisal for raising health and safety concerns, and because of his union organizing efforts.

In addition to damages in lieu of reasonable notice, he sought punitive damages for the way he was fired. He also made claims against individual corporate directors under s.81 of the Employment Standards Act (ESA) and s.131 of Ontario’s Business Corporations Act (OBCA) for three weeks’ unpaid vacation pay and under s.248 of the OBCA for relief from oppression.

In the court’s decision below, the motion judge struck out the s.81 ESA and s.131 OBCA claims without leave to amend the statement of claim. These were struck out because it was “plain and obvious” that the claims had “no reasonable prospect of success.” This was because the plaintiff failed to plead material facts that would support the allegations under these provisions. Next, the motion judge struck out the s.248 OBCA claim with leave to amend the pleadings. Similarly, the plaintiff failed to plead the necessary material facts to support the claim. Finally, the motion judge struck selected paragraphs from the statement of claim on the basis that they contained mostly evidence, and because they were inflammatory and irrelevant.

The issue for the Ontario Court of Appeal was whether the motion judge in the court’s decision below made a legal error in striking out the various claims against the individual corporate directors, and in striking out various portions of the statement of claim as pleading evidence and as inflammatory and irrelevant.

The court’s decision

The court addressed the respondents’ challenge to its jurisdiction to hear the appeal from the decision to strike the s.131 OBCA claim. The respondents claimed this should be heard by the Divisional Court. This required an analysis of the Court of Appeal’s jurisdiction over interlocutory and final decisions which led the court to reject the respondents’ challenge.

Turning to the meat of the issue, the court stated that the purpose of striking pleadings is to allow the courts to weed out hopeless claims to allow those with some chance of success to proceed to trial. Deficient claims are those that fail to plead material facts in support of a particular cause of action, while considering whether the problem can be fixed by amending the pleading.

Under s.81 of the ESA, directors are liable for an employee’s unpaid wages in limited situations. The court noted that the plaintiff failed to set out any relevant facts that, if proved, would establish any of these limited situations. Since the plaintiff did not even propose to plead any of the preconditions to a director’s liability, it was plain and obvious, in the court’s eyes, that the claim could not succeed. It decided that the claim was properly struck without leave to amend the pleadings.

The claim under s.131 of the OBCA also targeted unpaid vacation pay against the individual respondents. That section provides for joint and several liability for up to six months’ wages and for accrued vacation pay for up to a year. The court ruled that while the pleading in respect of this claim was awkward, it contained the material facts to support it, and it, therefore, disclosed a reasonable cause of action and should not have been struck.

Claims for relief against oppression under s.248 of the OBCA are concerned with conduct that is “oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer of the corporation.” The plaintiff argued that the individual respondents “used their directorial powers oppressively by directing Fiera to dismiss [him] for cause.” The court determined that the motion judge made no error in striking the oppression claim. It based this conclusion firstly on its analysis of the legal issue of standing, or the right to bring a claim to court. The court relied on a recent Supreme Court of Canada decision for the necessary elements of an oppression claim. A complainant must identify the “reasonably held expectations” that were violated by corporate conduct that was oppressive or unfairly prejudicial to the complainant. A finding of personal liability requires a director to have been personally involved in this conduct. Unfortunately for the plaintiff in this case, he failed to plead his reasonable expectations of the directors. This was fatal to the claim because such a matter cannot be inferred.

The court concluded by examining the paragraphs the motion judge struck from the plaintiff’s statement of claim. The applicable rules prohibited pleadings that are “scandalous, frivolous and vexatious.” Also, the rules required “a concise statement of the material facts on which the party relies […] but not the evidence by which the facts are to be proved.” The underlying consideration here is relevance, and with the exception of one paragraph, the court found no evidence of various of the paragraphs being inflammatory or inserted merely for colour.

Takeaways

Corporations may indemnify corporate directors and officers against liabilities encountered in the good faith and honest exercise of their duties. However, there remain situations where corporate directors may uncomfortably find themselves named as defendants. The provisions of the Employment Standards Act and the Ontario Business Corporations Act cited above are two ways that a corporate director can quickly find himself or herself dragged into a wrongful dismissal action.

Leaving aside the larger issue of reasonable notice, ensuring that all earned wages and vacation pay are given to a dismissed employee is a good preliminary step to avoiding personal liability for damages. Although outside the scope of this case, directors may also attract personal liability if they allow the corporation to act outside of its authority, and for torts committed personally or in the corporation’s name. Proactively obtaining legal advice is always a good decision.