Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The Ontario Court of Appeal’s (OCA) recent decision in Abbasbayli v. Fiera Foods Company, 2021 ONCA 95 (Fiera Foods) reminds corporate directors that: (a) an employee may be able to make a claim against them in a wrongful dismissal action for unpaid wages under s. 131 of the Ontario Business Corporations Act (OBCA), including in circumstances when such a claim is unavailable under s. 81 of the Employment Standards Act, 2000 (ESA); and (b) in certain circumstances, a non-shareholder employee may have standing as a “claimant” to claim “oppression” under OBCA s. 248 in an to attempt to hold directors personally liable.
Following his employment termination for cause, the employee commenced a wrongful dismissal action against three corporations alleged to be his common employer, claiming that his termination was retaliatory. In addition to claiming wrongful dismissal and punitive damages, the employee also made claims against two individual directors for:
- Three weeks’ unpaid vacation pay under both ESA s. 811 and OBCA s. 131;2 and
- Relief from oppression under OBCA s. 248.
OBCA section 248 provides a “complainant” with a remedy for “oppression”: 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.” A “complainant” is defined in part as: (a) a registered holder or beneficial owner of a security of a corporation or any affiliate, (b) a director or an officer of a corporation or of its affiliate, or (c) any other person who, in the discretion of the court, is a proper person to make a s.248 application.
Decision of the Motion Judge
The motion judge struck both vacation pay claims against the directors, finding that the claims under both statutes were unsupported by material facts in the pleadings and had no reasonable prospects of success; the judge did not grant the employee leave to amend those claims. The judge also struck the oppression claim, but granted the employee leave to amend to plead his reasonably held expectations.
Decision of the OCA
The employee appealed the motion judge’s decision claiming an error in striking the claims against the directors.
Employee’s Claim under ESA s. 81
The OCA decided that the judge properly struck the employee’s ESA s. 81 claim for vacation pay without leave to amend with reasons as follows:
On a plain reading of the ESA, a director is only liable for an employee’s outstanding unpaid wages under s.81 in certain prescribed circumstances. The employee must have filed a claim in the employer’s receivership or bankruptcy (under s. 81(1)(a); an employment standards officer must have made an order that the employer or a director is liable for the wages, which order is not under review (under ss. 81(1)(b) and (c)); or the Board must have issued, amended or affirmed such an order (under s. 81(1)(d)).
Typically, a claim against a director for unpaid wages under s.81 of the ESA will operate and be enforced within the statutory regime. Assuming without deciding that a s. 81 claim could be pursued in a wrongful dismissal action, the appellant failed to set out any material facts in the statement of claim that, if proved, could satisfy any of the statutory preconditions. In the circumstances of this case, this defect cannot be cured with an amendment. (paras. 27 and 29)
Employee’s Claim under OBCA s. 131
The OCA decided that the employee’s statement of claim pleaded the necessary material facts to support a claim against the directors under OBCA s. 131 for vacation pay, and the judge should not have struck that claim; however, the employee would need to amend his pleading to clearly limit the claim to vacation pay.
Employee’s Oppression Claim under OBCA s. 248
In claiming the oppression remedy, the employee alleged that the directors:
- Used their powers as directors oppressively by directing [the employer] to dismiss for cause;
- Exercised the powers of directors in an oppressive manner, without legal or moral justification, and as such were jointly and severally liable for the claims pursuant to OBCA sections 131 and, inter alia, 248;
- Did not carry out their duties in good faith when they failed to instruct [the employer] to remit the wages owing before the dismissal;
- Made the decision on behalf of [the employer] to dismiss without notice or compensation; and
- Did not issue a Record of Employment.3
The employee claimed that he remained a creditor and a complainant pursuant to the OBCA and that the directors were liable for all compensation and damages sought against the employer, jointly and severally.
In upholding the judge’s decision to strike the oppression claim with leave to amend, the OCA made the following observations:
- Wrongful dismissal by itself will not usually justify a finding of oppression;
- A terminated employee is not always a “complainant” who has standing to bring an oppression proceeding under OBCA s. 248;
- Typically, oppression claims brought in the context of wrongful dismissal are made by shareholder employees whose interests have been unfairly disregarded;
- Claims have been successfully asserted by non-shareholder employees where a director’s conduct has prevented the employer from paying wages or wrongful dismissal damages;
- An oppression claim has also been permitted to proceed as part of a proposed class proceeding where it was alleged that the directors diverted funds for personal use before the corporation terminated the employee’s jobs, leaving insufficient funds to pay termination pay and other amounts;
- It is not sufficient for a terminated employee to plead that the individual directors:
- Acted oppressively as directors of the corporate defendants, and claim all of their damages against such individuals, relying on OBCA s. 248;
- Directed the appellant’s termination; or
- Failed to ensure that the employee received a Record of Employment.
The OCA noted that the following necessary elements of an oppression claim were set out by the Supreme Court of Canada in Wilson v. Alharayeri, 2017 SCC 39:
- The complainant must identify the reasonably held expectations they claim were violated by the conduct at issue;
- The complainant must show that these reasonable expectations were violated by corporate conduct that was oppressive or unfairly prejudicial to or that unfairly disregarded the interests of any security holder, creditor, director or officer of the corporation; and
- To impose personal liability, there must be oppressive conduct that is properly attributable to the director’s implication in the oppression and the imposition of personal liability must be fit in all the circumstances.
In upholding the order striking the s. 248 claim, the OCA granted leave to amend because in his pleading the employee did not address his reasonable expectations of the directors, or that those expectations were violated by oppressive corporate conduct. The OCA emphasized, however, that it had not determined whether a claim for an oppression remedy is appropriate in this case, or that the appellant would have standing as a “complainant” (which is in the discretion of the court). In addition, the OCA noted that it had not determined whether, having been granted leave to amend his pleadings, the employee would be able to plead the necessary facts to seek an oppression remedy against the directors under s. 248.
Bottom Line for Employers
Fiera Foods is a cautionary tale for employers and their directors. It warns them of the possibility that, in a wrongful dismissal action, statutory claims may be made against directors for unpaid wages and vacation pay under ESA s. 81 and OBCA s. 131 and that, if the necessary material facts to support these claims are pleaded and proven, these claims may succeed.
Furthermore, Fiera Foods indicates that a court may permit an employee’s claim for unpaid wages and vacation pay against directors to proceed pursuant to OBCA s. 131, even after deciding to strike the same claims pursuant to ESA s. 81.
Finally, Fiera Foods warns employers and their directors that in the context of a wrongful dismissal action, a non-shareholder employee may have standing as a “claimant” to claim “oppression” under OBCA s. 248, and that this remedy may be asserted by the employee in an effort to engage the liability of the directors for unpaid wages.
Employers are encouraged to consider whether they have grounds to move to strike statutory claims against directors in a wrongful dismissal action, and to do so if the grounds exist.
1 Section 81 of the ESA provides that the directors of an employer are liable for an employee’s unpaid wages (which includes vacation pay) in certain enumerated circumstances in ss.81(1)(a) through (d), namely if: (a) the employer is insolvent, the employee has caused a claim for unpaid wages to be filed with the receiver appointed by a court with respect to the employer or with the employer’s trustee in bankruptcy and the claim has not been paid; (b) an employment standards officer has made an order that the employer is liable for wages, unless the amount set out in the order has been paid or the employer has applied to have it reviewed; (c) an employment standards officer has made an order that a director is liable for wages, unless the amount set out in the order has been paid or the employer or the director has applied to have it reviewed; or (d) the [Ontario Labour Relations] Board has issued, amended or affirmed an order under section 119, and the order, as issued, amended or affirmed, requires the employer or the directors to pay wages and the amount set out in the order has not been paid. A director’s liability for unpaid wages does not include severance or termination pay pursuant to s. 81(3), but it does include liability for vacation pay as provided for under the ESA or an employment contract for up to 12 months: ss.81(3), (4) and (7). In this case, the appellant confirmed that the only unpaid wages he was seeking from the individual respondents was three weeks’ vacation pay.
2 Section 131 of the OBCA provides: The directors of a corporation are jointly and severally liable to the employees of the corporation for all debts not exceeding six months’ wages that become payable while they are directors for services performed for the corporation and for the vacation pay accrued while they are directors for not more than 12 months under the Employment Standards Act, and the regulations thereunder, or under any collective agreement made by the corporation.
3 Generally, a Record of Employment (ROE) must be issued by an employer within five calendar days of the first day “interruption of [the employee’s] earnings, or the day the employer becomes aware of an interruption of earnings,” if it is a paper ROE that is issued, with different rules if the ROE is issued electronically. The employee needs that ROE to make an application for employment insurance benefits.