A recent decision of the Ontario Court of Appeal sheds light on statutory claims that may be asserted against corporate directors in a wrongful dismissal proceeding for unpaid wages and vacation pay. The decision goes to show that in certain cases corporate directors can be quickly dragged into wrongful dismissal actions.
Abbasbayli v. Fiera Foods Company, 2021 ONCA 95, was an action arising out of the plaintiff's termination of employment. The former employee alleged his termination was a reprisal. He sued three corporations alleged to have been his common employer as well as two individual corporate directors.
In addition to wrongful dismissal damages and punitive damages, the former employee specifically claimed against the corporate directors:
- Unpaid vacation pay under s. 81 of the Employment Standards Act, 2000 (the "ESA");
- Unpaid vacation pay under s. 131 of the Ontario Business Corporations Act (the "OBCA"); and
- Relief from oppression under s. 248 of the OBCA.
The corporate directors moved to strike the claims for failing to disclose a reasonable cause of action as against them, and other deficiencies with the pleadings in the statement of claim.
The Motion Judge's Decision
The motion judge struck the plaintiff's claims for unpaid wages under s. 81 of the ESA and s. 131 of the OBCA, finding that they were not supported by material facts in the pleadings and had no reasonable prospects of success. The motion judge also struck the plaintiff's oppression claim under s. 248 of the OBCA, but granted leave to amend so that the employee could plead the reasonably held expectations he claims were violated by the directors in an oppressive manner.
The Court of Appeal's Decision
The Ontario Court of Appeal found that the motion judge properly struck the claim against the corporate directors under s. 81 of the ESA on technical grounds as the pleadings were insufficient to meet the requirements to trigger that section.
However, the Court of Appeal held that the motion judge erred in striking the claim against the corporate directors for unpaid wages under s. 131 of the OBCA. The Court of Appeal also found that the motion judge had properly granted the former employee leave to amend his oppression claim under s. 248 of the OBCA.
Section 131 of the OBCA provides that the directors of a corporation are jointly and severally liable for up to six months' wages and for accrued vacation pay for up to one year if (a) the corporation is sued in the action and execution is returned unsatisfied; or (b) the corporation is involved in certain insolvency proceedings and the employee's claim has been proved.
The Court of Appeal found that the former employee's assertion that he was owed three weeks' vacation pay was capable of supporting a claim under s. 131 of the OBCA. Further, Justice van Rensburg held that it was not premature to assert this claim in the wrongful dismissal action, as "s. 131(2)(a) [of the OBCA] contemplates that the corporate employer will be sued in the same action as the director, although the director will not become liable to pay the accrued vacation pay until execution against the corporation is returned unsatisfied."
For its part, section 248 of the OBCA provides a "complainant" with a remedy for "oppression", that is, 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".
Typically, oppression claims in the context of wrongful dismissal are made by shareholder employees whose interests have been unfairly disregarded. However, oppression claims have also been made successfully by non-shareholder employees where a director's conduct has prevented the corporate employer from paying wages or wrongful dismissal damages. Abbasbayli confirms that a former non-shareholding employee may also have standing to claim oppression as a "complainant" under the OBCA. Oppression claims may engage the personal liability of directors, but the Court of Appeal in Abbasbayli clarified that:
- wrongful dismissal by itself will usually not justify a finding of oppression;
- a terminated employee does not automatically have standing as a "complainant" to bring an oppression proceeding under s. 248 of the OBCA;
- it is not sufficient for a terminated employee to plead that the individual defendants acted oppressively as directors, and to claim all of their wrongful dismissal damages against them by relying on s. 248 of the OBCA;
- it is not sufficient to allege that the directors "directed" the employee's termination or that they failed to ensure the employee received a Record of Employment on termination.
While it did not decide at this preliminary stage whether Mr. Abbasbayli was a proper complainant or had pled sufficient facts to ground his oppression claim, it remains notable that the Court of Appeal expounded on the circumstances in which oppression claims under s. 248 may be brought by employees. Those claims will not be easily accepted in the context of a plain wrongful dismissal claim.
At the same time, the Ontario Court of Appeal's ruling confirms that employment claims against directors under applicable provincial business corporations statutes are not hopeless. Claims for unpaid wages and vacation, notably, may be brought against directors as individual co-defendants to a wrongful dismissal action in appropriate cases, even if, as in Abbasbayli, a plaintiff has no claim under employment standards legislation which can be litigated in court.
It will be interesting to see whether other Canadian jurisdictions will take note and open the doors to more claims of this nature against corporate directors. Claims against corporate directors should be scrutinized in any case and employers should consider the possibility of striking those under this most recent guidance from the Ontario Court of Appeal.
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