Rebutting director liability under Ontario Employment Standards Act

Directors must take certain steps to resign to avoid personal liability for ESA claims

BY Trevor Thomas 19 Sep. 2024

Section 81 of the Ontario Employment Standards Act, 2000 (ESA) provides that the directors of a company are jointly and severally liable for wages owing to an employee, where there is an order issued by an employment standards officer against the company. Subsequent sections of the ESA allow the officer to include additional amounts in the order for vacation pay, holiday pay and overtime pay. Section 106 of the ESA permits the officer to make an order that the directors are liable.

Once liability is established, the next step is determining who are the directors. The Ontario Business Corporations Act (BCA) provides the answer. Pursuant to ss. 262(3) of the BCA, an individual is presumed to be a director of a corporation if the individual’s name appears as director on the corporation’s corporate filings. The employment standards officer will issue a payment order against those directors listed in the corporate filings.

However, this presumption is rebuttable upon credible evidence to the contrary. For example, one way to rebut this presumption is to demonstrate that, at the time the wages were payable to the employee, the director was not actually a director of the company. In some cases, the alleged director argued that he or she had resigned prior to the date the wages were earned by the employee. While some directors have been successful in making this argument, others missed the mark and, as a result, were not able to escape liability.

Steps to resign as director

In Murray Merkley Sportswear Ltd. v. Tanha, 2005 CanLII 11498 (ON LRB), the company was a manufacturer of winter sports clothing. It fell into financial difficulty in 2003. The company ceased operations towards the end of March 2004 and was petitioned into bankruptcy shortly thereafter, leaving unpaid wages and vacation pay owing to its former employees.

Ron Glaister was a director of the company. As of March 29, 2004, Glaister continued to be shown as a director of the company on the records maintained by the Ministry of Consumer and Business Services. An employment standards officer sent him a letter dated May 27, advising him that the Ministry of Labour was investigating whether to issue an order to pay against him and requesting that he provide any information he wished the Ministry to consider by June 11. He informed the officer that he had resigned effective August 17, 2003.

At the hearing of this matter, he called three witnesses in support of the timing of his resignation. The Ontario Labour Relations Board agreed that August 17, 2003, was the effective date of resignation. While the board noted that it ought to be cautious about accepting self-serving testimony, the fact that three witnesses corroborated Glaister’s evidence was significant.

In circumstances where a director intends to resign, it is imperative that the director take the correct steps to resign. This was demonstrated in the decision of Joelle Faulkner, a Director of 1625033 Ontario Inc. o/a MP Agri Products v. Jeremy Fallowfield, 2020 CanLII 86561 (ON LRB).

Joelle Faulkner was a director of M.P. Agri-Products from its inception and until Feb. 21, 2019, at which point she asserted that she resigned as a director via an email to her father, an Officer and the Secretary and Treasurer of MP Agri Products. The email subject line was “MP Enterprises – Resignation” and it stated, “Tommy, this is my resignation as a Director for MP Enterprises.”

At the hearing of this matter, Ms. Faulkner was required to provide clear and reliable evidence of both an intention to resign and taking steps to resign. The board found that she failed to do this, citing the following reasons:

The email upon which Ms. Faulkner relied as her resignation was not delivered to the corporate employer, MP Agri Products, as required by s. 121(2) of the BCA in order to be effective. Rather, it was delivered to her father at an “@londondairy” email address. London Dairy was identified as a client of MP Agri Products.

The email was sent under the subject heading “MP Enterprises – Resignation” and it states that she is resigning as a “Director for MP Enterprises.” She said she intended to resign from MP Agri Products and that she used the name MP Enterprises interchangeably with MP Agri Products. However, the email was not delivered to MP Agri Products.

There was no evidence that Ms. Faulkner attempted to have her resignation recorded in the corporate minutes, and no evidence that she took any steps to file a notice of change of her status as a director with the Ministry of Government Services until April 2, 2020.

Directors should be aware to the potential issues regarding resignation. The resignation must be intended and actioned through clear evidence. Simply resigning without follow up or receiving confirmation that the director’s name has been removed from the registry, may leave the director vulnerable to claims from employees even after the director is no longer connected to the company.