Under the Canada Labour Code, directors of a corporation are liable for up to six months' wages and certain other unpaid amounts to which employees are entitled, to the extent that:
- the entitlement arose during the directors' incumbency; and
- recovery of those amounts from the corporation is unlikely.
Where these conditions are met and where a Labour Programme inspector determines that an employee has not been paid the wages to which he or she is entitled, a payment order may be issued against the directors personally. These orders may be appealed, within 15 days, to a referee appointed by the minister of labour.
The recent decision in Miller v Canada (Minister of Labour) confirms the importance of timely and effective resignations by directors of a corporation, and of retaining evidence of when and how a resignation was tendered if directors wish to avoid liability for unpaid wages and other compensation owing to employees. It also serves as a stark reminder that the payment order appeal process set out in the code should not be taken lightly.
In this case, the Labour Programme received 26 complaints from former employees of a commercial airline alleging that they were owed unpaid wages and other compensation. The Labour Programme contacted Miller, who was listed as the sole director of the airline, about the complaints. Miller maintained that he had resigned his directorship on December 15 2008, before the complaints were filed, by attending the airline's office and leaving a copy of his resignation letter on the desk of a senior manager because the executive vice president and general manager were not available. Miller said that the senior manager verbally confirmed receipt of the resignation letter; later Miller also verbally informed the executive vice president and general manager of his resignation. Miller conceded that he did not file a copy of his resignation with the Alberta Corporate Registration System. Notably, the executive vice president and general manager told the Labour Programme that they had not received Miller's resignation letter.
The Labour Programme subsequently wrote to Miller several times for further information, but he did not respond. Finally, on May 20 2011, the Labour Programme issued a payment order for C$408,830.63 against Miller and had it served on him on or about May 29 2011. Miller had until June 13 2011 to file an appeal. Miller's lawyer received the payment order by regular mail on June 10 2011 and requested an extension of time to file an appeal. The request was denied because there is no provision in the code that permits extending the appeal period. Miller did not file an appeal within the deadline. Instead, he filed an application for judicial review with the Federal Court, seeking a declaration that his resignation was effective on December 15 2008, and an order setting aside the payment order issued against him.
The court exercised its discretion to dismiss the application because Miller failed to pursue an appeal under the code. The appeal process was found to be an adequate alternative remedy because the referee, who hears a payment order appeal, has the power to hear all the evidence, including new evidence, and has broad remedial powers to confirm, vary or rescind a payment order and to award costs. The time and cost of an appeal, and the fact that the issue raised by Miller (ie, that he was not a director at the time the order was issued) could have been adequately addressed by the referee also suggested that the appeal process was an adequate alternative remedy.
The court held that the failure to file an appeal within the limitation period did not render the appeal process inadequate. It noted that Miller had been personally served with the payment order, which indicated that he had 15 days to appeal, and that the reasons why he failed to meet that deadline were ambiguous and unsupported by evidence. The late receipt of the payment order by Miller's lawyer was not grounds for the court to exercise its discretion to hear the application. There was no obligation to send the payment order to the lawyer. Miller received the payment order on May 29 2011 and had no explanation for why it was not sent to his lawyer at that time.
The court concluded that Miller could not seek relief from the court after failing to seek it through the appropriate appeals process under the code. In the result, the application for judicial review was dismissed.
Directors of a corporation cannot generally avoid liability for wages and other amounts for which they may be held personally liable under the code simply by resigning. That said, timely and effective resignations are key, because directors are generally liable for unpaid wages and other compensation that became payable while they were directors. One of the most significant potential personal exposures under the code is directors' liability for statutory termination pay. Liability for this arises from employees' termination, which in these cases is often the result of a bankruptcy. As such, a timely and effective resignation that takes place before the employee terminations, whether by bankruptcy or otherwise, can help a director avoid liability for statutory termination pay.
For example, in Manitoba (Director, Employment Standards Division) v Shier a director who tendered a valid and effective resignation the evening before a mass termination was communicated to employees was found not to have been director at the time of the termination, and was therefore not liable for statutory termination pay.
A timely and effective resignation is also important because the applicable limitation period on any employee claims against the director will generally run from the date that the individual ceased to be a director.
When a director seeks to rely on the expiry of a limitation period following his or her resignation, the courts have tended to require strict compliance with applicable business corporation legislation, which sets out rules regarding the procedure and effective date of directors' resignation.
In light of the decision in Miller and given the importance of timely and effective resignations, it is important to ensure that:
- a director's resignation is clear and unambiguous as to its effective date, and the positions and offices resigned;
- the technical requirements for a resignation in the applicable business corporation legislation are met;
- copies of the original, executed resignation and proof of delivery and receipt are retained to establish the resignation's timing and effectiveness; and,
- following a resignation, directors avoid making or participating in decisions, signing correspondence, or otherwise holding themselves out in a fashion that could lead a court to find that, notwithstanding their resignation, they continued to act as de facto directors.
For further information on this topic please contact Christopher Diamond or Shane D Todd at Heenan Blaikie LLP by telephone (+1 416 360 6336), fax (+1 416 360 8425) or email (email@example.com or firstname.lastname@example.org).
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