Audit, Compliance and Risk Blog

Director Who Decided Not To Be Involved In Business, Still Liable For Employees’ Unpaid Wages

Posted by Ron Davis on Tue, Jul 19, 2016

Payroll.jpgMensa Williams was listed as a director in the incorporation documents for Ambrosia Elite Corp., a company run by his brother, Admin. Ambrosia was incorporated in 2007, but did not actively conduct its retail clothing business until 2008. Ambrosia became insolvent in 2014, leaving its employees with unpaid wage claims. The unpaid wage claims were pursued under Ontario’s Employment Standards Act, 2000 (ESA), and when those claims were unsatisfied, an order to pay was issued to Ambrosia’s directors including Mensa Williams.

However, Mensa had lost interest in Ambrosia’s business before it began operating and spent his time on other activities and had no further involvement with Ambrosia. Nevertheless, his name remained on the corporation’s statutory filings as a director until 2015, well after the unpaid wages being claimed had been earned.

Mensa sought a review of the order to pay before the Ontario Labour Relations Board, arguing that he should not be personally liable for the debts of a business with which he had no real connection (Ambrosia Elite Corp. [2016] O.E.S.A.D. No. 402 (OLRB)). While the Board expressed sympathy for Mensa’s situation, it held that he remained liable as a director until he either died or resigned. The Board noted that there was no evidence that Mensa had resigned before the wages became owing and therefore he was liable under the ESA.

This case illustrates again that agreeing to become a corporate director has consequences, and that once you become a director, you must take positive formal action in order to cease to be one. Obtaining legal advice both before you serve as a director and when you no longer wish to serve is strongly recommended.

STP has recently published an update to its publication Directors' Liability in Canada and also publishes the following related guides:

About the Author
Ronald Davis is an associate professor emeritus at the Peter A. Allard School of Law, University of British Columbia. He obtained his Bachelor of Laws degree from the Faculty of Law, University of Toronto in 1990, graduating as that year’s silver medalist. He was called to the Ontario Bar and practiced law in Toronto for 10 years before returning to graduate studies at the University of Toronto. See www.stpub.com for a full bio of Ronald Davis.

photo credit: Payroll via photopin (license)

Tags: directors, directors & officers, Employee Rights, Employer Best Practices, Business & Legal