Client Update: Directors will be liable for unpaid wages and vacation pay
Clients who sit on boards of corporate employers should take note of recent amendments made to New Brunswick’s Employment Standards Act (the “ESA”) which could increase their exposure to personal liability in connection with claims advanced by employees of the corporation.
The amendments, which have already been passed by the Legislature and will come into effect on a date to be determined by cabinet, will impose responsibility on directors for unpaid employee wages and vacation pay. The changes will not be applicable to directors of not-for-profit organizations.
As a result of the amendments, directors will be jointly and severally liable with the corporation for:
- Up to six months’ wages that were earned or became due and payable while a person was a director.
- Up to 12 months of vacation pay owing to an employee or former employee that accrued or became due and payable while a person was a director.
Directors may also be liable for payment of certain administrative penalties ranging from $150 to $900.
Given the definitions of “wages” and “pay” contained in the ESA, the potential exists that directors’ liability may extend to employee severance pay, subject to administrative and/or judicial interpretation.
Not only will employees be able to seek enforcement of these new rights against directors through an administrative process existing under the ESA, they may also be able to enforce their rights directly against directors by commencing an action, or even a class action, in court.
Pursuant to the amendments to the ESA, a director’s exposure does not end when he or she ceases to be a director of the corporation. An employee has one year to launch a complaint and an order against a former director can be made up to two years after he or she has ceased to be a director.
Director liability for employee wages has been imposed by business corporations and/or employment standards legislation in other provinces and territories including British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, the Northwest Territories, the Yukon and Nunavut, as well as federally under Part III of the Canada Labour Code. While the details of such legislation vary from jurisdiction to jurisdiction, the legislative framework (including employment standards and corporate statutes) often provides one or more of the following protections for directors:
- An employee must first seek a remedy against the corporation before he or she can pursue the directors personally.
- Directors will not be held liable where they have exercised due diligence and acted in good faith (similar to the defence available to directors under the Income Tax Act in connection with the non-remittance of source deductions).
The amendments to the ESA provide no similar protections. Employees will be able to bypass the corporation and seek payment for unpaid wages and vacation pay from directors in their personal capacities, notwithstanding that such directors may have exercised due diligence and acted in good faith. Effectively, the ESA imposes an absolute liability on directors with no express statutory defences.
Currently in New Brunswick, standard directors’ liability insurance policies do not provide coverage for claims advanced by employees for nonpayment of wages and vacation pay. Consequently, depending on the size of the corporation’s payroll, a director could face significant personal liability in the event of corporate insolvency.
The foregoing is intended for general information only and is not intended as legal advice. If you have any questions, visit our Labour and Employment Group. For more on our firm see www.stewartmckelvey.com.
Archive
Following several Supreme Court of Canada decisions in the late 1990s and early 2000s, the law of constructive dismissal was well defined – or so many thought. The Court’s decision in Potter v. New Brunswick Legal…
Read MoreIn our May 20, 2014 client update, we reported on significant changes affecting automobile insurance in Prince Edward Island, including changes to no-fault benefits available under section B and changes to the damages cap for minor…
Read More2014 LABOUR AND EMPLOYMENT ATLANTIC CANADA LEGISLATIVE UPDATE As we move forward in 2015, we know our region’s employers will want to be aware of new legislation that has passed or could soon pass that…
Read MoreOn January 28, 2015, the Office of the Superintendent of Insurance issued a bulletin in Nova Scotia. The 2015 minor injury cap has been set at $8,352, an increase of 1.7 per cent over 2014.…
Read MoreIn preparing for the 2015 proxy season, you should be aware of some regulatory changes that may impact disclosure to and interactions with your shareholders. This update highlights what is new in the 2015 proxy…
Read MoreDuring the Fall 2014 legislative sitting, the Province of Prince Edward Island passed legislation that results in significant changes to the Lands Protection Act. The amendments have just been proclaimed and were effective January 1, 2015.…
Read MoreThe Editor’s Corner Clarence Bennett This issue focuses on the family and the interaction between employment and family obligations. As 2014 comes to a close, I would like to extend Seasons Greetings to all of…
Read MoreRECENT DEVELOPMENTS: DISABILITY INSURANCE POLICIES & LIMITATION PERIODS IN NOVA SCOTIA Two recent Nova Scotia decisions have clarified the issue of limitation periods in disability insurance policies and “rolling” limitation periods. THORNTON V. RBC…
Read MoreSection 156 of the Excise Tax Act (the “ETA“) provides an election that relieves certain related parties from having to collect Harmonized Sales Tax (“HST“) on the goods and services sold between them. The election deems qualifying…
Read MoreIN THIS ISSUE: More Than Wind – Emergence of Tidal Energy in Atlantic Canada by Sadira Jan Aquaculture and Salmon Farming in Atlantic Canada by Greg Harding The Expanding Atlantic Canada Offshore Industry: Growing Offshore without Going Offside by Stephen Penney and Rebecca…
Read More