Interpretation Guidelines Manual British Columbia Employment Standards Act and Regulations

EMPLOYMENT STANDARDS ACT - PART 11 - ENFORCEMENT

ESA Section 96 – Corporate officer’s liability for unpaid wages


Contents:

Summary
Text of Legislation
Policy Interpretation
Related Information


Summary

This section explains the extent of personal liability of a corporate officer or director for unpaid wages. 


Text of Legislation

96. (1) A person who was a director or officer of a corporation at the time wages of an employee of the corporation were earned or should have been paid is personally liable for up to 2 months' unpaid wages for each employee.

(2) Despite subsection (1), a person who was a director or an officer of a corporation is not personally liable for

(a) any liability to an employee under section 63, termination pay or money payable in respect of individual or group terminations, if the corporation is in receivership,

(b) any liability to an employee for wages, if the corporation is subject to action under s. 427 of the Bank Act (Canada) or to a proceeding under an insolvency Act,

(c) vacation pay that becomes payable after the director or officer ceases to hold office, or

(d) money that remains in an employee's time bank after the director or officer ceases to hold office.

(2.1) If a corporation that is a talent agency has received wages from an employer on behalf of an employee and fails to pay those wages, less any fees allowed under the regulations, to the employee within the time required under the regulations,

(a) a person who was a director or officer of the corporation at the time the wages were received is personally liable for the amount received by the corporation from the employer, less any fees allowed under the regulations, and

(b) that amount is considered for the purposes of subsection (3) to be unpaid wages.

(3) This Act applies to the recovery of the unpaid wages from a person liable for them under subsection (1) or (2.1).

(4) In this section, “director or officer of a corporation” includes a director or officer of a corporation, firm, syndicate or association that the director treats as one employer under section 95.


Policy Interpretation

Subsection (1)

Each director or officer of a corporate employer is liable to personally pay up to two months’ wages for each employee.

The director or officer must have been a director or officer at the time the wages were earned or should have been paid. A director or officer is liable for vacation pay that becomes payable while he or she holds office, even though it may have been earned before.

The wages can be collected entirely or in part from any director or officer. The liability of each individual director or officer is separate from the liability of other directors and officers and is not divided between them, pro-rated or shared.

A corporation includes a company, a society, an incorporated association or other incorporated body. Directors’ liability does not apply to officers and directors of charities who are only reimbursed for expenses and receive no other remuneration. (See Employment Standards Regulation s. 45.)

Limits on personal liability

The maximum amount that each officer or director can be responsible for is the equivalent of 2 months' wages for each employee. Where more than 2 months' wages are owed, determinations will be issued naming each director and officer as owing 2 months' wages. If one corporate officer pays the 2 months' wages as set out in the determination, this does not release other officers from wage liability since unpaid wages remain owing.

A determination issued by the Director of Employment Standards against a corporate employer sets out the total wages owing to each employee. Each director or officer of the employer is personally liable for amounts earned while they were a director, up to a maximum of two months’ wages for each employee. A determination is not issued against a director unless one has also been issued against the corporate employer.

If there is more than one director or officer, and a determination is issued to all of them, the total of all the director determinations may add up to more than the total wages owing to the complainant as set out in the determination against the corporate employer. The Director can issue determinations to some or all of the directors or officers. The Director is not required to collect equally from the directors or officers, or to return excess amounts evenly as long as the Director does not retain more than the amount owed to the employee when collections are completed.

When a director or officer pays the wages set out in his or her determination, he or she has fulfilled all personal liability, even if wages are still outstanding to an employee.

Calculating two months’ wages

In determining the amount owed by a director or officer, the Director will calculate the employee's normal wages for two months, plus applicable vacation pay. So if an employee earns $2,500 per month, the director or officer would be liable for a maximum of $5,000 (two times $2,500,) plus the applicable vacation pay ($200 if calculated at 4%, or $300 if calculated at 6%).

If the employee's earnings fluctuate from month to month, earnings can be averaged.

The period in which to determine an “average” wage is not provided by statute. Therefore, the Director uses a period that is reasonable in the circumstances, which may be up to six months before the earlier of the date of the complaint or termination of employment. (Refer to the Act, s.1 “regular wage”.)

Appealing a Director’s Determination

A director or officer can only appeal a determination containing a finding of personal liability on the following three grounds:

  • That the person was not a director or officer at the time the wages were earned or should have been paid;
  • That the calculation of the director or officer’s personal liability is incorrect; or
  • If a penalty has been assessed, that the director or officer should not be personally liable for the penalty on the grounds that he or she did not authorize, permit or acquiesce in the contravention (Refer to the Act, s. 98 “monetary penalties”.)

If a director wishes to dispute any of the findings made in the determination against the corporate employer, including the amount of wages owing to the employee, the director must make sure that determination is appealed. None of those issues can be addressed by appealing the director’s determination.

Corporate officers cannot use Act to recover wages

Officers and directors of corporations are personally liable for the payment of wages to employees. Therefore, the Director will not normally pursue claims for unpaid wages from directors and officers of a corporation, especially if the effect would be to lessen recovery on claims made by other employees.

The Director's view of this section, when read with the purposes of the Act as set out in s. 2, is that the definition of employee is not intended to encompass the controlling mind of a corporation.

For this reason, the Director will not permit directors and officers of a corporation to use the wage recovery mechanism of the Act to recover wages from their corporation unless they can show an employment relationship which is independent of their duties as a director or officer.

A director or officer of a corporation will have to do the following in order for the Director to proceed with their claim for wages:

  • Show that they had an employer/employee relationship with the corporation which existed apart from their role as a director;
  • Provide evidence of the authority by which the corporation established an employment relationship with them;
  • Provide a description of the services they were to perform as an employee for the wages they were supposed to be paid; and
  • Show that they performed the services for which they are seeking to be paid as an employee, not as a director.

Subsection (2)

The Act limits the financial liability of officers or directors by not holding them responsible for compensation for:

  • length of service, termination pay, or money payable in respect of either individual or group termination if the corporation is in receivership;
  • any amount of wages owing if the corporation is subject to a proceeding under an insolvency Act or under s.427 of the Bank Act; or
  • vacation pay that was not payable until after the officer or director ceased to hold office, or money that remained in an employees' overtime bank after the officer or director ceased to hold office.

See s. 1(1) of the Act for the definition of "insolvency Act".

Subsection (2.1)

Where wages have been received by a talent agency from an employer, on behalf of an employee, the wages must be paid to the employee, less any fees allowed, as set out in the regulations. Where a talent agency fails to pay the wages, a person who is a director or officer of the talent agency at the time the wages were received is personally liable for the amount received on behalf of the employee, less any fees allowed under the regulations. The amount owing is considered unpaid wages and the collection provisions of the Act apply for recovery of the debt.

Subsection (3)

Upon making a decision imposing personal liability on a director or officer of a corporation, the Director will enforce that decision using any means of collection allowed under the Act, including third party demands, seizure of assets, collection by a Court Bailiff, and certificates of judgment.

Example

Haley is owed three months' wages plus two weeks’ compensation for length of service by a company that has three directors. The Director issues a determination against the corporate employer but is unable to collect on it, so determinations are issued against each of the three directors in the amount of two months' wages plus vacation pay. One director pays the amount indicated on his determination. The Director commences collection proceedings against the two remaining directors to recover the balance of the wages still outstanding.

Determining who is a Director or Officer

The Business Corporations Act requires that the names and addresses of all directors, and the dates when they hold office, be recorded in registers at a corporation's record office and be open for inspection during normal business hours. The Business Corporations Act also requires that information on directors be filed with the Registrar of Companies. Failure to file with the Register of Companies does not invalidate an appointment.

Directors are usually elected at annual meetings, but most boards of directors have the authority to fill vacant directorships between annual meetings. Officers are appointed by the directors at the directors' meetings. All appointments should be recorded in the minutes of the meetings, but minutes are not normally available to the public.

The definitions for "director" and "senior officer" in the Business Corporations Act state:

"director"means,

(a) in relation to a company, an individual who is a member of the board of directors of the company as a result of having been elected or appointed to that position, or

(b) in relation to a corporation other than a company, a person who is a member of the board of directors or other governing body of the corporation regardless of the title by which that person is designated;

"senior officer"means, in relation to a corporation,

(a) the chair and any vice chair of the board of directors or other governing body of the corporation, if that chair or vice chair performs the functions of the office on a full time basis,

(b) the president of the corporation,

(c) any vice president in charge of a principal business unit of the corporation, includingsales, finance or production, and

(d) any officer of the corporation, whether or not the officer is also a director of the corporation, who performs a policy making function in respect of the corporation and who has the capacity to influence the direction of the corporation;

If a person is listed as a director or officer in the corporate records, that person is presumed to have personal liability under this section. It doesn’t matter if the person does not have anything to do with the day-to-day business of the corporation. Those records establish director or officer status.

The Director will rely on those records, as filed with the Registrar of Companies, unless the person who is listed as a director or officer can prove on the balance of probabilities that the company records are inaccurate. Examples are if the person resigned and the documents were not properly processed, or if a person was not properly appointed.

In rare circumstances, a person may rebut the presumption that he or she is a director or officer for the purposes of liability. For example, legal secretaries and lawyers are sometimes named as the first directors when a company is incorporated. If these persons are listed as corporate directors or officers, they may be found not to be a director or officer for the purposes of the Act. The onus is on them to prove that the listing was for incorporation purposes only, and that they were not corporate directors or officers at the time wages were earned or should have been paid.

If a person is not named as a director or officer, but performs those functions, the Director may apply a functional test to make a finding that that person is a director or officer and impose liability on that person. The Director examines whether that person exercises the typical functions, tasks, or duties that a corporate director or officer would normally exercise.

Activities associated with being a director or officer may include regular attendance at the place of business, direction of employees, ownership of equipment, tools, furniture and furnishings, representing the company to creditors, suppliers, and customers, and holdings oneself out to be an owner.

Subsection (4)

When a decision is made to associate a corporation, firm, syndicate or association as one employer under s.95, the directors or officers of these associated entities are personally liable for unpaid wages under this section.


Related Information

Employment Standards Tribunal Decisions

Kevin Thomas Okrainetz, B.C. EST #D354/97  

Jim Kovacs, BC EST #D076/97

Barry McPhee, BC EST #D183/97

Rajinder Brad, BC EST #056/07

Bradley Shane Morehouse, BC EST #125/09

Related sections of the Act or Regulation

ESA

ESR

Factsheet

Enforcement Measures and Penalties

Other

Bank Act

Business Corporations Act