The Quebec Court of Appeal rendered a decision on November 14, 2012 confirming the state of the law on the scope of section 119 of the Canada Business Corporations Act (the "CBCA"), which provides as follows: "Directors of a corporation are jointly and severally, or solidarily, liable to employees of the corporation for all debts not exceeding six months wages payable to each such employee for services performed for the corporation while they are such directors respectively." (my emphasis)
In this case, Justice Dalphond found from the evidence that the three respondents, Myhill, Cochrane and Lilge, were not only the elected directors in accordance with the resolutions and records of Société Inter-Canadien (1991) Inc. ("Inter") until their collective resignation in May or June 1999, but also that they had in fact behaved as Inter's directors, despite the existence of a declaration by Inter's sole shareholder divesting them of their powers. Inter terminated its operations on October 27, 1999 and declared bankruptcy on March 27, 2000. Inter's employees claimed several million dollars in unpaid wages by Inter from the directors under section 119 CBCA.
Justice Dalphond noted that section 119 CBCA, [translation] "which enacts a liability exceeding that ordinarily prescribed by the law, without proof of fault, must by its nature be interpreted narrowly [as the case law has consistently held]." The debts payable by a corporation for services performed by the employees on its behalf during the term of office of a director constitute the promised, but unpaid, consideration for the work done during the director's term of office. This includes wages, the reimbursement of expenses incurred, and any amount earned as a result of the services rendered by the employee whose payment was deferred, such as vacation pay. On the other hand, the debts payable for services performed by the employees on behalf of the corporation do not include all the debts borne by a corporation in relation to its employees.
Thus, Justice Dalphond found that the directors could not be held liable for: (i) claims for medical expenses due to the employer's failure to pay the premiums to the insurers, (ii) pay in lieu of notice for the termination of employment under collective agreements because such pay constituted damages for wrongful breach of employment, and (iii) 40 weeks of severance pay claimed by the employees because this was not a form of deferred compensation, but a guarantee of employment security. However, the judge did find the directors liable for deductions made by the corporation out of the employees' wages for contributions to the group insurance and for the purchase of bonds, which had not been paid to third parties in accordance with the employees' instructions, because these amounts were still owed by Inter to the employees as a form of unpaid wages.
Justice Dalphond therefore recognized the employees' right to claim the compensation referred to above jointly and severally from the directors [translation] "if unpaid at the time the actions were instituted, not exceeding an amount equal to six months gross wages per employee". This was in addition to the amounts that were not contested in the case, namely, back wages, unpaid wage increases, unpaid overtime, unreimbursed expenses, vacation pay, holiday pay and sick leave credits.
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