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
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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