Canada: $408,930 Payment Order Against Director Upheld

The Federal Court recently released its decision in Miller v. Canada (Minister of Labour), upholding a $408,930.63 payment order against the director of a corporation for unpaid wages. The initial payment order was issued by an inspector under the Federal Labour Program, on the basis of sections 251.1 and 251.18 of the Canada Labour Code (the "Code"). These sections provide that directors of corporations can be held liable for up to six months of unpaid employee wages, so long as the entitlement to wages arose during a director's incumbency and the recovery of the amount from the corporation is impossible or unlikely.

This case should serve as a valuable warning to directors of corporations in several respects. Directors should particularly note that they can be held personally liable for the unpaid wages of employees, that they should keep clear records of resignation from directorship and that limitation periods for the appeal of payment orders will be strictly enforced and upheld, regardless of how meritorious the appeal.

Facts of the Case

The director in question, Jeffrey Miller, became a director and officer of Corpac Canada Ltd. ("Corpac"), a commercial airline, in April of 2007. In 2009, Corpac terminated several employees, 26 of whom filed complaints with the Federal Labour Program for unpaid wages and other amounts. Shortly thereafter, Corpac ceased operations.

The inspector with the Federal Labour Program identified Mr. Miller as the sole director of Corpac using a corporate search. When the inspector contacted Mr. Miller, Mr. Miller indicated that he had verbally informed the General Manager of Corpac of his resignation as director in December of 2008, before the entitlement to wages arose, but did not file this resignation with the Alberta Corporate Registry System. The inspector then informed Mr. Miller in writing that $397,784.56 was owing to former employees and invited Mr. Miller to show he was not liable for these wages, either because the entitlement did not arise while he was a director or because recovery of such wages was possible or likely from the corporation. Mr. Miller responded, disputing his liability; he submitted a copy of his resignation letter to the General Manager and argued that provisions of the Alberta Business Corporations Act ("BCA") provide that a director's resignation is effective once it is sent to the corporation.

The inspector advised Mr. Miller that he was not familiar with the BCA and that the General Manager had confirmed in writing that he did not receive the resignation letter. Despite multiple attempts by the inspector, he had no further communication with Mr. Miller and on April 27, 2011 he issued a letter indicating that he could issue a payment order if further information was not received within 15 days. The inspector received no response, so on May 29, 2011, Mr. Miller was served with a payment order for $408,830.63 that indicated that any appeal of the order must be filed within 15 days. Mr. Miller did not file an appeal, but did request to have the appeal period extended. This request was denied because the Codecontains no provisions allowing for the extension of appeal periods.

Faced with a payment order that was no longer appealable, Mr. Miller then applied to the Federal Court for judicial review of the payment order.

The Court's Ruling

Typically, when a party seeks to have a decision such as this reviewed, that party is precluded from seeking judicial review if the appeal rights in the Code, known as internal appeal rights, are not first pursued. This is because the statute provides for a process for the reconsideration of the initial decision and courts are hesitant to allow parties to circumvent this process by appealing to the courts, so long as the appeal process provided in the statute is an adequate one. As such, the first issue that the Court had to determine in this case was whether it would even hear the application for judicial review and decide the case on its merits, or whether it would decline to hear the application entirely because Mr. Miller failed to exercise the internal rights to appeal.

The Court determined that the "failure to pursue an alternative remedy within a limitation period does not render that remedy inadequate" and that the appeal process could have provided the remedies that Mr. Miller sought. As such, the Court decided to exercise its discretion to decline to hear the case on its merits and dismissed the application for judicial review.

Suggested Direction for Directors

This case is a useful illustration to directors of corporations of the liability that can arise as a result of carelessness. As is clear from this case, directors of corporations can face significant personal liability for unpaid wages that come due during their directorship, in the event that the collection of wages becomes impossible or even unlikely from the corporation. As such, directors of corporations are strongly advised to keep clear records of joining and leaving boards of directors and to file resignations from directorship with the appropriate corporate registry system. Further, because significant liability can result, any inspections by the Federal Labour Program or its provincial equivalents should be handled carefully. Finally, limitation periods for appeals should be respected and adhered to, as the courts have consistently refused to hear applications for judicial review where, as in Mr. Miller's situation, an applicant has simply failed to file an appeal on time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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