A company has its own legal personality distinct from that
of its shareholders and directors. It also has its own separate
rights and obligations. This characteristic allows for the
limitation of shareholders' and directors'
liability who need not fear being sued personally for every
debt incurred by the company.
However, many laws override that principle holding directors
of companies personally liable with regard to unpaid salaries.
The two major acts with such provisions are the Québec
Companies Act ("QCA") and the Canada
Business Corporations Act ("CBCA"). And since
they regulate the majority of corporate entities in
Québec, directors must be aware of that liability.
Pursuant to these two acts, the directors' personal
liability extends up to six (6) months' salary per
employee: and it goes without saying that it is quite a heavy
Companies incorporated pursuant to theQCA
The QCA provides for two possible scenarios that
could lead to the personal liability of directors for unpaid
In the first one, if proceedings for unpaid salaries are
brought against a company and employees cannot enforce judgment
on the total, they then have the choice of personally going
after the directors of the company. Proceedings against the
company can be initiated by employees, a union or the
Commission des normes du travail and must be brought in the
year the unpaid salaries are due.
The second situation is more common, the company goes
bankrupt in the same period (1 year) as that in which the
salaries are due, and employees then file a claim in the
bankruptcy. Here again, employees, a union or the Commission
des normes du travail can file a claim in the bankruptcy.
Once one of the scenarios happens, employees are allowed
moreover to launch proceedings against the directors
personally. The limitation period for that recourse is of three
(3) years starting from the moment the conditions of section 96
of the QCA are met.
Companies incorporated pursuant to the
This federal legislation essentially provides for the same
two situations than that of its abovementioned provincial
equivalent, and also holds directors personally liable for up
to six (6) months' salary. There are, however, two
Firstly, the period covered by the recourse is of six (6)
months and not of one (1) year. Secondly, the recourse must be
initiated during the directors' mandate or at the
latest in the two (2) years following the end of their
Scope of liability
The expression "six months' salary" must
be understood as a monetary limitation and not as a time limit:
according to which each employee can sue a director "for
an amount equivalent to up to six months' salary"
and not "for the unpaid salary in the course of a
What's more, the definition of salary is not limited
to simple compensation: it can include among others, bonuses,
vacations, holidays and overtime. Severance pay is usually not
comprised in the word "salary", but in some
instances, courts have decided otherwise.
In conclusion, be aware of the fact that a director will be
able to defend himself by alleging that he was not director
during the period where the salaries were unpaid, by proving
that the conditions of the recourse were not met by the
employees or by alleging the recourse's prescription.
However, due diligence, here, can not be used as a defense.
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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Pursuant to several recent legislative amendments and enactments, Ontario corporations holding a legal or beneficial interest in real property in Ontario are now subject to more onerous record-keeping requirements.
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