If you are a director or a party to a unanimous shareholder agreement did you know that you are personally liable for unpaid wages and you could go to jail for up to one year for failing to pay them?
So if you are a small business owner, have signed a unanimous shareholder agreement, or are a director of a non-profit corporation that is experiencing cash flow problems and are thinking of deferring employee wages, then please read on.
Three Directors Who Have Gone to Jail
This blog summarizes three cases where a director was sent to jail for 90 days for failing to pay unpaid wages.
Under the Employment Standards Act a “director” means a director of a corporation and includes a shareholder who is a party to a unanimous shareholder agreement.
A director of a corporation is generally jointly and severally liable to the employees of the corporation for all debts not exceeding 6 months’ wages.
The director of an employer is generally jointly and severally liable for wages if, among other things, the employer is insolvent, in receivership or in bankruptcy proceedings; or, the employer has not paid an order to pay.
A person who fails to comply with an order to pay wages is guilty of an offence and on conviction is liable, if the person is an individual, to a fine of not more than $50,000 or to imprisonment for a term of not more than 12 months, or to both.
90 Days Jail for Failure to pay Restaurant Employees
According to the Ministry of Labour, in August of 2018, the director of a restaurant chain was ordered to serve 90 days in jail for failure to pay unpaid wages. Yuk Ellen Pun was also fined $900,000 for failing to comply with an earlier order to pay wages. The companies she controlled owed 68 employees $676,000 for, among things, salary, overtime, vacation, and public holiday pay.
90 Days Jail for Failure to pay Student Lifeguards
According to the Workers’ Action Centre, Peter Check hired student lifeguards for his pool supply company each summer and refused to pay their last months’ wages. He then closed the business and opened up the business again under a new name the next season. The students filed complaints covering 2007 and 2008 wages and the Ministry of Labour ordered the employer to pay over $63,000 in unpaid wages. The employer failed to pay and Mr. Check, who was personally liable under the Employment Standards Act and refused to pay. In 2013, He was convicted to 90 days in jail and ordered to pay a $15,000 fine.
90 Days Jail for Failure to pay Order to Pay Wages
Similarly, according to the Ministry of Labour, in 2012 Steven Bondin, a director of six corporations, was sentenced to 90 days in jail and ordered to pay $280,000 in fines, for wages owed 61 employees from March 2007 to October 2009 plus a 25% victim surcharge. Before he was sentenced to jail, the Ministry of Labour had issued 113 orders to pay for over $ 125,000 which were not paid.
Lessons to Be Learned
1. If you are a director or a party to a unanimous shareholder agreement, make sure employees are paid wages owing or you may inadvertently become personally liable. Although unlikely, you could also be sent to jail
2. If you are the sole director of a corporation and the corporation is experiencing cash flow difficulties then think long and hard about deferring wages without getting legal advice or you may lose the benefits of a corporation’s limited liability.
3. If you are a director of a non-profit corporation or a charity then make sure the senior manager of the organization regularly informs the Board that there are no outstanding wages. Otherwise your volunteer experience could cost you money.
4. If you have signed a unanimous shareholder agreement – and you are a passive shareholder – make sure the corporation regularly confirms to you that there are no outstanding wages. Otherwise the return on your investment could be significantly reduced.
5. Unpaid wages are just the tip of the iceberg as far a director’s liability is concerned. Directors are also personally liable for accrued and unpaid vacation, and some payroll taxes. Directors can also be sent to jail for violations of the Ontario’s Occupational Health & Safety Act – but that is the topic for another blog.
For 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him at 416 317-9894 or at [email protected]