Safeguarding directors from liability

Add employee expenses to payments directors are personally on the hook for
By Peter Israel
|Canadian HR Reporter|Last Updated: 09/04/2003

When Sahelian Goldfields Inc. declared bankruptcy, employees were left in a bind. Staff had signed employment contracts promising reimbursement for all reasonable expenses incurred in the course of their employment, including food and travel expenses. However, at the time of the bankruptcy the employees were owed $60,000 in unpaid expenses. Sahelian Goldfields also owed them $83,000 in vacation pay. To recover these funds, the employees started an action against both Sahelian Goldfields and its directors.

The employees were able to name the directors personally in their action by virtue of Section 131(1) of the Ontario Business Corporations Act which makes corporate directors “jointly and severally liable to the employees of the corporation for all debts not exceeding six months’ wages that become payable while they are directors for services performed for the corporation.” This provision makes corporate directors personally liable for certain debts owed employees. Directors can be required to pay employee debts from their personal holdings if the debts cannot be met by the corporation.

The Sahelian’s directors responded to the employees’ action by asserting that they could not be held liable for unpaid expenses, as Section 131 only made them liable for up to six months’ wages. They argued that since “expenses” were not “wages,” they could not be held personally accountable for them.