Personal Liability of Directors for Non-Compliance

Personal liability of directors under employment legislation is a real risk.  Directors and officers can be personally liable for compliance in some cases – including being personally liable to pay amounts owing to employees, being charged for offences related to non-compliance and being subject to penalties and fines, or even imprisonment.  This liability can be significant – if you are a director of a corporation (whether its for-profit or non-profit), you need to understand your potential liability.

Scope of Personal Liability for Directors

In the employment law context, directors and officers have personal liability under Accessibility, Employment Standards, Health and Safety, Human Rights and Pay Equity legislation.  A director’s liability varies from province to province, and from one Act to another.personal liability

If you serve as a director of a corporation, including as a director of a non-profit corporation in many cases, its important to understand where you may have personal liability for the actions or inactions of the organization. In this post, we cover the types of liability that a director may have.  In coming posts, we’ll cover a director’s liability in specific circumstances.

Offences

Directors of an organization can be charged with an offence for violations of employment legislation.  In most cases where there is potential liability for an offence, a director will be personally liable for offences of the organization if they directed, authorized, assented to, acquiesced in or participated in the offence, but this can vary.

It is important that directors understand their organization’s legal obligations when they are making decisions – ignorance doesn’t allow a director to escape liability.  If a director votes in favour of an action that is contrary to a legal obligation that carries an offence for non-compliance, it is not enough for a director to say that they didn’t know about the obligation.  A director generally has a duty to be informed. personal liability

Penalties for offences can be significant.  They can range from administrative penalties and fines to imprisonment.  Potential fines can be high.  For example, under Ontario accessibility legislation a director must take reasonable care to prevent a corporation from committing an offence and, if they fail to do so, they are guilty of an offence and on conviction liable to a fine of up to $50,000 per day.

Personal Liability for Payments

Directors are generally personally liable for certain amounts that are owed to employees.  In most provinces, and in federally regulated organizations, directors are personally liable for unpaid employee wages.  The amount of unpaid wages that a director is liable for ranges from 2 months to 6 months, and in some provinces directors are also personally liable for unpaid vacation pay of up to 12 months.

Where directors have personal liability, their liability is generally “joint and several”.  This means that each director is liable for the amount owing, but also that the payment of the amount owing can be recovered by any one or more of them.

For example, if an organization owes $10,000 in unpaid wages to its employees and there are 5 directors, all 5 directors are responsible for the amount owing.  But, the employees can enforce payment against any one or more of the directors.  That means one director could be required to pay the full $10,000.  It would then be up to that director to claim against the other directors for their liability.personal liability

In Ontario and Prince Edward Island personal liability for unpaid wages only applies to directors of for-profit organizations.

How to Protect Yourself

While it is important that directors are aware of their potential personal liability, this is a risk that can be managed.  There are three key things you can do to protect yourself from personal liability as a director:

  • ensure that you understand your organization’s legal obligations;
  • ensure that the organization has resources and processes to understand stay on top of their legal obligations; and
  • monitor your organizations compliance with those obligations.personal liability

As a director you will want assurance that employee wages are being paid and that the organization has the financial ability to cover wages.  You will also want to consider Directors and Officers liability insurance.  While insurance does not provide protection with respect to offences, it can provide protection for some personal liability.