Directors and Officers – Liability to Employees
May 4th, 2023 by Samuel Teichroew
Generally directors and officers of a corporation are not personally liable for the obligations of a corporation, with certain exceptions. Directors and officers need to understand when they may be held personally liable for the actions or inactions of the corporation. The law is very clear regarding a directors and officers’ duty to understand their corporation’s legal obligations – ignorance is no defence. If a director votes for the corporation to do something contrary to its legal obligations, the director or officer can be held liable if that non-compliance carries an offence for non-compliance.
In Manitoba, one of the areas where they can be held personally liable is in regards to employees under the following types of legislation:
- Accessibility
- Employment Standards
- Health and Safety
- Human Rights
- Pay Equity
Employees
Directors must ensure that employee wages are being paid and the corporation can continue to meet its payroll obligations. Directors in Manitoba can be held personally liable for unpaid wages for up to six months of unpaid wages and up to 22 months for unpaid vacation pay. All directors are liable for the entire amount, meaning the entire liability could be collected from a single director, even if the corporation has several directors. Alternatively the liability could be collected from multiple directors in uneven amounts and each director would have to recover the excess share from other directors. The shared liability is designed to make easier for creditors to recover what they are owed, and they will typically attempt to recover from wherever it is easiest to collect.
Offences
It can vary depending on the legislation, but directors can be held personally liable for the corporation’s offences if the director or officer directed, authorized, assented to, acquiesced in or participated in the offence.
Penalties for offences can range from administrative penalties and fines to imprisonment. Potential fines can be high. For example, in Manitoba, a director that fails to prevent a corporation from committing an offense can be fined $5,000 for the first offence. Subsequent offences can result in a fine or up to 3 months of imprisonment. Under Manitoba accessibility legislation, a director or officer that authorized, permitted or acquiesced in the commission of the offence are liable to a fine of up to $250,000.
There are several steps directors should take to limit their personal liability. To limit personal liabilities, directors and officers of a corporation or non-profit should:
- Educate themselves on the corporation’s legal obligations;
- Confirm the corporation has the financial resources and systems in place to ensure that the corporation can meet its legal obligations; and
- Inquire and update themselves on the corporation’s ongoing compliance with its obligations.
Directors should consider whether it is appropriate to have the corporation obtain Directors and Officers liability insurance. Insurance can provide some personal protection against liabilities arising out of their role as an officer and director.
