In a prior post, we discussed an important case with respect to good faith in employment contracts, which was then awaiting a hearing in the Supreme Court. Arguments were recently concluded in this matter and the final decision will be soon released in the months ahead. It will definitely be a watershed judgment. Stay tuned for the result.

Tricky Issue of Personal Liability

Another recent case has reviewed the issue of the personal liability of a director and officer of a limited liability company with respect to bad faith in employment matters.

To state the qualifier first, this case was not defended by the corporation or by the named personal defendant. Nonetheless, the judge did review the relevant law and determined that this case stood for an exceptional result to hold the personal defendant liable to the plaintiff for the damage claim.

The Facts

The plaintiff and the sole director, who also held the position of president of the company, were common-law partners. The relationship ended, after which the personal defendant, Duns, not only terminated the plaintiff but also proceeded to transfer all the assets of the corporate employer to a new company. The prior corporation ceased active business.

The plaintiff then sued for various forms of relief, including unpaid wages, vacation pay, wrongful dismissal and claims for aggravated and punitive damages.

The two defendants, the now-defunct company and the personal defendant, did not defend the case and were then noted in default. The plaintiff then brought a motion before the court for a damages assessment. One point to note is that where a defendant has been noted in default, all allegations in the claim are deemed to be true.

The Central Issue

The Ontario Business Corporations Act allows for a form of relief known as an “oppression remedy”, which may make a director personally responsible for the actions of the company. To gain access to this remedy, the plaintiff first must be found to be a “creditor” of the company. In the case at hand, this issue was easily resolved in the plaintiff’s favour.

In addition, the plaintiff must show:

1. Reasonably-held expectations that were violated by the questioned conduct; and
2. Such expectations were violated by conduct which was oppressive, or unfairly prejudicial to, or that unfairly disregarded her interests.

The court saw that the actions of the personal defendant met this test, in that he had transferred all assets out of the prior company with the intent to avoid the claims of the plaintiff.

This was a grand success, at least on paper, for the plaintiff as she recovered damages totalling $180,000, $75,000 of which was attributed to aggravated damages. However, it is never a good omen to see a case undefended.

Takeaway

These are clearly unusual facts but nonetheless, the case reveals the potential of an oppression remedy to gain access to a fair result against personal defendants in employment litigation.

Get Advice and Know Your Rights

For advice on this issue and all employment law matters, contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins LLP. We regularly advise workplace parties on a wide range of legal workplace issues. Contact us online or by phone at 416-364-9599 to schedule a consultation.