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by Lesha Vanderbij and Gayle Wadden
Compliance isn’t just an issue for Human Resources. 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 non-profit corporation, you need to understand your potential liability.
Scope of Personal Liability For Directors Under Employment Laws
In the employment law context, directors and officers have personal liability under the following types of legislation:
- Accessibility
- Employment Standards
- Health and Safety
- Human Rights
- Pay Equity
A director’s liability varies from province to province and from one Act to another.
If you serve as a director of a non-profit organization, it’s important to understand where you may have personal liability for the actions or inactions of the organization. Note that directors may have personal liability under other legislation as well, including liability for payroll and tax withholdings. This article focuses specifically on employment law obligations.
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. For example, in British Columbia, if a corporation commits an offence under the Workers Compensation Act, an authorizing director of the corporation also commits an offence.
It is important that directors understand their organization’s legal obligations when 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.
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 in all jurisdictions other than Ontario and Prince Edward Island are personally liable for certain amounts that are owed to employees. In those jurisdictions (including 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. In some provinces and federally regulated organizations, 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 entire 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 total 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 to recover their contribution. This is done to make it easier for employees to recover what is owed to them.
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 and stay on top of their legal obligations; and
- Monitor your organization’s compliance with those obligations.
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.
Wrap Up
As a director of a non-profit, it is important to understand your personal liability and what you can do to manage that risk. This general overview highlights some key areas of concern. If you need help understanding your organization’s obligations or staying on top of changes to those obligations, please check out Optimize Compliance for more resources and to learn more about how we simplify HR compliance. Optimize Compliance provides up-to-date plain language summaries of employment law requirements across the country and provides you with notice of upcoming changes.
Optimize Compliance is co-founded by Lesha Vanderbij and Gayle Wadden. Lesha and Gayle are both lawyers with over 20 years of labour and employment, pensions and legal research experience.
Lesha’s experience includes practicing law and leading knowledge management initiatives at a national law firm. More recently, as a consultant, Lesha helped law firms and in-house teams develop better resources and improve service delivery. A regular contributor of Tech Tips to SlawTips, Lesha enjoys testing out new apps and technology.
Gayle’s experience includes both practicing law and leading knowledge management initiatives at national and regional law firms. Gayle is also a legal researcher and developer, and provider of legal education programs for lawyers.
