Personal Liability of Directors for Wrongful Dismissal Claims

Piercing the Corporate Veil: Directors Could be Liable to Pay Wrongfully Dismissed Employee

The Oppression Remedy

In Canada, most business legislation (such as the Ontario Business Corporations Act and the Canada Business Corporations Act) allow for a legal claim for an “oppression remedy.” In simple terms, this refers to a personal remedy available to shareholders and other stakeholders if they can prove that the corporation (usually as a result of the actions of its shareholders, directors or officers) has acted in a manner oppressive or unfairly prejudicial to, or which unfairly disregards, that person’s individual interests.

Who Can Seek The Oppression Remedy?

Generally, the oppression remedy is used most commonly by minority shareholders, directors, officers, security holders, creditors, and even employees.

What Constitutes “Oppression”?

The oppression remedy protects against a various types of inappropriate conduct, which usually includes:

“Oppression” occurs when there is a serious wrong committed intentionally, such as an abuse of power, or behaviour that is coercive, abusive or bad faith.
“Unfair Prejudice” includes less culpable state that nevertheless results in unfair consequences, such as wrongfully squeezing out a minority shareholder, or diluting the shares of a shareholder.
“Unfair Disregard” occurs when another party “ignores an interest” or simply deciding it is not important, such as breaching fiduciary duties owed to treat shareholders in good faith or not providing financial statements to shareholders.

Test for Oppression Remedy

In assessing a claim for oppression remedy, the court must answer two questions:

1) Does the evidence support the reasonable expectation asserted by the claimaint?

2) Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice”, or “unfair disregard” of a relevant interest?

In this test, the central issue is whether a “reasonable” expectation of a corporation’s stakeholders was violated. In other words, the actual expectations of an allegedly aggrieved stakeholder is not decisive. Instead, when determining whether it would be “just and equitable” to grant the oppression remedy, the issue is whether the asserted expectation is “reasonable” having regard to the facts of the specific case, the relationships at issue and the entire context in which the expectation is asserted, including the existence of any conflicting claims and expectations.

In the court’s view, while a corporation and its shareholders are entitled to maximize profit and share value, it cannot do so at the expense of treating individual stakeholders unfairly. Most fundamentally, a corporation’s stakeholders are entitled to reasonably expect fair treatment

The Oppression Remedy in Employment Disputes

In some cases, the courts have applied the oppression remedy to resolve work-related disputes.

In an Alberta case called Wisser v CEM International Management Consultants Ltd, 2022 ABQB 414, the Court applied the oppression remedy to find that a company’s directors were personally liable for wrongful dismissal damages after they responded to his wrongful dismissal lawsuit by transferring the assets of the corporation to themselves; ceased operations; and then started a new company using the same assets, trade name and continued on as directors and majority shareholders. In concluding that the directors were personally responsible for providing the employee with a severance package, it specifically commented:

“[the new company] and the individual directors enjoyed and continue to enjoy the profitability of that new company without regard to the interests of their former employee who had advanced his meritorious claim in a timely way.”

As this case illustrates, employees in wrongful dismissal claims can use the oppression remedy under business law to recover damages jointly and severally against an employer and its directors personally. Most importantly, the courts will see through “shell games”, such as owners moving assets from one corporation to another to avoid its financial obligation to provide a severance package. Likewise, a sneaky approach by owners to close a business will not necessarily deprive an employee of their severance pay for wrongful dismissal.

Employment Lawyer in Toronto

If you are an employee who believes you have been wrongfully dismissed, please speak with a top-rated employment lawyer in Toronto regarding your options, including negotiating your severance package to obtain the severance compensation you deserve, as well as wrongful dismissal claim.

Contact us by phone 647-822-5492 or fill out the contact form to the side. Our employment lawyer in Toronto would be happy to assist in your employment law matter as quickly as possible.

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