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Corporate director fined and sentenced to prison term for failure to pay wages

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A recent decision of the Ontario Court of Justice shows that a company’s failure to abide by the Employment Standards Act, 2000 (“ESA”) can result in serious penalties for its directors. In that regard, the Court imposed a $280,000 penalty on six Ontario companies and the director of those companies, and also sentenced the director to 90 days in jail, as a result of the companies’ failure to pay wages.

The director owned and operated six companies throughout Ontario, and between March 2007 and October 2009, a total of 61 employees of those companies filed claims with the Ministry of Labour for unpaid wages. After an investigation, an Employment Standards Officer determined that all 61 employees were owed wages, and proceeded to issue orders requiring the companies to pay the employees.

Ultimately, 113 orders were issued to the six companies and their director, requiring the payment of over $125,000 in outstanding wages. Because no payments were subsequently made, the director and his companies were charged with offences under the ESA. In that regard, pursuant to sections 136 and 137 of the ESA, a director can be guilty of an offence if he/she fails to comply with an order to pay that is issued by the Ministry of Labour; and if guilty, a director can face monetary fines of up to $50,000 per offence, as well as imprisonment for up to twelve (12) months.

In October 2011, the director and each of his companies pleaded guilty to failing to comply with the Ministry of Labour’s orders; and in November of this year they were sentenced by the Ontario Court of Justice. As noted above, the Court ordered payment in the amount of $280,000 (plus a 25% victim fine surcharge, as required by the Provincial Offences Act)and sentenced the director to 90 days’ imprisonment for his disregard of the Ministry of Labour’s orders. In a news release, the Minister of Labour’s Linda Jeffrey, states that “this sentence serves as a warning to those who believe they are above the law.”

Facing some form of disciplinary measure for unpaid wages is not uncommon in Ontario. In fact, since 2004 more than $90 million in wages and other monies have been recovered from companies through Ministry of Labour inspections, claims and collections.What is highly unusual, however, is the 90-day prison sentence imposed on the individual director. Indeed, no Ministry of Labour prosecution has resulted in the imprisonment of a corporate director for several years.

The sentence handed down in this case reminds Ontario companies and directors that they can be severely penalized for violating the ESA and Ministry of Labour orders. Perhaps more significantly, the decision also serves as a rare warning to directors who fail to comply with the ESA that, despite its infrequent use as a sanction, imprisonment is certainly not off the table.

Parisa Nikfarjam

Toronto Employment Lawyers