New Rules place burden on corporate directors By James Foster Times & Transcript Staff 11 Jul 2013 11:53PM. New rules that could make corporate directors personally responsible for unpaid wages and vacation pay could make good people think twice when they are invited to serve on a board, some lawyers and directors fear. “I think anybody that is asked to be a director would now have to take a hard look at serving on a board,” says Christopher Borden of Moncton who serves on more than one company’s board. Changes to the New Brunswick Employment Standards Act which will likely come into effect soon essentially make directors responsible for unpaid wages and vacation pay, even though boards of directors are not there to run companies, which is management’s job. Further, the New Brunswick amendments would make directors liable for coming good on missing pay even if they did all of the due diligence that they possibly could do. For example, even if it is clear that board members did everything in their power — and more — to ensure that workers in a failed company got what was justly theirs, members of that company’s board of directors could be on the hook for paying employees out of their own pockets. And they could be held liable for up to two years after leaving the board. None of these provisions pertain to non-profit corporations. As far as the president of the New Brunswick Federation of Labour is concerned, the measures are overdue and could even go further. “We hope that this is just the early steps in amendments to the ESA,” Patrick Colford says. “The worker who built the business should indeed be one of the first to be compensated, in the form of wages, severance, and accrued vacation time.” The amendments should also cover pension shortages, Colford contends. “Wages and severance is a great thing, but I must also think of the people who have invested so much time into the company, and quite possible close to retirement when for an unforeseen reason the employer closes their doors and an employee for decades finds out that their pension was possibly underfunded, and the worker then become one of the last creditors to collect on the money owed to them in the form of their pension.” The provincial government says the measures will modernize the act and better protect employees while holding companies accountable with fines for violations. “In addition to enhancing enforcement mechanisms, this amendment will strengthen provisions for employees when employers become insolvent, and introduce an improved appeals process,” Minister of Post-Secondary Education, Training and Labour Danny Soucy said when the amendments were introduced in May. “With this change, employees will be better protected and better able to receive their full financial entitlements.” The current act allows for a diminishing value of 25 per cent for every two weeks following the date of insolvency for any employee lien. That is being repealed. In a client update, the law firm Stewart McKelvey points out that the amendments will make directors liable for up to six months of wages that were payable during the time that person was a director and up to 12 months of vacation pay. They could also be subject to administrative penalties from $150 to $900. And some lawyers could argue in court that the definition of “wages” and “pay” in the ESA includes severance pay. “Not only will employees be able to seek enforcement of these new rights against directors through an administrative process existing under the ESA,” Stewart McKelvey points out, “they may also be able to enforce their rights directly against directors by commencing an action, or even a class action, in court.” In other words, as Borden puts it, an aggrieved employee could simply skip trying to recoup his due from the company, and just file a claim against the company’s directors, or perhaps even one director. The amendments make directors liable “jointly and severally,” a legal term which means all directors are responsible to come up with their share, but if one or more doesn’t — for example, if they can’t be found or die — then the remaining are responsible for the share of the others. “So I think anybody that is asked to be a director would have to take a hard look,” Borden, an energy and natural resources lawyer with McInnes Cooper in Moncton, says. There is a potential for directors to bail on a company in trouble due to these changes, Borden says, which is just when a troubled company needs those directors. “The last thing you need is your directors jumping ship,” Borden, a member of the Institute of Corporate Directors, says. As well, there is some question whether insurers will cover the new liabilities under their directors’ insurance packages.
Posted on: Fri, 12 Jul 2013 16:51:10 +0000
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