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Personal liability in wrongful dismissal actions

A recent decision of the Divisional Court raises the issue of when an individual can be found personally liable in a wrongful dismissal claim. This will be particularly pertinent for small business owners where confusion may arise as to whether the employer is a corporation or an individual.

The decision, Garcia v 1162540 Ontario Inc., is an appeal of a small claims court decision that awarded the plaintiff damages for wrongful dismissal. The Plaintiff (“Garcia”) had worked for 1162540 Ontario Inc. (“Venice Fitness”) for 12 years. The deputy judge found that the Plaintiff had been constructively dismissed. This finding was upheld on appeal.

One issue that arose at trial was whether the corporate defendant and the personal defendant were jointly and severally liable. The deputy judge found the personal respondent, Jack Eghbali (“Eghbali”) personally liable, relying on the following factors: (1) the business was carried on as Venice Fitness without any further designation to reflect that it was a corporation, (2) Eghbali was the directing mind of Venice Fitness, (3) there was no basis for excluding Eghbali’s personal ownership of the business, and (4) there was no evidence that the corporate defendant carried on business under the name Venice Fitness (our research reveals that Eghbali did not register the business name until June 2010, and for reasons that are unclear to the author, it was registered as the business name of a different numbered company – 1349425 Ontario Limited).

Ultimately the trial judge found that Eghbali had not provided notice to Garcia that the business was owned by the numbered corporate defendant. He found that Eghbali could not benefit from the protection of the corporate veil since he had not provided this information to the Plaintiff.  He found the numbered corporate defendant and Eghbali jointly and severally liable.

This finding was overturned by the Divisional Court. The Deputy Judge had relied heavily on Truster v. Tri-Lux Fine Homes Ltd.  In that case, which involved an agreement to purchase a plot of land and to have a dwelling constructed, the Ontario Court of Appeal provided:

[P]ersons wishing to benefit from the protection of the corporate veil should not hold themselves out to the public without qualification. They should identify the name of the company with which they are associated in a reasonable manner or risk being found personally liable if the circumstances warrant it… if one expects to benefit from this protection, then others must, at a minimum, be informed in a reasonable manner that they are dealing with a corporation and not an individual.

In this case, the Garcia did not assert that Eghbali was personally liable until closing submissions at trial. There was nothing in the pleadings asserting that the corporate defendant and Eghbali where jointly and severally liable or that Eghbali was acting as an undisclosed principle of the corporate defendant.  Furthermore, no evidence was heard at trial regarding the issue. The court noted, however, that had Garcia properly asserted his wrongful dismissal claim against Eghbali personally, the principles in Tri-Luz would apply.

Lessons for employers

The Divisional Court did not fully analyze the issue of personal liability and the application of Tri-Luz in the employment context, due to deficiencies in the plaintiff’s pleadings.  Nevertheless, the decision raises an interesting consideration for employers.

Although it does seem that this would only arise in quite unique circumstances, it highlights the importance for employers to ensure that the identity of the employer is made clear to prospective employees. Yet again, this case serves as a reminder of the benefits to employers of contracting in writing with employees.

Stringer LLP
www.stringerllp.com

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Stringer LLP

Employment and Labour lawyers at Stringer LLP
Stringer LLP is a leader in Canadian HR law. For over 45 years, they have taken a client-centered approach to responsive service, representing employers with labour relations and employment problems. Their firm’s practice covers a broad spectrum of HR law, including employment law, occupational health & safety, labour relations and arbitration, human rights, workers’ compensation and pay equity, as well as issues under the Accessibility for Ontarians with Disabilities Act. They also provide training, seminars and conferences on the above topics. Read more
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