Can I be personally sued for my corporation's unpaid wages as a director?
Yes. Under the Employment Standards Act, 2000 (Ontario), directors of Ontario corporations can be personally liable for unpaid wages owed to employees. The liability covers wages, vacation pay, public holiday pay, and termination pay — up to a maximum of six months' unpaid wages per employee. This is one of the clearest exceptions to the general rule that a corporation's debts belong to the corporation alone.
A similar exposure exists under the federal Income Tax Act and the Excise Tax Act for unremitted payroll source deductions and HST. If the corporation fails to remit amounts withheld from employees (CPP, EI, and income tax) or HST collected from customers, the CRA can assess those amounts against directors personally after the corporation is unable to pay.
The main defence available to directors under the Income Tax Act/Excise Tax Act is the "due diligence" defence — demonstrating that you exercised the care, diligence, and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the failure to remit. It is a meaningful defence but requires demonstrating active, documented steps.
The lesson for directors is clear: make payroll and tax remittances a priority, monitor the corporation's ability to meet those obligations, and seek advice early if cash flow problems arise.
Key takeaways
- Directors can be personally liable for up to six months of unpaid employee wages.
- CRA can pursue directors personally for unremitted source deductions and HST.
- A due diligence defence is available but requires proof of active steps to prevent non-remittance.
- Prioritizing remittances and seeking early advice protects directors when cash is tight.