COURT FILE NO.: 497/04

DATE: 20060601

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: Grayker Corporation o/a Cadet Cleaners Applicant

v.

Lesia Fadalti, Employment Standards Officer, and Ontario (Ministry of Labour and Director of Employment Standards) Respondents/Moving Party

BEFORE: Mr. Justice Ferrier

COUNSEL: Brian Blumenthal and Judy L. Chan for the respondents/moving party Jonathan L. Dye for the applicant

HEARD: May 23, 2006

E N D O R S E M E N T

[1] The respondents in the pending application for judicial review move for an order that Stephen Akerfeldt and Myreille Goyer, on behalf of the applicant, re-attend to answer questions objected to on the cross-examinations on their affidavits.

[2] Further, the respondents seek an order directing the applicant to serve all application materials on those employees with respect to whom an order to pay was issued.

[3] This application for judicial review was commenced by a notice of application dated September 17, 2004. In its application, Grayker seeks, among other things, an order setting aside the order to pay wages, as defined in the Employment Standards Act, 2000, S.O. 2000, c.41 (“the ESA” or “the Act”), dated August 13, 2004, issued by the respondent Lesia Fadalti, an Employment Standards Officer (“ESO”), under the Act (“Order to Pay” or “OTP”). The OTP, which was for $704,712.42 (comprising of assessed wages plus a statutory 10% administrative fee), represented termination, severance and vacation pay found by the ESO to be owed to 96 former employees of Grayker, as a result of numerous temporary layoffs.

[4] Under the ESA, an ESO is a quasi-judicial officer, who may, in discharging his or her statutory duties, investigate complaints, conduct investigations, require production of documents and hold fact-finding meetings, among other things. In addition, where an ESO has determined that an employee is owed wages (including vacation pay, termination pay and/or severance pay), the ESO may, under section 103 of the Act, issue an order to an employer to pay wages to that employee.

[5] The ESA provides a mandatory appeal route for review of orders issued by an ESO. Section 116(1) of the Act provides that an employer can apply to the Ontario Labour Relations Board (“the Board”) for review of an order to pay wages, upon depositing into trust, a sum in the amount of the order to pay, or provide the Director with an irrevocable letter of credit in the amount of the order to pay. The purpose of this provision is to secure wages for the affected employees in the event that the order to pay is upheld by the Board.

[6] The questions objected to by Grayker fall into two main categories. Firstly, the affiants objected to several questions attempting to elicit evidence of and to test the applicant’s assertion that it is impecunious. In particular, the affiants (Grayker’s principal shareholders, Mr. Akerfeldt and Ms. Goyer) refused to produce documents or answer questions related to their personal financial position on the basis that such evidence is irrelevant.

[7] Secondly, the affiants refused to produce documents or answer questions on any issue, where they deemed those questions to be related to time frames before August 13, 2004 and after September 13, 2004, on the basis that the only relevant time period is the 30 days during which Grayker could have appealed the OTP, namely August 13 to September 13, 2004. MOL’s position is that the evidence sought by these questions is highly relevant to the matters at issue in this case, and therefore the questions should be answered.

[8] The Ministry of Labour (“MOL”) argues that the evidence is material to a threshold question in the application, namely, the applicant’s assertion that it is impecunious and unable to comply with s.116 of the ESA, which requires payment of the amount of the OTP into trust with the Director of Employment Standards.

[9] Thus, argues the MOL, the evidence is material to the issue of whether the applicant is entitled to circumvent the statutory right of appeal to the Board and seek judicial review in this court.

[10] There is ample authority for the proposition that absent exceptional circumstances, this court ought not entertain an application for judicial review where an alternative remedy is available under the ESA. See Carillon Decorative Products v. Millan, Employment Standards Officer (2004), 2004 1535 (ON SCDC), 71 O.R. (3d) 500, (S.C.J., Div. Ct.).

[11] The questions objected to go to the issue of impecuniosity and thus the issue of exceptional circumstances.

[12] Central to a determination of this motion is the question whether an assessment of the applicant’s ability to pay includes an assessment of the ability to pay of the owners or principal shareholders of the applicant.

[13] The MOL submits that in the absence of case law specifically on this point, this court may analogize the case law under rule 56.01 of the Ontario Rules of Civil Procedure (security for costs) for principles to be applied when determining whether impecuniosity has been made out in this case in order to avoid the application of s.116 of the ESA.

[14] Those principles are well established.

[15] The remedy of relief from an order for security for costs is discretionary. See Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Ltd., 1986 2683 (ON SC), [1986] O.J. No. 2364 (H.C.J.), at p. 5 - 6, per Trainor J.

[16] Impecuniosity is something more than having no assets. The plaintiff must establish that it and its shareholders cannot sell assets, borrow or otherwise raise the funds to post the security. That is, as held in Kurzela v. 526442 Ontario Ltd., the claimant must show that money may not be available to it from its shareholders and associates.

D.E. & J.C. Hutchison Contracting Co. v. Windigo Community Development Corp., [1996] O.J. No. 4405 (O.C.J. (Gen. Div.), per Wright J., at para.11.

Kurzela v. 526442 Ontario Ltd., [1988] O.J. (2d) 446 (H.C.J., Div. Ct.), at p.2, per McRae J.

[17] It is submitted that if MOL were not permitted to examine the financial circumstances of principal shareholders of the employer corporation, these individuals would effectively be allowed to insulate themselves from the policy and legislative requirements of the Act. This is particularly true when the shareholders or owners are animating or directing the affairs and litigation of closely held corporations. This produces the undesirable result of shifting the risk of the litigation onto the employees, and is contrary to the policy and stated purpose of the ESA, namely addressing the inequality of bargaining positions for vulnerable non-unionized employees.

[18] The applicant argues that the MOL position ignores the legal personality of the corporation, making the shareholders personally responsible for the corporation. The applicant claims it did not get a fair hearing and it does not have the money to deposit with the director. There is nothing in the ESA which makes the shareholders personally responsible to fund the deposit.

[19] Furthermore, argues the applicant, the analogy to an order for security for costs is not appropriate. Here, the applicant is not a plaintiff who has initiated proceedings. Security for costs is a matter of protection for a defendant. Grayker is not seeking anything; it is defending itself. This is not a case of a plaintiff shifting the risk of costs that are not collectible onto the defendant.

[20] In my view, all the questions should be answered, but I make no finding that the shareholders may be required, as in cases of security for costs, to fund the deposit. That issue should be left to the panel hearing the judicial review application.

[21] If the questions are not answered, and the panel determined that the evidence is relevant, the application would have to be adjourned to have the cross-examinations completed.

[22] The matter should go to the panel on a complete record. The relevance of the evidence springing from the answers should be determined by the panel.

[23] Order to go that the questions objected to be answered.

[24] In accordance with s.116(7) of the ESA, 2000, all employees for whom the OTP was issued are parties to the proceeding before the Board. As such, these individuals are interested parties before this court, as their minimum statutory entitlements may be adjudicated upon by this court. As such, it is in the interests of justice that these parties be served with notice of these proceedings.

[25] The employees clearly have an interest in this application and should be given notice even if technically they are not parties in this proceeding (as argued by the applicant).

[26] The applicant does not object to serving all employees with the notice of application but objects to serving the other materials because of its volume. This position is reasonable and an order will go that the applicant serve all employees with the notice of application.

[27] In addition, with the notice of application should be served, a simple notice to the effect that if they wish to receive the additional materials filed by either party to the application they will be furnished on request by each party, at that party’s expense.

[28] If the parties to the application are unable to agree on the text of this additional notice, I may be spoken to.

[29] Costs fixed at $2,500 payable to the respondent on the application, forthwith.

Ferrier J.

Released: June 1, 2006

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