Ontario (Director of Employment Standards), 2024 ONSC 3300

DIVISIONAL COURT FILE NO.: 215/20

DATE: 20240610

ONTARIO

SUPERIOR COURT OF JUSTICE – DIVISIONAL COURT

Backhouse, Lococo and Myers JJ.

BETWEEN:

2517906 ONTARIO INC. o/a TEMPORARY PERSONNEL SOLUTIONS Applicant

– and –

DIRECTOR OF EMPLOYMENT STANDARDS, MATTHEW DAVIES (EMPLOYMENT STANDARDS OFFICER), COREY LESSARD (EMPLOYMENT STANDARDS OFFICER) and CARLO DI TORO (EMPLOYMENT STANDARDS OFFICER) Respondents

Priya Sarin and Allyson Lee, for the Applicant

Evan Schiller and Tyler Fram, for the Director of Employment Standards

HEARD at Toronto: June 7, 2024

REASONS FOR DECISION

Backhouse J.

Overview

[1] The applicant, Temporary Personnel Solutions (“TPS”) seeks review of ten orders to pay unpaid wages in the amount of approximately $2.8 million under the Employment Standards Act, 2000, S.O.2000, c.41 (the “Act”) by three employment standards officers (“ESOs”) of the Ministry of Labour, Skills, Immigration, Training and Development (the “MOL”) issued in early 2000 (the “Orders”).

[2] TPS was a temporary help agency that was incorporated and began operating in 2016. TPS maintained its own core employees which it deployed as assignment workers to its agricultural and manufacturing clients. To meet the needs of its clients, TPS also substantially relied on assignment employees which it maintained were employees of subcontracted temporary help agencies (“THAs”). The Orders held TPS responsible for the unpaid wages of the allegedly “subcontracted” workers on the basis that TPS was the employer of those workers. TPS submits that there is no evidence that the subcontractors did not pay their employees and that the MOL inexplicably did not pursue the subcontractors for non-payment of wages.

[3] This judicial review application was consolidated in 2020 and was then adjourned pending the outcome of a test case at the Ontario Labour Relations Board (the “Board”) of one of the Orders--the Van Egmond Order. After a six-day hearing, the Board found that TPS and not the alleged subcontractor was the employer of the “subcontracted” employees, TPS had failed to demonstrate that the workers were paid and the Board upheld the Order. TPS’s judicial review application to the Divisional Court was dismissed: see 2517906 Ontario Inc. (c.o.b. Temporary Personnel Solutions) v. Ontario (Labour Relations Board), 2023 ONSC 4890 (Div. Ct.).

[4] TPS submits that the Orders should be quashed because the ESOs who issued the Orders breached the principles of procedural fairness and natural justice in making them and the Orders were unreasonable.

[5] TPS comes directly to the Divisional Court without seeking a review of the challenged orders by the Board under s.116 of the Act. In order to have a review by the Board, s. 116(1)(b) requires the person challenging the orders to pay the amounts owing under the orders to the Director in trust or provide the Director with an irrevocable letter of credit in that amount. TPS submits that there are exceptional circumstances permitting the court to hear its application for judicial review. Specifically, it relies on its impecuniosity and its being unable to otherwise access its right to appeal the orders.

[6] The respondent, the Director of Employment Standards (“DES”) submits that this application should be dismissed because it is barred by issue estoppel and/or abuse of process. It submits that the remedy requested of remitting the matter back to be determined by different ESOs would serve no purpose as the exact same outcome would inevitably be reached, TPS has an adequate alternative remedy of review by the Board and the decisions of the ESOs were procedurally fair and reasonable. It also submits that the decision to order an employer to pay wages under s.103 of the Act is discretionary and there is no merit to TPS’s complaint that the Orders were unreasonable because they were not also issued against the subcontractors.

[7] The application should be dismissed. TPS has an adequate alternative remedy under s.116 of the Act. It has not established that it is unable to access the Board review due to impecuniosity. In the circumstances of this matter, a s.116 review where the Board can decide the matter de novo is a more suitable and appropriate alternative than judicial review.

Court’s Jurisdiction

[8] The Divisional Court has the discretion to allow an application for judicial review “despite any right of appeal” and to grant the relief requested in the application pursuant to section 2(1) of the Judicial Review Procedure Act, R.S.O. 1990, c. J.1. Section 2(5) provides that “the court may refuse to grant any relief on an application for judicial review.”

[9] Where the legislature has created a statutory decision-making regime with an unrestricted appeal mechanism, courts will only hear judicial reviews before the statutory process is exhausted in exceptional circumstances: see Toth Equity Ltd. v. Ottawa (City), 2011 ONCA 372, 283 O.A.C. 33, at paras. 34-35.[^1]

Analysis

The Exercise of Discretion to Allow an Application for Judicial Review

[10] The exercise of discretion to allow an application for judicial review requires the court to determine the appropriateness of judicial review. In Strickland v. Canada (Attorney General), 2015 SCC 37, [2015] 2 S,C.R. 713, at paras. 43-44, the Supreme Court stated:

The court should consider not only the available alternative, but also the suitability and appropriateness of judicial review in the circumstances. In short, the question is not simply whether some other remedy is adequate, but also whether judicial review is appropriate.... This balancing exercise should take account of the purposes and policy considerations underpinning the legislative scheme in issue....

TPS Has an Adequate Alternative Remedy

[11] TPS has the right under the Act to a full hearing with the opportunity to present evidence and make submissions before the Board. If the application was considered and allowed by this court, the remedy sought by TPS is to send it back for redetermination by an ESO. On a s.116 review, unlike on a judicial review application, the Board may exercise the powers conferred on an ESO and may substitute its findings for those of the officer who issued the order (s.121 of the Act) or may amend, rescind or affirm the order or issue a new order (s.121(7) of the Act).

[12] Under s.116 (5) of the Act, the Board may extend the 30-day period for applying for review if it considers it appropriate in the circumstances to do so.

[13] The Act is public welfare legislation aimed at protecting vulnerable employees. The appeal to the Board is part of the comprehensive scheme created to provide an accessible and expeditious process for investigation and adjudication of basic employment standards and rights.

[14] In Happy Landing v. Employment Standards Branch, [1998] O.J. No. 2416 (Gen. Div.), at para. 14, the court commented on the advantages of a hearing de novo compared with a judicial review:

It is doubtful that it is better to proceed by judicial review on affidavit evidence and cross-examinations rather than viva voce before the referee. The appeal to the referee is by way of trial de novo and as noted above the employer has an absolute right to a fresh start untainted by the difficulties the applicant alleges in the investigative process.

[15] A review before the Board has advantages over judicial review. As it did in the Test Case, TPS would have the opportunity, as noted above, to call evidence at an oral hearing and the Board would decide the matter de novo. The Board has the power to grant a full remedy to TPS. In a review by the Board, the employer has an absolute right to a fresh start untainted by the difficulties TPS alleges in the investigative process. A hearing de novo can cure the procedural unfairness that TPS claims to have suffered. The presence of natural justice concerns or other alleged legal errors in the original decisions does not constitute exceptional circumstances.[^2] The Board is an expert tribunal in the area of employment standards. It reviews orders to pay like those against TPS as part of its core mandate.[^3]

[16] The requirement to pay the money into trust or provide a letter of credit to have an Order reviewed under s. 116(1)(b) of the Act is an important tool in fulfilling the purpose of the Act. It ensures employers do not have an incentive to challenge orders to postpone paying, thus weeding out frivolous Board applications. It also ensures that where an order is ultimately upheld, employees will not have to wait a further period of time while the DES attempts to recover that money from the employer.[^4]

[17] By requiring the placement of money into trust, the Act essentially sets out an alternative to a stay of the underlying order. It recognizes the substantive right of employees to access unpaid wages that are long overdue, fulfilling one of the key purposes of the Act.[^5] At the same time, s. 116(1)(b) ensures the funds can be returned to the employer should the first-level decision be varied or rescinded by the Board.

[18] For these reasons, where an employer seeks judicial review because of its inability to meet the requirement to pay money into trust, courts should be wary of accepting bald statements of impecuniosity.[^6] There must be a high evidentiary threshold, requiring financial disclosure with “robust particularity,” as in a motion for security for costs.[^7] This high standard is especially important in the employment standards context, as the Act was created to remedy the unequal bargaining power that non-unionized employees face.[^8] As noted by this court, the administrative process under the Act “is not meant to be readily avoided”.[^9]

TPS Has Not Demonstrated Impecuniosity

[19] The high standard required for a corporation to establish impecuniosity was summarized in Grayker Corporation v. Fadalti (Ont. Div. Ct.),[^10] [“Grayker”] which, like the current application, was an attempt to bypass the statutory appeal process before the Board and go directly to judicial review:

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… the claimant must show that money may not be available to it from its shareholders and associates.

[20] In Grayker, Justice Ferrier concluded that, in addition to information about the employer itself, information about its shareholders’ and associates’ personal financial positions may also be relevant to a finding of exceptional circumstances.[^11]

[21] TPS relies on Nyman v. Ontario (Employment Standards Officer), [1992] O.J. No. 3768 (Div. Ct.), where in declining to hear an application for judicial review, this court noted the absence of two factors that were found to be exceptional circumstances present in 550551 Ontario Ltd. v. Framingham (1991), 4 O.R. (3d) 571 (Div. Ct.), at para. 2:

1. $4 million was involved;
2. The section of the legislation in issue had never been judicially construed.

[22] TPS also relies on Carillon Decorative Products Inc. v. Ontario (Employment Standards Officer) (2004), 71 O. R. (3d) 500 (Div. Ct.), where the court found that the unchallenged evidence was that Carillon did not have the funds or access to funds sufficient to meet the deposit required.

[23] These cases relied on by TPS are readily distinguishable from the facts in this case. This case does not raise an issue which has never been judicially construed nor is TPS’s evidence of impecuniosity unchallenged. While the amount involved is large, the record does not satisfy me that the high evidentiary threshold has been met to establish that the financial circumstances are such that the employer cannot pay or that doing so would amount to serious hardship that constitutes exceptional circumstances.

[24] No details have been provided of the finances or assets of TPS’s shareholders, directors, or any of their associated businesses. All four of the relevant directors had their own holding companies, none of which have provided any financial disclosure. Two of the directors, Mr. Zefkic and Mr. Venneri, were in a financial position to operate businesses that “engaged in secondary mortgage lending and small business investment”, suggesting that they have sufficient assets to loan sums of money as part of their business operations. The limited financial evidence indicates that one of Mr. Zefkic’s business accounts – the one that TPS was transferring its own account balances into at the time the Orders were made in January and February 2020 – had a balance in excess of $500,000 at the relevant time (and this does not account for his or any of the other directors’ personal or other business’ assets).

[25] Further, two corporations – Canadian Personnel Solutions Inc. and 2725151 Ontario Inc. – were found to be “related employers” in the Orders, rendering those entities jointly and severally liable for the wages found owing under s. 4 of the Act. No financial disclosure has been provided for those related companies.

[26] Of significant concern is that the evidence points to an orchestrated attempt on TPS’ and its associates’ parts to ensure that any funds available to TPS would be shielded from the MOL’s reach, as well as the employees found to be owed wages, while TPS’s business activities were redirected to still other related entities.

[27] Less than two weeks after the issuance of the Marwood Order for almost $1.3 million, two of the four corporate directors, Mr. Venneri and Mr Zefkic, whose holding companies together owned 50% of TPS, resigned and demanded repayment of their lending companies’ loans. They subsequently issued a memo to TPS’s clients redirecting payment of all outstanding and future payments to Mr. Zefkic’s lending company.

[28] Mr. Zefkic and Mr. Venneri are not arm’s length investors in TPS, but rather are former directors of TPS who share joint and several liability for the wages in question pursuant to s. 81 of the Act, and had the duty under s. 115 of the Business Corporations Act, R.S.O. 1990, c. B.16 to “manage or supervise the management of the business and affairs” of TPS.

[29] The demand to redirect payment for not only outstanding but also future payments directly contradicts the characterization of this transaction as a purchase of outstanding accounts receivable, and also directly contradicts Mr. Zefkic’s statement that this action was taken to “give TPS the time to become a viable corporation.”

[30] TPS offered to pay $100,000 to the DES to access its statutory right to review all of the Orders. The DES has no authority to derogate from the requirement under the Act to pay the full amounts owing under the orders in trust or provide an irrevocable letter of credit. TPS provided no particulars to explain where the money was coming from and why it could only raise $100,000. Nor did TPS explain why it only appealed the Van Egmond Order of $2,618.61, the smallest quantum of the Orders by a significant margin.

[31] TPS specifically takes issue with the Vin First Order in its factum where it alleges:

In this decision, the ESO shockingly failed to even distinguish between the actual employees of Temporary Personnel Solutions and workers of the Third Party Agencies. The ESO simply deemed them all to be unpaid even though Temporary Personnel Solutions had the requested payroll records for its own employees. This renders the Vin First Order clearly in error.

[32] The Vin First Order was for $90,544.25, an amount TPS admits it could have afforded to appeal to the Board. Had it appealed that Order and been successful, it would have been entitled to the return of the money and could have used it to make a further appeal.

[33] In addition to redirecting its outstanding and future earnings to Mr. Zefkic, TPS’s own business activities appear to have been redirected to other companies that appear to be related, including Can Employment, with which both Julia Grandmond (office manager of TPS at the time the orders were made) and David Zefkic were involved. According to the limited records available to the ESO, in the summer of 2020, Ms. Grandmond and Mr. Zefkic continued to employ at least ten of the same employees and serve at least eight of the same clients through Can Employment as they did through TPS, and also continued to use the same intellectual property, such as TPS’s Staffing Services Agreement template. Thus, the limited records available suggest that not only did Mr. Zefkic redirect TPS’s bank account balances and its outstanding and future earnings to himself, he also continued conducting TPS’s business activities under a different name to continue earning money from that business, while shielding its funds from the reach of the MOL and employees owed money in this matter.

[34] Where shareholders adopt a corporate and financial structure to undercapitalize their business and to prioritize shareholder investment ahead of payment of employee wages or other creditor claims, they cannot rely on the corporate accounts alone to establish the type of special or equitable circumstances needed to bring judicial review instead of an appeal. TPS has not established that “it and its shareholders [could not] sell assets, borrow or otherwise raise the funds to post the security”, or that “money [was] not available to it from its shareholders and associates”: Grayker, at para.16. TPS has not demonstrated impecuniosity or that it could not have availed itself of the expert review by the Board provided by the legislature for employers under the Act.

Conclusion

[35] TPS has an adequate alternative remedy under s.116 of the Act which is part of a comprehensive scheme to provide an accessible and expeditious process for the investigation and adjudication of basic employments standards and rights. TPS has not established that it is unable to access the Board review due to impecuniosity. In the circumstances of this matter, a s.116 review is a more suitable and appropriate alternative than judicial review. The Board is in the best position to determine to what extent the Test Case decisions create issue estoppel or an abuse of process. It can also determine the issues raised of procedural fairness, decide the matter de novo and substitute its findings for those of the ESO.

[36] The application is dismissed with the proviso that if the parties reach an agreement in regard to the situation described in paragraph 69 of the respondent’s factum, the court will retain jurisdiction to make an order on consent. The parties may file a consent and draft order and request in writing that the panel make the order.

[37] In accordance with the parties’ agreement, there is no order for costs.

Backhouse J

I agree _________________________________

Lococo J.

I agree _________________________________

Myers J.

Date Released: June 10, 2024

Ontario (Director of Employment Standards), 2023 ONSC 3300

DIVISIONAL COURT FILE NO.: 215/20

DATE: 20240610

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Backhouse, Lococo and Myers JJ.

BETWEEN:

2517906 ONTARIO INC. o/a TEMPORARY PERSONNEL SOLUTIONS

Applicant

– and –

DIRECTOR OF EMPLOYMENT STANDARDS, MATTHEW DAVIES (EMPLOYMENT STANDARDS OFFICER), COREY LESSARD (EMPLOYMENT STANDARDS OFFICER) and CARLO DI TORO (EMPLOYMENT STANDARDS OFFICER)

Respondents

REASONS FOR DECISION

BACKHOUSE J.

Date of Release: June 10, 2024

[^1]: That conclusion is not affected by the Supreme Court’s recent decision in Yatar v.TD Insurance Meloche Monnex, 2024 SCC 8, 489 D.L.R. (4th) 191, in which the court held that it is not necessary to demonstrate exceptional circumstances to undertake judicial review for issues not dealt with under a limited statutory right of appeal (in that case limited to questions of law only).

[^2]: Airside Security Access Inc. v. Manickhand-Hosein (“Airside”), 2015 ONSC 3419 (Div. Ct.), at para. 6.

[^3]: I make no comment on the applicability of issue estoppel, or similar principles, that may preclude relitigation of one or more issues. This will be determined by the Board on hearing proper submissions of the parties.

[^4]: 1333833 Ontario Inc. v. John Doe (Ont. L.R.B.), at paras. 6-9; Med Spa Inc. (1672389 Ontario Inc.) v. Mughal (Ont. L.R.B.), at para. 5.

[^5]: Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460, at paras. 27, 50.

[^6]: Airside at para. 8; R. v. Check, 2012 ONCJ 843, at paras. 43-44.

[^7]: Bruno Appliance and Furniture Inc. v. Cassels Brock & Blackwell LLP (Ont. S.C.), at paras. 18-29.

[^8]: Rizzo& Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at paras. 22-24; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986, at paras. 31-32.

[^9]: Airside, at para.5.

[^10]: Aff’d, Grayker Corp. v. Ontario (Employment Standards Officer), 2006 CarswellOnt 5651 (Div. Ct.).

[^11]: Grayker, at paras. 6, 20-22.