Barrette v. Crabtree Estate, 1993 CanLII 127 (SCC), [1993] 1 SCR 1027
Gaston Barrette et al. Appellants
v.
Heirs of the late H. Roy Crabtree and Harold R. Crabtree Respondents
Indexed as: Barrette v. Crabtree Estate
File No.: 22505.
1992: December 1; 1993: March 25.
Present: Lamer C.J. and L'Heureux‑Dubé, Sopinka, Gonthier and Iacobucci JJ.
on appeal from the court of appeal for quebec
Corporations ‑‑ Directors ‑‑ Liability to employees ‑‑ Pay in lieu of notice of dismissal ‑‑ Directors of insolvent corporation held personally liable for sums awarded by court as pay in lieu of notice ‑‑ Whether these sums "debts . . . for services performed for the corporation" within meaning of s. 114(1) of Canada Business Corporations Act -- Canada Business Corporations Act, S.C. 1974-75-76, c. 33, s. 114(1).
The appellants, former managerial employees of the Wabasso corporation, obtained a judgment ordering the corporation to pay them over $300,000 in lieu of notice of dismissal. As the corporation was insolvent, however, the appellants brought an action in the Court of Quebec pursuant to s. 114(1) of the Canada Business Corporations Act ("C.B.C.A.") seeking a personal order against the directors of the corporation. That subsection provides that the "[d]irectors of a corporation are jointly and severally liable to employees of the corporation for all debts not exceeding six months wages payable to each such employee for services performed for the corporation while they are such directors respectively". The court allowed the action and ordered the respondent directors to pay the appellants the sums owed. The Court of Appeal reversed this judgment and dismissed the action. Unlike the Court of Quebec, the Court of Appeal concluded that the sums awarded by the court did not fall within the scope of s. 114(1) C.B.C.A.
Held: The appeal should be dismissed.
Although the primary purpose of the remedy provided for in s. 114(1) C.B.C.A. is to protect employees in the event of the bankruptcy or insolvency of the corporation, directors will not be personally liable for all debts assumed by the corporation to its employees. The rule stated in s. 114(1) cannot be separated from either the legal context or the language chosen by Parliament. That provision, which constitutes an exception to the fundamental principles of company law applicable to directors' liability, is limited and applies only to amounts claimed as "debts not exceeding six months wages . . . for services performed for the corporation". In this case, even assuming that the amounts payable in lieu of notice of dismissal are "debts" within the meaning of s. 114(1), this is not a debt for which the directors are personally liable. An amount payable in lieu of notice does not flow from services performed for the corporation, but rather from the damage arising from non‑performance of a contractual obligation ‑‑ to give sufficient notice when a party terminates a contract of employment for an indefinite term. Accordingly, the wrongful breach of the employment relationship by the employer is the cause and basis for the amounts awarded by the court as pay in lieu of notice.
Cases Cited
Distinguished: Schwartz v. Scott, [1985] C.A. 713; Meyers v. Walters Cycle Co. (1990), 1990 7816 (SK CA), 85 Sask. R. 222; referred to: Turcot v. Conso Graber Inc., 1990 3796 (QC CA), [1990] R.D.J. 166; Mesheau v. Campbell (1982), 1982 2063 (ON CA), 141 D.L.R. (3d) 155; Hills v. Canada (Attorney General), 1988 67 (SCC), [1988] 1 S.C.R. 513; Fee v. Turner (1904), 13 Que. K.B. 435; Asbestos Corp. v. Cook, 1932 66 (SCC), [1933] S.C.R. 86; Domtar Inc. v. St‑Germain, 1991 2855 (QC CA), [1991] R.J.Q. 1271; Columbia Builders Supplies Co. v. Bartlett, [1967] Que. Q.B. 111; Mills‑Hughes v. Raynor (1988), 1988 4660 (ON CA), 47 D.L.R. (4th) 381.
Statutes and Regulations Cited
Act to authorise the formation of corporations for manufacturing, mining, mechanical or chemical purposes, N.Y. Laws 1848, c. 40, s. 18.
Business Corporations Act, R.S.O. 1990, c. B.16, s. 131.
Business Corporations Act, R.S.S. 1978, c. B‑10, s. 114.
Business Corporations Act, S.A. 1981, c. B‑15, s. 114 [am. 1987, c. 15, s. 14].
Business Corporation Law, N.Y. Laws 1961, c. 855, s. 630.
Canada Business Corporations Act, R.S.C., 1985, c. C‑44, s. 119(1).
Canada Business Corporations Act, S.C. 1974‑75‑76, c. 33 [rep. & sub. 1978‑79, c. 9, s. 1], s. 114.
Canada Joint Stock Companies Act, 1877, S.C. 1877, c. 43, s. 69.
Canada Joint Stock Companies Letters Patent Act, 1869, S.C. 1869, c. 13, s. 49.
Civil Code of Lower Canada, arts. 1065, 1078.1.
Companies Act, R.S.Q., c. C‑38, s. 96.
Companies Act, 1934, S.C. 1934, c. 33, s. 96.
Labour Standards Act, R.S.S. 1978, c. L‑1, s. 2 "wages".
N.Y. Business Corporation Law § 630 (Consol. 1983) [am. N.Y. Laws 1984, c. 212, s. 1].
N.Y. Stock Corporation Law § 71 (McKinney 1951) [am. N.Y. Laws 1952, c. 794, s. 2].
Stock Corporation Law, N.Y. Laws 1901, c. 354, s. 54.
Authors Cited
Audet, Georges, Robert Bonhomme et Clément Gascon. Le congédiement en droit québécois en matière de contrat individuel de travail, 3e éd. Cowansville: Yvon Blais, 1991 (feuilles mobiles).
Beaulieu, Marie‑Louis. "De la responsabilité des directeurs de compagnies pour le salaire des employés" (1930‑31), 9 R. du D. 218 et 83.
Bohémier, Albert, and Anne‑Marie Poliquin. "Réflexion sur la protection des salariés dans le cadre de la faillite ou de l'insolvabilité" (1988), 48 R. du B. 75.
Breton, Réjean. "L'indemnité de congédiement en droit commun" (1990), 31 C. de. D. 3.
Chabot, Marc. La protection des salaires en cas de faillite ou d'insolvabilité. Montréal: Thémis, 1985.
Côté, Pierre‑André. The Interpretation of Legislation in Canada, 2nd ed. Cowansville: Yvon Blais, 1991.
Goldstein, Yoine. "Bankruptcy As It Affects Third Parties: Some Aspects". In Meredith Memorial Lectures 1985, Bankruptcy ‑‑ Present Problems and Future Perspectives. Montréal: Faculty of Law, McGill University, 1986, 198.
Hoffman, Samuel. "The Status of Shareholders and Directors Under New York's Business Corporation Law: A Comparative View" (1961‑62), 11 Buff. L. Rev. 496.
Iacobucci, Frank, Marilyn L. Pilkington and J. Robert Prichard. Canadian Business Corporations. Agincourt, Ont.: Canada Law Book, 1977.
Israels, Carlos L. Corporate Practice, 3rd ed. Revised by Alan M. Hoffman. New York: Practising Law Institute, 1974.
Landry, Raymond A. "Deux questions de politique législative en matière de faillite et d'insolvabilité: l'indemnisation des salariés et les traitements préférentiels" (1986), 17 R.G.D. 305.
Rogers, Dwight, and Donald F. McManus. "Stockholders' Booby‑Trap: Partnership Liabilities of Stockholders Under Section 71, New York Stock Corporation Law" (1953), 28 N.Y.U. L. Rev. 1149.
APPEAL from a judgment of the Quebec Court of Appeal, 1991 3705 (QC CA), [1991] R.J.Q. 1193, reversing a judgment of the Court of Quebec, J.E. 89‑1311, D.T.E. 89T‑943. Appeal dismissed.
Guy Bertrand and Claude Dallaire, for the appellants.
André J. Payeur and Madeleine Renaud, for the respondents.
The judgment of the Court was delivered by
L'Heureux‑Dubé J. ‑‑ This appeal concerns the interpretation of s. 114(1) of the Canada Business Corporations Act, S.C. 1974‑75‑76, c. 33 ("C.B.C.A.") (now s. 119(1) of the Canada Business Corporations Act, R.S.C., 1985, c. C‑44). Specifically, the question is whether, under that provision, the directors of a corporation against which employees have obtained a judgment, can be held personally liable for sums of money awarded by a court as pay in lieu of notice of dismissal. Section 114 C.B.C.A. reads as follows:
- (1) Directors of a corporation are jointly and severally liable to employees of the corporation for all debts not exceeding six months wages payable to each such employee for services performed for the corporation while they are such directors respectively.
(2) A director is not liable under subsection (1) unless
(a) the corporation has been sued for the debt within six months after it has become due and execution has been returned unsatisfied in whole or in part;
(b) the corporation has commenced liquidation and dissolution proceedings or has been dissolved and a claim for the debt has been proved within six months after the earlier of the date of commencement of the liquidation and dissolution proceedings and the date of dissolution; or
(c) the corporation has made an assignment or a receiving order has been made against it under the Bankruptcy Act and a claim for the debt has been proved within six months after the date of the assignment or receiving order.
(3) A director is not liable under this section unless he is sued for a debt referred to in subsection (1) while he is a director or within two years after he has ceased to be a director.
(4) Where execution referred to in paragraph (2)(a) has issued, the amount recoverable from a director is the amount remaining unsatisfied after execution.
(5) Where a director pays a debt referred to in subsection (1) that is proved in liquidation and dissolution or bankruptcy proceedings, he is entitled to any preference that the employee would have been entitled to, and where a judgment has been obtained he is entitled to an assignment of the judgment.
(6) A director who has satisfied a claim under this section is entitled to contribution from the other directors who were liable for the claim.
I ‑ Facts
On May 17, 1985 Wabasso Inc. (hereinafter "the corporation") closed its plant at Trois‑Rivières after experiencing serious financial difficulties. The appellants, 29 former managerial employees, were laid off. There being no agreement as to the amount to be paid by the corporation to its managerial employees in lieu of notice of dismissal, the appellants brought an action in the Quebec Superior Court. By judgment dated December 14, 1987, J.E. 88‑416, Laroche J. ordered the corporation to pay the appellants $300,358.66 as pay in lieu of notice of dismissal, in addition to the indemnity provided for in art. 1078.1 C.C.L.C.
That decision was not appealed.
On January 27, 1988, after the corporation became insolvent, the appellants brought an action in the Court of Quebec pursuant to s. 114(1) C.B.C.A. seeking a personal order against the directors of the corporation (the respondents). By judgment dated May 25, 1989 Judge Gagnon allowed the appellants' action and ordered the respondents jointly and severally to pay the appellants the sum of $300,358.66 as well as the additional indemnity provided for in art. 1078.1 C.C.L.C.
On April 15, 1991 the Quebec Court of Appeal allowed the respondents' appeal.
II ‑ Judgments
Court of Quebec (Trois‑Rivières), No. 400‑02‑000129‑880, May 25, 1989, J.E. 89‑1311
Noting that the pre‑conditions for the remedy had been met and that the respondents had admitted that they were directors, Judge Gagnon formulated the issue as follows (at p. 3):
[translation] The court must interpret s. 114(1) C.B.C.A. to determine whether the amounts awarded to the plaintiffs by the Superior Court as dismissal notice are debts resulting from their performance of services for the company.
Judge Gagnon first remarked that, unlike s. 96 of the Companies Act, R.S.Q., c. C‑38, in which the concept of wages is the determining element, the concept of debt is the cause, principle and basis for the liability of directors under s. 114 C.B.C.A. He expressed the view that the amounts awarded to the appellants by the Superior Court were "debts" within the meaning of that section, and added (at p. 12):
[translation] The court considers that the notice period is not only a debt but clearly results from the performance of services for the company. In Quebec law, the notice period is compulsory and necessary. The authors Robert Gagnon, Louis Le Bel and Pierre Verge [Droit du travail (1971)] give a good explanation of it when they write [at p. 38]:
"The dismissal or resignation notice ("notice period" is also used) is necessary to terminate a contract. It is an obligation for the party who intends to make use of unilateral rescission and a right for the other party."
The notice period is therefore not comparable to damages since its purpose is to minimize the impact of the job loss by allowing the employee to make reasonable advance provision for the effects of dismissal. Reasonable notice of dismissal is therefore an integral part of the employment contract for an indefinite term, as was the case with the plaintiffs. Accordingly, this debt is associated with the performance of services for the corporation.
Relying on the Quebec Court of Appeal judgment in Schwartz v. Scott, [1985] C.A. 713, Judge Gagnon added that, like pay in lieu of notice owed under a collective agreement, the money awarded by the Superior Court was for services rendered. He therefore concluded (at p. 15):
[translation] It follows, therefore, that the amounts awarded to the plaintiffs by judgment on December 14, 1987 are debts associated with the performance of services for Wabasso Inc. The defendants, in their capacity as directors of Wabasso Inc., are thus jointly and severally liable for these debts up to the amount of six months' wages.
Court of Appeal, 1991 3705 (QC CA), [1991] R.J.Q. 1193
The court first distinguished Schwartz on the ground that, unlike in the case at bar, the amounts awarded as pay in lieu of notice had been agreed upon in a clause in the collective agreement covering layoffs. The court relied on its decision in Turcot v. Conso Graber Inc., 1990 3796 (QC CA), [1990] R.D.J. 166, to the effect that s. 114(1) C.B.C.A. does not cover damages arising from a quasi‑delict or a breach of contract. The court also referred to Mesheau v. Campbell (1982), 1982 2063 (ON CA), 141 D.L.R. (3d) 155 in which the Ontario Court of Appeal held that a claim based on wrongful dismissal was an action for unliquidated damages and so was excluded from the scope of s. 114(1) C.B.C.A.
Having concluded that s. 114(2)(a) C.B.C.A. was an indicium that Parliament was targeting a due and liquidated debt, the court added (at pp. 1195‑96):
[translation] In our opinion, the wording clearly suggests that what is meant is debts, such as for due and unpaid wages, due and unpaid vacation leave, overtime worked and not yet paid for, but the amount of which is known because the rates are specified in the employment contract (individual or collective, as the case may be) or by law. It does not appear to refer to a debt which may possibly be quantified for breach of contract, layoff for economic reasons or wrongful dismissal. The debt here is not a liquidated and due one, but simply a contingent debt. Though the judgment on which the debt is based has become res judicata between the insolvent company and the employees, the fact remains that it does not necessarily have this finality vis‑à‑vis the [respondent] directors and that it made no ruling on a "debt for services performed".
The primary purpose of the claims was to obtain a declaration as to the nature of the termination of the employment contracts and then to quantify the resulting damages for term of notice. These were claims for unliquidated damages.
The Court of Appeal therefore concluded, unlike the Court of Quebec judge, that the sums awarded by the Superior Court did not fall within the scope of s. 114 C.B.C.A.
III ‑ Issue
The only issue in this Court is whether the sums awarded by the Superior Court as pay in lieu of notice of dismissal were "debts . . . for services performed for the corporation" within the meaning of that expression in s. 114(1) C.B.C.A.
IV ‑ Analysis
(A) Introduction
Section 114(1) C.B.C.A. is ambiguous. This ambiguity is evidenced, first, in the diametrically opposite conclusions arrived at by the Court of Quebec and the Court of Appeal. It is also reflected in the rules of interpretation put forward by each party, which lead to opposite results.
According to the appellants, the rules of statutory interpretation generally give a broad meaning to the word "debts" in s. 114(1) C.B.C.A. Thus, by reason of the remedial nature of that provision, a broad and liberal interpretation should be adopted so as to include the amounts awarded by the Superior Court as pay in lieu of notice. The respondents, on the other hand, point out that s. 114(1) C.B.C.A. imposes a liability on them that goes beyond what the law ordinarily prescribes, being an exception to the general rule that directors are not liable for a company's debts. The respondents accordingly submit that, given the exceptional nature of directors' personal liability, s. 114(1) C.B.C.A. requires instead a strict interpretation.
In the interpretation of a statutory provision it is, in my view, advisable to begin with a consideration of its background, however briefly (see Hills v. Canada (Attorney General), 1988 67 (SCC), [1988] 1 S.C.R. 513, at p. 528). By identifying the purpose of the remedy, this approach sets the parties' arguments in their proper context while shedding light on the interests at stake.
(B) Origin and Background of Section 114(1) C.B.C.A.
(1) New York Legislation
The remedy provided for in s. 114(1) C.B.C.A. is based on a New York State law dating from 1848. That statute, An Act to authorise the formation of corporations for manufacturing, mining, mechanical or chemical purposes, N.Y. Laws 1848, c. 40, s. 18, provided that shareholders of companies covered by the law "shall be jointly and severally individually liable for all debts that may be due and owing to all their laborers, servants and apprentices, for services performed for such corporation". This provision was included in a general statute governing joint stock corporations (Stock Corporation Law, N.Y. Laws 1901, c. 354, s. 54), and it was not until a 1952 amendment (N.Y. Laws 1952, c. 794, s. 2) that the amounts covered by the remedy were listed more specifically, though not exhaustively. Before that date, s. 71 of the Stock Corporation Law (formerly s. 54) read as follows:
The stockholders of every stock corporation shall jointly and severally be personally liable for all debts due and owing to any of its laborers, servants or employees other than contractors, for services performed by them for such corporation. Before such laborer, servant or employee shall charge such stockholder for such services, he shall give him notice in writing, within thirty days after the termination of such services, that he intends to hold him liable. . . .
The amendment inserted the words "wages or salaries" after the word "debts" as well as a new paragraph drafted as follows:
For the purposes of this section, wages or salaries shall mean all compensation and benefits payable by an employer to or for the account of the employee for personal services rendered by such employee. These shall specifically include but not be limited to salaries, overtime, vacation, holiday and severance pay; employer contributions to or payments of insurance or welfare benefits; employer contributions to pension or annuity funds; and any other moneys properly due or payable for services rendered by such employee.
In 1963, the new general law governing joint stock companies limited this personal liability to a company's ten largest shareholders (Business Corporation Law, N.Y. Laws 1961, c. 855, s. 630). The new provision governing shareholders' personal liability was designed to clarify the procedure for recovering money paid by the shareholders who were sued while at the same time ensuring that suits were not brought against shareholders with small holdings:
By an amendment in 1952, wages and salaries were defined to include every variety of fringe benefits, including vacation, holiday and severance pay, and contributions to pension or annuity funds. The vice inherent in the statute lies in its imposition of "several" liability ‑‑ so that any shareholder, however small his holdings in the corporation, may be personally liable for the full judgment (which may be extremely large in view of the extended definition of wages and salaries). Moreover, case law does not clarify the contribution rights of the shareholder who has paid the entire judgment. [Emphasis in original.]
(S. Hoffman, "The Status of Shareholders and Directors Under New York's Business Corporation Law: A Comparative View" (1961‑62), 11 Buff. L. Rev. 496, at p. 544.)
Another author sums up the effect of the 1963 amendments as follows:
Prior to 1963, shareholders' liability for the items covered by the statute was joint and several, and the case law was by no means clear as to whether an individual shareholder held liable could seek contribution from other shareholders. NY BCL § 630 retains the essential character of the former provisions, but mitigates some of the harsher aspects of the liability:
1.The liability is restricted to the ten largest shareholders as determined by the value of their beneficial interests in the corporation as of the date when the unpaid services began;
2.The right of contribution as between the ten largest shareholders is made specific, provided timely notice is given to the shareholders from whom it is sought.
(C. L. Israels, Corporate Practice (3rd ed. 1974), at pp. 10‑11.)
See also D. Rogers and D. F. McManus, "Stockholders' Booby‑Trap: Partnership Liabilities of Stockholders Under Section 71, New York Stock Corporation Law" (1953), 28 N.Y.U. L. Rev. 1149.
Section 630 of the New York Business Corporation Law now reads as follows:
- Liability of shareholders for wages due to laborers, servants or employees
(a) The ten largest shareholders, as determined by the fair value of their beneficial interest as of the beginning of the period during which the unpaid services referred to in this section are performed, of every corporation (other than an investment company registered as such under an act of congress entitled "Investment Company Act of 1940"), no shares of which are listed on a national securities exchange or regularly quoted in an over‑the‑counter market by one or more members of a national or an affiliated securities association, shall jointly and severally be personally liable for all debts, wages or salaries due and owing to any of its laborers, servants and employees other than contractors, for services performed by them for such corporation. Before such laborer, servant or employee shall charge such shareholder for such services, he shall give notice in writing to such shareholder that he intends to hold him liable under this section. Such notice shall be given within one hundred and eighty days after termination of such services, except that if, within such period, the laborer, servant or employee demands an examination of the record of shareholders under paragraph (b) of section 624 (Books and records; right of inspection, prima facie evidence), such notice may be given within sixty days after he has been given the opportunity to examine the record of shareholders. An action to enforce such liability shall be commenced within ninety days after the return of an execution unsatisfied against the corporation upon a judgement recovered against it for such services.
(b) For the purposes of this section, wages or salaries shall mean all compensation and benefits payable by an employer to or for the account of the employee for personal services rendered by such employee. These shall specifically include but not be limited to salaries, overtime, vacation, holiday and severance pay; employer contributions to or payments of insurance or welfare benefits; employer contributions to pension or annuity funds; and any other moneys properly due or payable for services rendered by such employee.
(c) A shareholder who has paid more than his pro rata share under this section shall be entitled to contribution pro rata from the other shareholders liable under this section with respect to the excess so paid, over and above his pro rata share, and may sue them jointly or severally or any number of them to recover the amount due from them. Such recovery may be had in a separate action. As used in this paragraph, "pro rata" means in proportion to beneficial share interest. Before a shareholder may claim contribution from other shareholders under this paragraph, he shall, unless they have been given notice by a laborer, servant or employee under paragraph (a), give them notice in writing that he intends to hold them so liable to him. Such notice shall be given by him within twenty days after the date that notice was given to him by a laborer, servant or employee under paragraph (a). [Emphasis in original.]
(New York Consolidated Laws Service, vol. 3, 1983 (Cumulative Supplement (1992)).)
(2) Canadian Legislation
Unlike its American precursor, the federal provision at issue here places the liability for certain debts of the corporation to its employees on the shoulders of the directors, rather than on those of the shareholders. Its original wording goes back to the first general legislation dealing with the incorporation of federal companies. Section 49 of the Canada Joint Stock Companies Letters Patent Act, 1869, S.C. 1869, c. 13, read as follows:
- The Directors of the Company shall be jointly and severally liable to the laborers, servants and apprentices thereof, for all debts, not exceeding one year's wages, due for services performed for the Company whilst they are such Directors respectively; but no Director shall be liable to an action therefor, unless the Company has been sued therefor within one year after the debt became due, nor yet unless such Director is sued therefor within one year from the time when he ceased to be such Director, nor yet before an execution against the Company has been returned unsatisfied in whole or in part; and the amount due on such execution shall be the amount recoverable with costs against the Directors.
By specifying that the sums paid by one director could be recovered from other directors, the federal statute avoided reproducing one of the flaws inherent in the American provision. Similarly, by placing this liability on the shoulders of directors rather than shareholders, the federal provision avoided the problem of the potential liability of shareholders with small holdings who had no part in the administration of the company. On the other hand, unlike its New York counterpart, the Canadian provision never formulated a specific definition of the amounts covered by the remedy. The most significant amendments were aimed at lowering the ceiling on directors' liability to six months' wages (S.C. 1877, c. 43, s. 69); shortening the time during which the company could be sued to six months rather than a year from the date the debt became due (S.C. 1934, c. 33, s. 96); replacing the list of beneficiaries by the generic term "employee" and modifying the company's bankruptcy date in the section regarding the pre‑conditions of the remedy (S.C. 1974‑75‑76, c. 33, s. 114). Although a further modification arose after the commencement of the current litigation, this change has no bearing on the disposition of this appeal. Following the consolidation of December 12, 1988 the French version of s. 119(1) of the Canada Business Corporations Act now reads as follows:
- (1) Les administrateurs sont solidairement responsables, envers les employés de la société, des dettes liées aux services que ceux‑ci exécutent pour le compte de cette dernière pendant qu'ils exercent leur mandat, et ce jusqu'à concurrence de six mois de salaire. [Emphasis added.]
The English wording has remained the same. Moreover, the above section was not intended to alter the substance of the earlier law:
Consolidated statutes . . . should be viewed as "declaratory of the law": although they may bring changes to the law, these are deemed to be purely formalistic.
(P.‑A. Côté, The Interpretation of Legislation in Canada (2nd ed. 1991), at p. 433.)
Accordingly, the issue in this case is whether, in the absence of a specific definition of the nature of the debts Parliament had in mind, s. 114(1) C.B.C.A. applies to amounts awarded by a court as pay in lieu of notice. Parliament places the liability imposed by s. 114(1) C.B.C.A. on the shoulders of directors, on the one hand, for the benefit of a particular category of creditors, on the other. While clarifying the context of the remedy, both the case law and the doctrine indicate that these two facets are inseparable from its purpose.
(C) Purpose and Context of the Remedy
The primary purpose of the remedy provided for in s. 114(1) C.B.C.A. is to protect employees in the event of bankruptcy or insolvency of the corporation. This protection is part of a range of legislative measures which go far beyond the bounds of company law:
[translation] According to traditional wisdom, Parliament always was or should have been concerned with protecting employees affected by bankruptcy or insolvency.
This concern to provide protection can take various forms. It can be demonstrated by giving priority to a wage claim against the debtor's assets or against immovable property the value of which was increased by the employee's work, up to the amount of the value added. It can also take the form of providing a preferred claim in the debtor's bankruptcy or in the liquidation of the company.
In addition to these measures . . . the protection of employees can take the form of a remedy against third parties, primarily the bank which has taken possession of the debtor's assets under s. 178(6) of the Bank Act, the beneficiary of an assignment of inventory and the directors of an insolvent company. [Emphasis added.]
(A. Bohémier and A.‑M. Poliquin, "Réflexion sur la protection des salariés dans le cadre de la faillite ou de l'insolvabilité" (1988), 48 R. du B. 75, at p. 81.)
This overview of the general context indicates that the recourse provided for in s. 114(1) C.B.C.A. is distinguishable because it is brought against third parties, the directors. The observations of Hall J. in Fee v. Turner (1904), 13 Que. K.B. 435, clearly summarize the rationale underlying the remedy itself (at p. 446):
For lack of any other reason it occurs to me that what must have been had in view, was to protect to a limited extent those who were employed by such companies in positions which do not enable them to judge with any special intelligence what is the company's real financial position. The directors have personally this knowledge or should have it, and if, aware of the company's embarrassed affairs, and specially of the danger of a speedy collapse and insolvency, they continue to utilize the services of employees who have no means of securing this knowledge and who give their time and labour upon their sole reliance, often, on the good faith and respectability of the company's directors, it is not inequitable that such directors should be personally liable, within reasonable limits, for arrears of wages, thus given to their service.
Scholarly commentary has endorsed these observations concerning the purpose of the protection inherent in such measures. Thus, distinguishing employees from the corporation's other creditors, Professor Marie‑Louis Beaulieu dismisses as follows the argument that directors' liability is penal in nature:
[translation] And why would this penalty involve requiring them to pay the employees rather than the company's other creditors?
It will perhaps be said that such creditors deserve special consideration by the law: that is very true; and it is more logical to say that Parliament wished to protect the worker and nothing more, to give him a remedial action, a guarantee of payment, in view of his often difficult situation. As he has nothing to do with administration, he should not suffer the consequences of a disaster; he does not speculate, he will be paid for what his work is worth, whatever the company's profits.
("De la responsabilité des directeurs de compagnies pour le salaire des employés" (1930‑31), 9 R. du D. 218 and 483, at p. 220.)
Iacobucci, Pilkington and Prichard similarly justify the protection at issue here by the special vulnerability of employees as compared with other creditors of the corporation:
This liability is an intrusion on the principle of corporate personality and limited liability, but it can be justified on the grounds that directors who authorize or acquiesce in the continued employment of workers when the corporation is not in a position to pay them should not be able to shift the loss onto the shoulders of the employees. Other creditors who supply goods and services to a failing corporation are not entitled to this kind of preference, but neither are they as dependent on the corporation as employees, nor as vulnerable.
(Canadian Business Corporations (1977), at p. 327.)
See also Raymond A. Landry, "Deux questions de politique législative en matière de faillite et d'insolvabilité: l'indemnisation des salariés et les traitements préférentiels" (1986), 17 R.G.D. 305, at pp. 310‑11.
Section 114(1) C.B.C.A. is located within a specific legal framework. In terms of the general principles governing company law, the provision is exceptional in at least three respects. First, the rule departs from the fundamental principle that a corporation's legal personality remains distinct from that of its members. In so doing, s. 114(1) C.B.C.A. creates an exception to the more general principle that no one is responsible for the debts of another. Further, unlike other statutory rules which may impose personal liability on directors, s. 114(1) C.B.C.A. does not contain an exculpatory clause as such:
Contrary to the liability resulting from the inappropriate declaration of dividends, inappropriate financial assistance to shareholders and other statutorily created liability of directors, the statutes do not contain any exculpatory availabilities with respect to unpaid wages: the mere fact of having been a director at the time that the services were rendered by the employee renders the directors jointly and severally liable, provided the various statutory procedural requirements are fulfilled by the employee.
The only possible exculpation, therefore, is proof by the director that he was not a director at the time the liability was incurred, that he was not sued within the proper prescriptive or statute of limitations period, or that the employee did not fulfil the relevant statutory pre‑conditions which give rise to the director's liability. [Emphasis in original.]
(Yoine Goldstein, "Bankruptcy As it Affects Third Parties: Some Aspects", in Meredith Memorial Lectures 1985, Bankruptcy ‑‑ Present Problems and Future Perspectives (1986), 198, at p. 212.)
Finally, the provision in question imposes on directors a positive obligation. This distinguishes it from most statutory rules, which prohibit directors from engaging in certain acts or transactions. As Marc Chabot points out:
[translation] In general, the statutory liability of directors involves the prohibition of certain actions. Liability is then associated with a decision which they took at some point on their own initiative. The obligation imposed on them is to avoid certain decisions in certain circumstances. The liability of directors for unpaid wages is perhaps the only case where a positive obligation is imposed on them: they must ensure that wages are paid in the event of bankruptcy or insolvency.
(La protection des salaires en cas de faillite ou d'insolvabilité (1985), at p. 91.)
It is against this background that the present appeal must be considered. While its purpose is to ensure that certain sums, including wages, are paid to employees in the event the corporation becomes bankrupt or insolvent, s. 114(1) C.B.C.A. constitutes a major exception to the fundamental principles of company law applicable to directors' liability. As we have seen, it also overrides the more general principle that no one is liable for the debts of another.
In this regard, there are two important parameters in connection with the employee's remedy. First, the directors' maximum liability is set at six months' wages. This parameter provides a ceiling which, while establishing a quantitative limit to the liability of the directors, does not in so doing determine the nature of the amounts covered by the action. The nature of the sums which Parliament had in mind must be considered instead from a second angle: regardless of quantum, the amounts claimed must be "debts . . . for services performed for the corporation". I therefore cannot subscribe to the appellants' arguments that the first question to be answered is whether the job loss compensation falls within the broad concept of "wages". In the context of s. 114(1) C.B.C.A., the word "wages" refers solely to the quantum of the directors' liability and cannot in itself guide the Court in disposing of the present case.
The parameter which is at the heart of the appeal is therefore not the concept of "wages", but the expression "debts . . . for services performed for the corporation". In thus limiting the debts covered by the remedy, Parliament indicated that directors will not be personally liable for all debts assumed by the corporation to its employees. As Beauregard J.A. pointed out in Schwartz v. Scott, supra, at pp. 716‑17:
[translation] The purpose of this provision is not to make directors liable for all the debts which a corporation may at its option assume more or less retroactively to its employees for past services.
In order to determine whether the amounts awarded as job loss compensation are "debts . . . for services performed for the corporation", the nature of pay in lieu of notice of dismissal must therefore be examined in light of this criterion.
(D) Pay in Lieu of Notice of Dismissal and Section 114(1) C.B.C.A.
In the context of a contract of employment for an indefinite term, either of the parties may terminate the contract at any time by giving the other reasonable notice (Asbestos Corp. v. Cook, 1932 66 (SCC), [1933] S.C.R. 86, at pp. 99‑100). The Quebec Court of Appeal restated the basis of this obligation in Domtar Inc. v. St‑Germain, 1991 2855 (QC CA), [1991] R.J.Q. 1271, at p. 1276:
[translation] For all classes of employees not mentioned in art. 1668, the principle of a reasonable notice applies. This principle, deriving from the customs and usages of old French corporations, has been elevated to a legal obligation in Quebec civil law under art. 1024 of the Civil Code, which states:
The obligation of a contract extends not only to what is expressed in it, but also to all the consequences which, by equity, usage or law, are incident to the contract, according to its nature.
The main objective of this obligation is to give the employee the time to find a new job and the employer to find a new employee. Referring to Planiol and Ripert (Traité pratique de droit civil français (2nd ed. 1954), vol. 11, at pp. 102‑3), the Quebec Court of Appeal mentions this objective in Columbia Builders Supplies Co. v. Bartlett, [1967] Que. Q.B. 111, at p. 113:
[translation] The notice period is a period which anyone who takes the initiative in the termination must observe: it extends between the time notice of termination is given to the other party and the time he severs all working relations with that party. . . .
The purpose of this institution is to avoid the other party being prejudiced by the sudden work stoppage: by being thus warned in advance, the employer can hire a new employee in good time to replace the one leaving, without any interruption in the work; similarly, the employee has time to look for a new position and avoid unemployment.
When, without reasonable cause, one of the parties breaches the obligation to give notice, or gives notice for an insufficient period of time, that party is liable to pay contractual damages under art. 1065 C.C.L.C. (see G. Audet, R. Bonhomme and C. Gascon, Le congédiement en droit québécois en matière de contrat individuel de travail (3rd ed. 1991), at p. 2‑1). Professor Breton clearly summarizes the connection between an employer's contractual fault and the compensatory allowance awarded by the court:
[translation] The rules for a contract of employment for an indefinite term are that the employer can terminate it by giving the employee sufficient notice. This means that the employer has no obligation to go on providing work to an employee and, without reasonable cause, can terminate the contract at any time so long as this obligation of giving reasonable notice or the payment of wages in lieu thereof is satisfied. For this type of contract, the question of law which first arises is not whether the employer was entitled to terminate the contract, unless of course the employer relies on reasonable cause, but is rather the notice to which the employee was entitled in the circumstances. This compensation for notice which may be awarded by the judge is to redress the damage resulting from the employer's fault in terminating the contract without meeting his obligation to give sufficient notice, assuming there was no reasonable cause of dismissal. [Emphasis added.]
("L'indemnité de congédiement en droit commun" (1990), 31 C. de D. 3, at pp. 8‑9.)
In light of the foregoing, it seems necessary to mention two separate errors made by the lower courts. These relate, first, to the characterization of the amounts awarded by the Superior Court, and second, to the requirements of s. 114(1) C.B.C.A.
After stressing that the notice of dismissal was mandatory and necessary, the trial judge concluded (at p. 12):
[translation] The notice period is therefore not comparable to damages since its purpose is to minimize the impact of the job loss by allowing the employee to make reasonable advance provision for the effects of dismissal. Reasonable notice of dismissal is therefore an integral part of the employment contract for an indefinite term, as was the case with the plaintiffs. Accordingly, this debt is associated with the performance of services for the corporation. [Emphasis added.]
With respect, the outcome of the appeal cannot depend simply on whether or not the obligation to give reasonable notice is part of the contract for an indefinite term. First, since the employer's failure to give reasonable notice is a contractual fault, the penalty for that failure must necessarily take the form of contractual damages. Second, as I noted earlier, the purpose of s. 114(1) C.B.C.A. is not to cover all debts assumed by the corporation to its employees. This point cannot be disregarded. Accordingly, the fact that the employer has an obligation under a contract of employment cannot in itself be conclusive for purposes of an action brought by the employee.
On the other hand, the fact that an obligation imposed on the employer is not expressed in specific monetary terms under the law or in the employment contract cannot be a bar to a remedy under s. 114(1) C.B.C.A. By concluding that this provision applied only to a debt [translation] "the amount of which is known because the rates are specified in the employment contract (individual or collective, as the case may be) or by law" (p. 1196), the Court of Appeal added a condition that is not found in the wording of the provision. Section 114(1) C.B.C.A. establishes a quantitative limit on the amounts for which directors will be personally liable, and that is a sum equivalent to six months' wages. Directors are therefore in a position to know in advance the maximum amount of their potential liability in the event the company becomes bankrupt or insolvent. For the purposes of the present appeal, it does not seem necessary to dispose of the controversy that may arise as to the interpretation of the word "debts" taken in isolation. I am thus prepared to assume, without deciding, that the amounts payable in lieu of notice of dismissal are "debts" within the meaning of s. 114(1) C.B.C.A. However, the appellants' appeal must fail on another ground.
The term "debts" cannot be dissociated from the context in which it is used. According to the language used by Parliament, the debts must result from "services performed for the corporation". An amount payable in lieu of notice does not flow from services performed for the corporation, but rather from the damage arising from non‑performance of a contractual obligation to give sufficient notice. The wrongful breach of the employment relationship by the employer is the cause and basis for the amounts awarded by the Superior Court as pay in lieu of notice. It is primarily for this reason that the Ontario Court of Appeal has excluded this type of compensation from the scope of s. 114(1) C.B.C.A. (see Mesheau v. Campbell, supra, at p. 157, and Mills‑Hughes v. Raynor (1988), 1988 4660 (ON CA), 47 D.L.R. (4th) 381, at pp. 386‑87). In the absence of additional legislative indicia, the performance of services by the employee remains the cornerstone of the directors' personal liability for debts assumed by the corporation. On the pretext of a broad interpretation, this Court cannot add to the text of the provision words which it does not contain. Taking account of the context in which s. 114(1) C.B.C.A. was enacted and the nature of the specific liability which departs from what the law ordinarily prescribes, it seems to me that only one conclusion logically follows.
In support of their arguments the appellants cited the Quebec Court of Appeal in Schwartz v. Scott, supra, and the Saskatchewan Court of Appeal in Meyers v. Walters Cycle Co. (1990), 1990 7816 (SK CA), 85 Sask. R. 222. However, those two judgments can be distinguished from the case at bar.
In Schwartz the Court of Appeal held that the pay in lieu of notice provided for in the collective agreement was an amount for which the directors were personally liable. Under the collective agreement in that case, the employees were entitled to such compensation not only in the event of dismissal but also in the event of voluntary resignation. These amounts could therefore be regarded as "debts . . . for services performed for the corporation", as the employees were entitled thereto simply because they had worked for a certain time. The judgment of the Saskatchewan Court of Appeal in Meyers was concerned not with s. 114(1) C.B.C.A. but with s. 114 of the Business Corporations Act, R.S.S. 1978, c. B‑10, which reads:
- Directors of a corporation are jointly and severally liable, in accordance with The Labour Standards Act, to employees of the corporation for all debts payable to each such employee for services performed for the corporation while they are such directors respectively.
First, it is worth noting that provincial legislation provides, on a variety of conditions and to varying degrees, more or less extensive benefits for employees (see for example the Companies Act, R.S.Q., c. C‑38, s. 96; the Business Corporations Act, R.S.O. 1990, c. B.16, s. 131; and the Business Corporations Act, S.A. 1981, c. B‑15, s. 114). Moreover, the Court of Appeal relied chiefly on the definition of the term "wages" in the Labour Standards Act, R.S.S. 1978, c. L‑1, s. 2, in concluding that the directors could be personally liable for the damages claimed for wrongful dismissal. That section reads as follows:
- In this Act:
(r) "wages" means all wages, salaries, pay, commission and any compensation for labour or personal services, whether measured by time, piece or otherwise, to which an employee is entitled;
Without commenting on the conclusion reached by the Court of Appeal in that case, it is important to note that, like the legislation of New York State since 1952, the Saskatchewan legislature has formulated its own definition of the sums that may fall within the directors' personal liability. Relying on this definition, therefore, the Court of Appeal was called upon to implement the legislative intent as expressed in the legislation in question. That is not the case here: the only benchmark provided by the wording of s. 114(1) C.B.C.A. is the performance by the employee of services for the corporation. In matters of statutory interpretation the courts cannot usurp the function of the legislature in the absence of clear language and legislative guidelines leading inevitably to a given conclusion. As Professor Côté points out, supra, at p. 248:
It would be unfair for the courts to impose a legislative intent, however true it might be, that the citizen could not infer from the text considered in its context. The interpretative role of the courts does not allow them to add terms to a statute that are not already implicit therein. Even in the name of true intention, they may not override the public's reasonable expectation of the statute's meaning, as revealed by the words read in context. This is true even if the results of interpretation obtained by reading the text in its context are less satisfactory than those resulting from inferred intention: ". . . it is better the law should be certain, than that every judge should speculate upon improvements in it". [Emphasis added.]
(E) Conclusion
As with the examination of context surrounding the remedy provided for in s. 114(1) C.B.C.A., reference to comparative law makes it clear that the ambiguity of the provision in question should not be resolved by a mechanical application of a given rule of construction. Although the purpose of this provision is to ensure that certain sums are paid to employees in the event that the corporation becomes bankrupt or insolvent, the rule it states cannot be separated from either the legal context or the language in which Parliament has chosen to state the rule. In such circumstances, amounts awarded by a court for damages the basis of which is located, as here, in the non‑performance of a contractual obligation and the wrongful breach of a contract of employment by the employer are not "debts . . . for services performed for the corporation" for which the corporation's directors can thus be personally liable.
However much sympathy one may feel for the appellants, who have here been deprived of certain benefits resulting from the contract of employment with their employer, that does not give a court of law the authority to confer on them rights which Parliament did not intend them to have. In the absence of the provision here at issue, the employees would have suffered the same fate as any creditor dealing with an insolvent debtor, in this case the bankrupt employer. The Act provides a remedy, giving them recourse against the directors of the corporation, but it has limited that remedy both in quantity and in duration. Only Parliament is in a position, if it so wishes, to extend these benefits after weighing the consequences of so doing. This, in the final analysis, remains a political choice and cannot be the function of the courts.
With respect to costs, it seems to me that, given the circumstances of this case, the nature of the remedy and the ambiguity of the provision in question, each party should bear its own costs.
For these reasons I would dismiss the appeal, without costs.
Appeal dismissed.
Solicitors for the appellants: Bertrand, Larochelle, Québec.
Solicitors for the respondents: McCarthy Tétrault, Montréal.
