Owners assume liability of defunct company

Ontario employer went out of business 8 years earlier so human rights tribunal and court find owners liable for harassment damages
By Aaron Rousseau
|employmentlawtoday.com|Last Updated: 08/26/2013

Entrepreneurs run a lot of risks. If their corporation goes under, entrepreneurs stand to lose any money they invested, and any loans that they guaranteed. The Human Rights Tribunal of Ontario and the Ontario Divisional Court have now added another risk. If a corporation fails, its owners and managers can be held personally liable for damages awarded against the corporation by the tribunal.

Michel Leonard and Harry McKeague had a commercial real estate agency. They grew the agency to multiple offices and employed a number of agents. One of those agents was Katherine Farris. Unfortunately, Farris had a very bad time over her nine years with the male-dominated agency. She was isolated by her colleagues, who called her names, including “crazy,” “psycho,” and “bitch.” Her co-workers also spread a false rumour that she was having a sexual relationship with McKeague, who was her boss. Leonard and McKeague made some efforts to resolve the matter, at one point even bringing in an outside expert. They did not succeed, and the harassment continued. Eventually, Leonard and McKeague concluded they had to choose between Farris and the rest of their Toronto office. They terminated Farris, explaining she did not work well with others. Although the agency paid Farris a severance of $42,000, she still brought the matter before the Human Rights Tribunal of Ontario.

The tribunal concluded that the agency did not do enough to protect Farris from the harassment and poisoned work environment, and ordered the agency to pay her $30,000. By the time the case reached a hearing, however, the agency had been dissolved for several years. The tribunal initially only held the defunct corporation liable. Farris challenged that aspect of the decision at the Ontario Divisional Court, which sided with her and instructed the tribunal to consider personal liability because the corporation had been dissolved. Following the court's instruction, the tribunal reconsidered personal liability. Eight years after the agency closed its doors, the tribunal held its two owners/managers, Leonard and McKeague, personally liable for $22,500 of the $30,000 award. Leonard and McKeague did not harass Farris themselves.— Leonard ran the agency's Montreal office and didn't even work in the same province as Farris — but the tribunal held that Leonard and McKeague did not act effectively to stop their employees from harassing Farris and creating a poisoned work environment.

In deciding to find personal liability, the court and the tribunal emphasized that the point of the Human Rights Code is to give effective remedies. Where collection against a corporate employer is not possible, the individual managers and owners have a greater personal exposure. Although personal liability under the code has always been possible, the law is now strongly encouraging it where the corporate employer cannot satisfy a damages award.

The decision in this case is a reminder that businesses need to:

• Ensure their officers and directors are appropriately insured
• Take complaints of harassment and poisoned work environments seriously, by effectively investigating and disciplining reported misconduct
• Prevent problems before they start, with appropriate policies and training on harassment and discrimination, including how to handle complaints.

Aaron Rousseau is a senior associate lawyer at Whitten & Lublin, employment lawyers, in Toronto, a team of experts providing practical advice and advocacy for workplace legal issues. The firm can be reached at www.canadaemploymentlawyer.com or (416) 640-2667.

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