Piercing the Corporate Veil: How can I hold my employer accountable if they are a corporation?
- August 26, 2021
- Rahul Soni
- Employee Rights
- 0 Comments
If your employer has wronged or harmed you, you may wonder whether you can hold them accountable in a personal capacity to prevent them from hiding behind their corporation to avoid accountability. Generally, this is difficult to achieve due to the protection that incorporation provides those who are responsible for corporate decision-making, including shareholders, officials, and executives. Since corporations are viewed as separate legal “persons”, incorporation greatly limits the extent to which any individual directing the corporation can be held personally liable in the event of any wrongdoing. However, there are some limited circumstances in which the Court may be willing to “pierce the corporate veil” and hold individual shareholders, executives, or officers personally liable for misconduct engaged in on behalf of the corporation.
The law on this topic is inconsistent and courts’ decisions largely turn on the facts and context of each case. While courts are reluctant to disregard a corporation’s separate legal personality and pierce the corporate veil, it is well settled that they will do so if it is proven that the corporation was incorporated for an illegal, fraudulent, or improper purpose. This criterion continues to be most heavily weighted in cases that adopt a relatively “stricter” approach to piercing the corporate veil. However, the Ontario Court of Appeal’s decision in Shoppers Drug Mart Inc. v. 6470360 Canada Inc. loosened this criteria, thereby broadening the instances where courts will be willing to pierce the corporate veil. In Shoppers, the Court found that the correct test to be used in Ontario in determining whether the corporate veil should be pierced was the one articulated in 642947 Ontario Ltd. v. Fleischer, [2001] O.J. No. 477, where the Court ruled that:
[68] Typically, the corporate veil is pierced when the company is incorporated for an illegal, fraudulent or improper purpose. But it can also be pierced if when incorporated “those in control expressly direct a wrongful thing to be done”… “the courts will disregard the separate legal personality of a corporate entity where it is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.”
Based on the decision in Shoppers, Ontario courts will pierce the corporate veil not only where the company was incorporated for a fraudulent or improper person, but also where it can be established that those in control expressly directed a wrongful thing to be done after its incorporation, and the corporation is completely dominated and controlled and being used as a shield for fraudulent or improper conduct.
In addition to these criteria, courts also weigh other considerations, such as the purpose of the conduct that is alleged to be wrongful, in determining whether the corporate veil should be pierced. In addition to establishing that the directing minds of the corporation engaged in wrongful conduct, the party alleging liability must also prove that the conduct in question was carried out for an improper purpose. Also, the court will consider whether there is any doubt regarding who the directing mind of the wrongful and improper act is within the corporation. Courts have ruled that to pierce the corporate veil, there cannot be any doubt that the individuals being held as personally responsible were in fact the directing minds, whether they were the sole directing minds or not.
Parties who wish to hold their employer personally liable for any misconduct must also first sufficiently plead and successfully establish a separate cause of action against the individual alleged to be liable in their personal capacity. As outlined in Khursheed v. Venedig Capital SAS, 2019 ONSC 5190, “The statement of claim must allege actions conducted by the individuals which are themselves tortious or exhibit a separate identity or interest from that of the corporation so as to make the act or conduct complained of their own”. Plaintiffs who have successfully established claims of breach of fiduciary duty, breach of contract, fraudulent misrepresentation, negligent misrepresentation, and misappropriation of funds among other causes of action have all successfully pierced the corporate veil. Courts have made it clear in several cases that they will not pierce the corporate veil without sufficient material facts and particulars being pleaded to support the plaintiff’s claim for a separate cause of action. They have clarified that simply alleging that individual defendants were the guiding minds behind corporate misconduct without providing sufficient material facts to support a separate cause of action is insufficient and inadequate in piercing the corporate veil.
If you have suffered as a result of your corporate employer’s conduct and are unsure regarding whether you may hold your employer personally liable, it may be a good idea to consult with an experienced lawyer. By hiring a lawyer, you can ensure that your rights are protected and you attain a full understanding of your obligations and entitlements. Call us for your free consultation and let us help you understand and protect your rights.
About Post Author
Rahul founded Soni Law Firm, a boutique employment law firm focusing on contingency law, with the goal of taking his Downtown Toronto litigation experience and making it accessible to Ontario’s Main Street employees and employers.