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B.C. owner and director found personally liable for unpaid pension contributions

A recent British Columbia case1 resulted in a finding that the owner and director of an employer was personally liable for breach of trust for failing to remit contributions to a multi-employer pension plan. The decision demonstrates the risks to employers in failing to remit pension contributions in a timely fashion in accordance with pension legislation.

Background

The trustees of the IWA – Forestry Industry Pension Plan (the Plan) sued Roger Wade, the sole director, officer and shareholder of R W Log Transport (Log Transport), a log hauling company. The plaintiffs alleged Mr. Wade was personally liable for the company’s breach of trust in failing to remit contributions, failing to protect contributions held in trust and using those contributions for unauthorized purposes.

Mr. Wade operated and controlled Log Transport from 2007 to 2014. He was the only person responsible for verifying and approving expenditures on behalf of Log Transport, and he alone held signing authority and access to the company’s bank account.

As a participating employer in the Plan, Log Transport was required to hold employer and employee contributions in trust and remit them to the Plan for the benefit of the unionized employees.

In 2013 and 2014, Log Transport experienced financial difficulties, which resulted in outstanding contribution reports and contributions. Despite having reached an agreement with the trustees in 2013 regarding outstanding amounts owed to the Plan, Log Transport’s financial circumstances worsened and the contributions remained outstanding. Ultimately, Log Transport ceased operations in 2014, leaving behind a significant amount of debt, including outstanding employer pension contributions and pension contributions that had been made by the employees but not remitted to the Plan.

Under British Columbia legislation as it existed at the time, participating employers were obligated to keep required employer and employee contributions separate and apart from the employer’s own assets and to remit them no later than 30 days after the end of the month to which the contributions related. The legislation created a deemed trust over employer contributions and the employee contributions that had been deducted from pay and not yet remitted to the Plan, in addition to the trust obligations under the terms of the Plan and participation agreements.

Breaches of trust by Log Transport

The court found Log Transport had committed a number of breaches of trust. Log Transport held employer and employee contributions in its general operating bank account, rather than a separate trust account. It used these contributions to pay its general operating expenses and failed to make the required contributions to the Plan. The court found that these breaches were fraudulent and dishonest.

Although the breaches were committed by Log Transport in its capacity as the employer, Mr. Wade was found to have knowingly participated in the breaches. The court found that he had signed the participation agreements, and therefore was fully aware of Log Transport’s obligations with respect to the Plan. He was also fully aware of the company’s business and financial operations.

As such, Mr. Wade was held personally liable for the unpaid contributions and interest, as well as the trustees’ legal costs.


Comments

This case highlights the strict obligations on employers in respect of employer and employee contributions to a pension plan, particularly where pension contributions are co-mingled with the employer’s general bank account. The case also serves as a reminder that a third party, such as a director or officer of the employer, may be held personally liable for breach of trust in respect of pension contributions. These risks are particularly high in businesses with concentrated ownership and control.


1  Trustees of the IWA v. Wade, 2019 BCSC 1085.


News & Views - March 2020 (PDF)