By Alexandra Monkhouse | Monkhouse Law
The Ontario Superior Court has ruled that a former employee of a failed startup may be entitled to relief under the oppression remedy against two shareholder-officers personally, after they allegedly misrepresented the readiness of the company’s product and his earning potential before he began a commissions-based role.
The court heard a motion by the individual defendants to strike the plaintiff’s amended statement of claim on the grounds that it disclosed no reasonable cause of action against them personally.
Justice Penman dismissed the motion, allowing the claim to proceed and signalling that an employee may be entitled to relief for damages for unjust dismissal and unpaid wages against directors or shareholders personally if the allegations are tortious in nature.
Background
The plaintiff alleges that the individual defendants misrepresented conditions of employment at the startup, Dealer Methods Inc., through statements that the company’s software was fully functional and that the earning potential from commissions for selling the software was high.
However, upon leaving his position to join the company, the plaintiff alleges that the software was not functional and not ready to sell, but the individual defendants continued to misrepresent the state of the software to their benefit, including by claiming research and development tax credits.
The plaintiff was employed by Dealer Methods from May 2019 until he was terminated without cause in January 2022. A Ministry of Labour complaint was settled, which released the individual defendants from claims relating to unpaid wages, vacation pay or reprisals.
The plaintiff then issued an amended statement of claim in the Superior Court claiming damages for wrongful dismissal and unpaid wages via the oppression remedy. The claim against Dealer Methods was stayed due to the corporation’s assignment in bankruptcy.
The motion to strike
The individual defendants, who were the sole officers, directors, and shareholders, moved to strike the claim. They argued that:
- The amended statement of claim disclosed no reasonable cause of action; and
- The pleadings were a “transparent attempt to embarrass” them and improperly convert a straightforward wrongful dismissal claim against the corporation into a personal action.
The core issues addressed by the court were whether the pleadings disclosed a reasonable cause of action and whether the claims were frivolous, vexatious, or an abuse of process.
On a motion to strike, the court assumes that the facts alleged by the plaintiff are true. The test on a motion to strike under Rule 21.01(1)(b) of the Rules of Civil Procedure is whether it is plain and obvious that the claim has no reasonable prospect of success.
Finding on personal liability for tortious conduct
Justice Penman concluded that the allegations were sufficiently detailed to withstand the high threshold required for a motion to strike.
Citing ScotiaMcLeod Inc. v. Peoples Jewellers Ltd. (1995), 26 O.R. (3d) 481, the court emphasized the established principle that corporate directors and officers can be held personally liable for their tortious conduct, even if acting on behalf of the corporation.
The pleadings allege the following key particulars:
- The individual defendants intentionally misrepresented that the company’s software was functional, which was material to the plaintiff’s decision to accept the commission-based role;
- The individual defendants knew the software was not functional and continued to make assurances; and
- As the only shareholders, officers, and directors of a closely held company, the personal defendants were effectively the company itself.
The court found that deception and misrepresentation are examples of tortious misconduct that can give rise to personal liability for a corporate director, citing AGDA Systems International Ltd. v. Valcom Ltd., 1999 CanLII 1527 (ONCA).
However, in order for these torts to fit in a contractual context, the claim must be pleaded specifically. In this case, the statement of particulars provided by the plaintiff specified the instances of misrepresentation and that the individual defendants may have benefited from his labour.
It was not plain and obvious that the claim could not succeed.
Oppression remedy under the OBCA
Justice Penman found the oppression claim under s. 248 of the OBCA was also arguable.
While wrongful dismissal alone typically does not justify an oppression finding, claims have succeeded where directors’ conduct prevents the corporation from paying damages to employees, such as through winding up the corporate employer or transferring its assets out of the corporation. Courts have discretion under s. 245 of the OBCA to find employees, or any other person, proper to make an application for an oppression remedy.
The court found the facts analogous to El Ashiri v. Pembroke Residence Ltd., 2015 ONSC 1172, where a sole director misled employees into working without pay and was found personally liable for the wages, although there was no corporate maneuvering.
The reasons detail that the individual defendants:
- Were the sole directors and officers who made promises of commission income while knowing there was “no product capable of being sold”;
- Are alleged to have derived a personal benefit from the plaintiff’s work by claiming Scientific Research and Experimental Development (SRED) credits from the government; and
- Are alleged to have engaged in oppressive conduct both before and during the course of the plaintiff’s employment.
The court concluded that, on the facts as pleaded, the plaintiff may be found to be a “proper person” (or complainant) under the oppression remedy provisions.
Conclusion
The motion to strike was dismissed in its entirety.
The decision confirms that where pleadings are specific and detail directors’ independent, tortious conduct undertaken for personal benefit, directors with significant control may be stripped of the usual corporate protection and held personally liable.
The decision upholds the notion that, while uncommon, employees may be considered proper persons to receive relief under an oppression remedy.
See the full ruling here: https://hrnewscanada.com/wp-content/uploads/2025/11/Reasons-for-Decision-Motion-to-Strike-Justice-Penman-15-Sep-2025.pdf
Alexandra Monkhouse is a partner at Monkhouse Law. For more information, see MonkhouseLaw.com.
