OSHA enforcement under the Bush Administration has been criticized as being soft on corporations. Last week, in Part 1 of this series, we looked at two New Jersey cases that suggest otherwise. The Secretary of Labor is asking the courts to disregard the corporate form--to pierce the corporate veil--and hold corporate officers and directors personally responsible for OSHA violations committed by their corporations. How can corporate officers and directors avoid a similar fate?

Guarding Against Personal Liability

As we discussed last week, courts pierce the veil when they think that corporate officers, directors or shareholders (collectively "officers") are using the corporate form to disguise what are essentially individual actions. Officers can avoid the piercing of the veil then by keeping the corporation's legal identity separate from their own.

On an operational level, officers must engage in an ongoing analysis of the way the corporation conducts its business, and the way officers interact with the company. If you're an officer, there are three questions you should ask to determine if you're doing enough to protect against individual liability:

Let's look at each of these things more closely.

1. Corporate Formalities

Corporations are organized under state corporation laws. The people who create and run a corporation must observe certain formalities to ensure the corporation is treated like a separate legal entity under the corporation laws including:

2. Keeping Corporate and Personal Assets Separate

The corporation is supposed to be a distinct "person" under the law, one that's separate from its owners. For a corporation to be treated as a separate person, its assets must be truly its own and not the personal assets of its officers. The corporation's assets must be kept separate from and not "commingled" with the officers' assets. Accordingly, officers should make sure the corporation:

3. Treating the Corporation as the Officers' Alter Ego

Officers need to understand that if they act like the corporation is there to serve their personal interests, OSHA and the courts may consider the corporation their alter ego, pierce the veil and hold them personally liable for the corporation's OSHA fines and criminal penalties.

When officers act in the corporation's name, those actions should be for legitimate business purposes. They shouldn't be for the officer's personal gain. And, as a general matter, one person shouldn't be the sole officer, director and shareholder of the corporation. Otherwise, OSHA and the courts may find that there's no real difference between the shareholder and the corporation; that the corporation was in fact that individual's "alter ego."

Conclusion

Keep in mind that piercing the corporate veil can be used to hold officers responsible not just for OSHA violations but any liabilities incurred by the corporation, including violations of other statutes and regulations and contractual obligations. But also keep in mind that it's a measure used only when there has been pronounced abuse. Officers who respect the corporate form and maintain a separate identity have little to fear.

THE CANADIAN PERSPECTIVE
Piercing the Corporate Veil in Canada

As we saw last week, Canadian courts can also pierce the corporate veil and hold officers personally liable. But they tend to be somewhat more reluctant about this than their American counterparts. Nevertheless, the case law shows that courts will do it in clear cut cases of abuse.

The way to avoid veil piercing in Canada is the same as it is in the U.S. In other words, the advice above applies equally to officers of Canadian corporations. But Canadian officers also need to be wary of being held criminally liable for safety offense under C-45.

LAW QUIZ
U.S. or Canada?

By Glenn Demby

U.S. and Canadian occupational health and safety laws are similar but not exactly the same. Here are some basic questions to illustrate some of the differences and similarities between the two countries. We'll list a statement that describes the law. If you think the statement is about Canadian law, list "C"; if you think it's about American law, list "A"; and if you think it's about both countries, list "B".

ANSWERS:

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