July 7, 2004

Are employees covered by limited liability contracts signed with customers

Question: Among other things our organization is responsible for boat storage over the winter. In each customer contract there is a clause limiting liability of damage to their boats to $100. This past winter an employee caused more than $5,000 damage to a boat by negligently moving it in our storage facility. Is my employee protected by the limited liability contract I signed with the customer?

Answer: Case law indicates that, although not a party to the contract, there are certain situations where an employee will benefit from a limited-liability clause between a customer and an employer. The two main factors to consider are whether the clause is expressly or implicitly extended to the benefit of the employee, and whether the employee, seeking the benefit of the clause, was acting in the course of his employment, performing the very services provided for in the contract between their employer and the customer.

A fair and reasonable interpretation of the contract would include the employee under the limited liability clause. Regardless of the employee’s negligence, he was clearly performing the service his job entailed. In signing this contract there was a meeting of the minds between the employer and the customer. A limited-liability clause benefits both parties. The customer likely got a lower rate and the employer was not exposed to as high a risk in storing the boat.

It makes both commercial and common sense to protect the employee from liability in cases such as this because otherwise a potential plaintiff would be able to circumvent the contract and successfully sue the employee. If this were allowed employees would have to seek their own personal insurance, driving up the cost of their services to the employer and subsequently placing a higher financial burden on the customer.

Peter Israel is the senior partner in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers. He can be reached at 416-640-1550 or pi@israelfoulon.com. A version of this article originally appeared in the Carswell publication, Canadian Employment Law Today

LEGAL DISCLAIMER: This article is for informational purposes only and is not intended to provide legal advice, which in all circumstances must be tailored to the specific facts of any problem. You should obtain a proper legal consultation in order to determine how this article applies to your specific situation.
Please feel free to contact Israel Foulon LLP to learn more at 416-640-1550.

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