November 25, 2008

Recovering damages from negligent employees

Where an unskilled labourer causes losses to her employer through negligence, the employer is unlikely to recover any damages from that employee if her actions did not affect a third party to which the employer is vicariously liable.  This proposition has been expressed in recent decisions of Canadian courts examining the implied terms of employment contracts to determine employees’ tort and contractual liability to employers.

864475 Alberta Ltd. v. Hilton, [2008] A.W.L.D. 978 (Prov. Ct.) (“Hilton”) is one such decision.  In that case, a car dealership brought an action against Ross Hilton, its used car salesman, to recover damages caused when Hilton negligently drove one dealership vehicle into two others on the dealership lot.  The dealership sustained over $18,000 in losses but chose not to make an insurance claim given the significant deductibles involved and the premium increases that would follow.

The Court’s analysis of Hilton’s liability considered Romford Ice & Cold Storage Co. v. Lister (1956), [1957] A.C. 555 (U.K. H.L.) (“Lister”).  Lister, a truck driver employed by Romford, ran over his father while driving a Romford truck.  His father sued Romford, Romford was held vicariously liable for Lister’s fault, and Romford’s insurer sued Lister to recover the pay-out.  In this action, the House of Lords found an implied term of the employment contract requiring Lister to perform his duties with proper care and held him liable for the damages paid.  The House of Lords found no implied term in Lister’s employment contract through which he could benefit from Romford’s insurance coverage. 

Following its consideration of Lister, the Court in Hilton adopted the oft-cited dissent in Overmyer Co. v. Wallace Transfer Ltd. (1975), [1976] 2 W.W.R. 656 (B.C. C.A.) (“Overmyer”), a case in which a managerial employee was held liable for rental expenses his employer incurred because he failed to give proper notice of a lease termination.  In this dissent, Seaton J.A. limited the liability arising from Lister to situations where (i) the claim of the employer arose because of vicarious liability for the negligence of the employee, and (ii) the employee was hired to do a particular skilled job and failed in the skilled work for which he was hired.  Seaton J.A. further outlined the approach that courts should follow when considering employee liability for work-related negligence.  As interpreted in Hilton, “Seaton J.A. held that the duty of care of an employee should be determined on the basis of the implied term of the particular contract of employment as a matter of fact.  The standard of care and the conduct must then be judged to determine whether the duty was breached.”

Using Seaton J.A.’s framework, the Court in Hilton held that had the parties discussed Hilton’s liability when employment was agreed upon, the employer would have been responsible for “the whole matter” of insuring against its losses.  “[I]n the absence of any express term to the contrary,” the Court stated, “the implied agreement between the parties was that the Plaintiff would bear the risk of damage to its property and would insure that risk under a policy under which the Defendant would be protected as an un-named insured.”

The Court accepted the limitations imposed by Seaton J.A. on Lister and stated that “[t]he claim in this action does not engage the law relating to third party liability….”  Moreover, the Court found that Hilton was not as a driver a skilled employee.  “Without more,” the Court held, “an unskilled employee is not liable for damage caused to the employer’s property accidentally or negligently.”  The employer’s action was dismissed.

The decision in Hilton follows Douglas v. Kinger (2006), 2006 CarswellOnt 8695 (S.C.J.) and Kleinsasser v. Alexander (1994), 1994 CarswellSask 166 (Q.B.), wherein actions brought by employers against their employees for the latter’s negligence were dismissed.  Hilton also provides a useful contrast to Pinto v. BMO Nesbitt Burns Inc. (2005), 2005 CarswellOnt 2161 (S.C.J.) (“Pinto”) and Dominion Manufacturers Ltd. v. O’Gorman (1989), 1989 CarswellOnt 752 (Dist. Ct.) (“O’Gorman”).  In those cases, the Court, while holding an employee liable to his or her employer, found the employee to possess a particular skill the proper exercise of which ought to have prevented the employer’s damage.  The Court also relied upon the employer’s vicarious liability to third parties in its finding of liability.

In Pinto, the Court held an employee investment advisor liable for settlements that her employer paid to her clients on the basis of its vicarious liability for her actions.  She had engaged in numerous unauthorized discretionary trades on behalf of those clients, causing them significant financial losses.  In finding the employee liable for the employer’s settlement, the Court assessed both her tort and contractual liability.  In tort, the employee “owed a duty of care to perform her duties as an investment advisor with reasonable care and skill” and was liable for damages that “reasonably flowed from the breach of her duties.”  In contract, the Court found an implied term of her employment requiring her to perform her duties in a professional and competent manner” in compliance with the appropriate industry standards.  By engaging in unauthorized discretionary trading, she was in breach of her duty of care and her contract of employment.

The decision in Pinto reflects that of O’Gorman, wherein a registered industrial accountant was held liable in tort for failing as a comptroller to make payments to various government agencies on account of payroll deductions, municipal taxes and utility bills.  This failure caused his employer to be assessed late penalties of over $13,000.  In finding the accountant liable to his employer for these penalties, the Court relied upon the employer’s vicarious liability in its failure “to make remittance to federal and provincial governments on due dates.”  The Court also found that it was an implied term of the employment contract between the parties that the “defendant was capable of carrying out the responsibilities” of his employment and that “the employer would be indemnified for the losses caused by the acts or non acts of the employee.” 

The foregoing jurisprudence illustrates that an employer’s claim to recover damages from its negligent employee will only succeed if an express or implied term of the employment relationship allows recovery.  A court will find such a term where the employee represented himself or herself as a person capable of performing skilled work.  This representation, combined with the employer’s vicarious liability for the employee’s acts, presents a clear case for a finding of liability for negligence and, as suggested in Pinto, for breach of the employment contract.  Where an employer wishes to unequivocally protect itself from the negligence of both skilled and unskilled employees, it should negotiate an express indemnification clause into its employment agreements to require its employees to pay for losses caused by their own negligence.  When employing such clauses, employers should have regard to employment standards legislation that precludes employers from setting off such losses against wages (see, for example, s. 13 of the Ontario Employment Standards Act, 2000).

Rich Appiah is an associate in the Toronto law firm of Israel Foulon LLP – Employment and Labour Lawyers.  He can be reached at 416-640-1550, ext. 225 or rappiah@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.

Notable Events

Latest Legal Articles