Employment Risk in Canada

Don't rely solely on your D&O policy to protect against EPL losses.

Employment Practices Liability (EPL) risk management just moved up the governance priority ladder in Canada with the recent decision in Brito v. Canac Kitchens (click here). This case was highlighted in an article: The HR Space: Declaration To “Make Employee Whole” Very Costly For Employers (click here) by Karen Sargeant of Fasken Martineau.

To summarize the case law and article:

1.   2003 dismissal without cause of 55 year old, 24 year employee,

2.   Severance given was 8 week statutory minimum for pay in lieu of notice, 8 week statutory minimum benefits and 24 weeks severance,

3.   Employee got a new job in two weeks, but much lower pay and no benefits,

4.   In 1960 it was determined in Bardal v. Globe & Mail Ltd., [1960] O.W.N. 253 (H.C.J.) at p. 255:

“There could be no catalogue laid down as to what was reasonable notice in particular classes of cases.  The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.”

5.   The Court of Appeal confirmed in 1999 there is no “rule of thumb” for reasonable notice,

6.   The Judge determined notice at 22 months,

7.   The employee suffered a disability 16 months after dismissal, and was able to establish total disability,

8.   Since the employee was “clearly entitled” to “be made whole” from the date of dismissal, the court held that the 22 months included benefits, (Short Term Disability and Long Term Disability),

9.   The employer can become liable for the benefit costs even if their insurer fails or refuses to extend benefits during the notice period or subsequently denies the claim(s),

10.                 The loss would be considered material to most corporations, and the loss would have been much greater if the employee was younger and/or unable to find a job in two weeks, or aggressively sought “moral damages.”

As with every published court decision, this case presents some valuable loss control advice. The most important issues here are, 1) documented effort of helping terminated employees with alternative insurance arrangements and other benefit options, and 2) turn your mind to “reasonable notice,” and not relying on “bare minimum” and litigating disputes.

This case presented no comment regarding the insurance response to claims against the corporation or its directors, officers or employees, but here are a few comments regarding insurance for a corporate defendant:

1.   Don’t rely on the “benefits extension” (if you have one) to your Commercial General Liability Policy,

2.   Don’t rely on your D&O policy. It won’t likely trigger for most or any of the Loss in this case, unless you have an “Entity” Employment Practices Liability (EPL) Extension, and if you do, beware that there is usually only one aggregate limit for each and every claim, and each and every insured, so an EPL Loss can erode or even exhaust the limit otherwise available to coverage the personal liability of individual directors and officers; and if you accept that risk, the “Bodily Injury/Property Damage” exclusion needs to be “carved-back” for employment based claims or at least for mental anguish, emotional distress or humiliation,

3.   Employment Practices Liability Insurance (EPL) provides coverage for the corporate entity and individually named officers, directors or employees, and it provides a dedicated limit of liability,

4.   Fiduciary Liability policy may respond to a portion of the loss resulting from the failure to extend benefits coverage.

More details regarding risk management, loss control and insurance for this claim example is available on the Mitchell Sandham blog at http://mitchellsandham.wordpress.com/

Greg Shields is a D&O, Professional Liability and Crime insurance specialist and a Partner at the University and Dundas (Toronto) branch of Mitchell Sandham Insurance Services. He can be reached at gshields@mitchellsandham.com, 416 862-5626, or Skype at risk.first.

CAUTION: This article does not constitute a legal opinion or insurance advice and must not be construed as such. It is important to always consult a registered and truly independent insurance broker and a lawyer who is a member of the Bar or Law Society of the relevant jurisdiction with regard to this material before making any insurance or legal decisions.

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Transcontinental Media G.P.