Exclusion Clause Insulates Against Tort Claims

Can a limitation of wrongful dismissal damages clause in an employment agreement insulate individual employees from personal liability at the time of dismissal? "Yes" says the Court of Appeal for Ontario.

In a short endorsement released earlier this week, Richards v. Media Experts M.H.S. Inc., 2012 ONCA 769 (CanLII), The Court of Appeal for Ontario affirmed an earlier decision of the Honourable Justice Suzanne M. Stevenson, which struck out a dismissed employee’s claims against the executive chairman of her former employer.

Justice Stevenson’s reasons are also very short and shed little light on what was pleaded in the plaintiff employee’s statement of claim, or why Her Honour came to the conclusion that it was “plain and obvious that the tort and damage claims against Sherman disclose no reasonable cause of action and have no reasonable prospect of success.” (Para. 27 of 2012 ONSC 3518)

At the Superior Court level, Justice Stevenson had permitted the individual defendant’s Rule 21 motion to strike the claim against him for damages for the torts of intentional and negligent infliction of nervous shock. Justice Stevenson had held that to permit the claim to proceed against the individual defendant would allow Ms. Taylor to circumvent a limitation of liability clause in her employment contract. The clause in question, set out below, limited any claims for wrongful dismissal damages to 12 months compensation.

The question for both the Superior Court and the Court of Appeal was whether that provision could insulate an individual employee of the company with whom the plaintiff employee had made the agreement from claims against him for tortuous conduct arising in the scope of his employment. Missing from both decisions is any contemplation of what wrongful acts the individual defendant was alleged to have committed.

On the point of law, the Court of Appeal noted:

[5] [Mark Sherman] was not a party to the employment contract. However, the motion judge concluded that [he] took the benefit of the clause in question on the basis articulated by the Supreme Court in London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299. 

[6] In London Drugs, Iacobucci J., writing for the majority, stated at para. 257:

“... I am of the view that employees may obtain such a benefit if the following requirements are satisfied:

1. The limitation of liability clause must, either expressly or impliedly, extend its benefit to the employees (or employee) seeking to rely on it;

2. The employees (or employee) seeking a benefit of the limitation of liability clause must have been acting in the course of their employment and must have been performing the very services provided for in the contract between their employer and the Plaintiff (customer) when the loss occurred.” [Emphasis added by Court of Appeal.]

The Court of Appeal held that both of the above two requirements had been met in this case.

Commentary

The case would be of slightly more interest to readers if either court had set out the behaviour about which the plaintiff was complaining.

The said, I have some difficulty with the court’s decision, especially that of Justice Stevenson, for finding that a limitation of damages provision insulates against claims for tortuous action. The exclusion clause itself provided as follows:

Except as set forth in [this Agreement,] the Executive shall have no rights or recourse with respect to the termination of the Executive's employment with the Company and the termination of this Agreement, whether by the Company or the Executive, and the Executive shall not have the right to receive any severance payment, damages or indemnity by reason of such termination.

From this one must infer that Ms. Richards brought her claims for intentional/negligent infliction of nervous shock and punitive damages as a result of the termination of her employment; otherwise the exclusion clause would clearly have no application.

Even with that said, I still have difficulty finding how the clause itself acted so as to protect the individual defendant.

My sense, and here I am speculating, is that Justice Stevenson struck down the claim not so much on the basis of the exclusion clause set out above, but on the basis of the Court of Appeal’s earlier decision in Piresferreira v. Ayotte, 2010 ONCA 384. [For my commentary on why I disagree with the decision reached in Piresferreira, please see my earlier post Tort Damages Place in Wrongful Dismissal Cases.] I reach my conclusion based upon Justice Stevenson’s comments that, “the nature of the claim directed at Sherman is fundamentally inconsistent with the law in this area.” (Para. 27 of 2012 ONSC 3518) But I honestly cannot say if I am correct that "the law in this area" is Piresferreira.

While this case, i.e. Richards, can be taken to stand for the proposition that a well-drafted exclusion clause will insulate those who are tasked with terminating employees from claims against them personally, those in my office are still of the opinion that same may not necessarily insulate against claims based upon infringements of the Ontario Human Rights Codes; that is yet to be seen.

Takeaways

The takeaway from this decision is that a properly drafted employment agreement can have the impact of protecting individual employees, such as human resources personnel, from claims against them personally for actions taken at the time of termination.

For employees the case serves as a reminder that claims for negligent infliction of mental suffering in the workplace will not be well received by Ontario courts.

If you find yourself suddenly unemployed and are contemplating a case for wrongful dismissal or if you are an employer contemplating terminating an employee, the employment lawyers at Kelly Santini LLP would be happy to speak to you.

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As always, everyone’s situation is different.  The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP. He tweets from @SeanBawden.