Sunday, 8 January 2017

Ontario Employers’ Ability to Claim Indemnification from Their Employees for Employee Negligence

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Can an employee be sued by his employer if, by his own negligent actions, he causes his employer to suffer a financial loss? In legalese, at Ontario common law, if an employer is found vicariously liable for the negligent actions of its employee, in which negligence the employer was no way contributorily negligent, can the employer successfully make claim for indemnification from its employee?

The Starting Point: Lister v Romford Ice & Cold Storage

The starting point for any such discussion is the 1957 decision of the British House of Lords in Lister v Romford Ice & Cold Storage, [1957] AC 555 (HL). In that case, two workers, Martin Lister and his father Martin Lister, were working for the cold storage company, driving a waste-disposal truck. They went to a slaughterhouse. As they were entering through the gates to the yard, the father got out first and his son, who was driving, backed over him. The father sued and the company was found vicariously liable for this son’s actions. The employer’s insurers, who had paid £1600 and costs, sued the son in the name of the company by right of subrogation to indemnify them for this amount. The House of Lords unanimously allowed the claim holding that a servant owes a duty to his master to carry out his work with reasonable care, and if damages are recovered against the master by a person injured by the servant's negligence, the master can recover from the servant the damages and costs the master has been obliged to pay. The cause of action was characterized as breach of an implied term of the contract between the master and the servant.

That articulation of the law, i.e. that one’s employer could recover from him the damages and costs that his employer had been obliged to pay, was expressly adopted by Ontario’s courts in the 1979 decision of the Court of Appeal for Ontario, Consumers' Gas v. Peterborough, (1979), 25 OR (2d) 399; 1979 CanLII 77 (ON CA).

Although the Court of Appeal did not use these exacts words, the statement of law most commonly ascribed to the decision of the Court of Appeal’s decision in Consumers’ Gas is the following, "An employer has the right to claim against an employee for the damages it pays as the result of the wrongful acts of its employee so long as the employer was not contributorily negligent."

Questioning of the Decision in Lister: Justice LaForest’s Dissent in London Drugs v Kuehne & Nagel

But the Lister decision was always the source of some debate and concern. For example, in England, a committee was established to inquire into the implications of the case. In 1973, no less than Lord Denning questioned the prudence of such legal principle, writing the following in the case of Morris v. Ford Motor Co., [1973] 1 Q.B. 792:

If the cleaners are right in this contention ‑‑ if they can thus force Roberts to pay the damages personally ‑‑ it would imperil good industrial relations. When a man such as Roberts makes a mistake ‑‑ like not keeping a good lookout ‑‑ and someone is injured, no one expects the man himself to have to pay the damages, personally. It is rather like the driver of a car on the road. The damages are expected to be borne by the insurers. The courts themselves recognise this every day. They would not find negligence so readily ‑‑ or award sums of such increasing magnitude ‑‑ except on the footing that the damages are to be borne, not by the man himself, but by an insurance company. If the man himself is made to pay, he will feel much aggrieved. He will say to his employers: "Surely this liability is covered by insurance." He is employed to do his master's work, to drive his master's trucks, and to cope with situations presented to him by his master. The risks attendant on that work ‑‑ including liability for negligence ‑‑ should be borne by the master. The master takes the benefit and should bear the burden. The wages are fixed on that basis. If the servant is to bear the risk, his wages ought to be increased to cover it.

In Canada, the most stinging rebuke of the Lister decision is the dissenting opinion of Mr. Justice GĂ©rard LaForest in the 1992 Supreme Court of Canada case of London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 SCR 299. Although alone and writing in dissent on this point at the time, as will be seen from the more-recent development of the cases, considered below, Mr. Justice LaForest’s comments now appear to have garnered greater favour among Ontario’s jurists.

Kuehne & Nagel concerned, amongst other things, a claim by Kuehne & Nagel International against two of its employees, Dennis Gerrard Brassart and Hank Vanwinkel, who had, by their negligence, caused $33,955.41 worth of damage to a piece of machinery owned by London Drugs and entrusted to Kuehne & Nagel for storage. The legal question answered by LaForest J., which the balance of the Court felt was unnecessary to answer on the facts of the case, was whether the employees should be subject to a duty of care for ordinary, and so foreseeable negligence, in performing work arising out of the contract.

In finding that the employees did not owe their employers a duty of care, Justice LaForest reasoned as follows:

The most important policy considerations lying behind the doctrine of vicarious liability are based on the perception that the employer is better placed to incur liability, both in terms of fairness and effectiveness, than the employee.


In my view, not only is the elimination of the possibility of the employee bearing the loss logically compatible with the vicarious liability regime, it is practically compelled by the developing logic of that regime. In our modern economy, an employee's capacity to cause loss does not bear any relation to his salary.


The employer will almost always be insured against the risk of being held liable to third parties by reason of his vicarious liability: the cost of such liability is thus internalized to the profitable activity that gives rise to it. There is no requirement for double insurance, covering both the employee and his employer against the same risk. Shifting the loss to the employee, either by permitting a customer to act against the employee or by permitting the employer to claim an indemnity against the employee, upsets the policy foundation of vicarious liability.

As mentioned, the balance of the Court, while complimentary of Justice LaForest’s scholarship, felt it unnecessary to specifically address this issue. Moreover, the balance of the Court did find the employees liable to their employer for the loss, which, by virtue of the contract between their employer and London Drugs, was limited to $40.

The majority holding of the Kuehne & Nagel case was that the employees “unquestionably owed a duty of care” to their employer while performing their duties of employment.

A Rebuke of Lister in the Modern Era? The 2008 Decision of the Court of Appeal for Ontario in Douglas v Kinger and the Cases that Follow It

Sixteen years after Justice LaForest’s stinging rebuke of Lister, the Court of Appeal for Ontario provided its commentary on the issue. In Douglas v. Kinger, 2008 ONCA 452 (CanLII). Justice Susan Lang, on behalf of a unanimous bench (Rosenberg and Juriansz JJ.A. concurring) unequivocally ruled that a duty of care should not be imposed for an employee’s “ordinary negligence.”

In that case a 13-year “boat boy” employed by the plaintiff negligently started a fire when he tried to refuel a lawn mower. The loss was covered by the plaintiff’s insurer, who then sought to bring a subrogated action against the boy qua employee. Both the action and the appeal were dismissed.

In rejecting a blanket allowance for claims by employers against their employees for ordinary negligence, Justice Lang reasoned as follows:

[40] …The nature of an employment relationship raises different policy considerations than other circumstances involving negligent conduct.


[55] To summarize, in the circumstances of this case, the component of reasonable foreseeability under the first stage of the Anns test is satisfied. However, having regard to the nature of the parties' relationship, the component of sufficient proximity is not. Accordingly, I conclude that a duty of care should not be imposed for the respondent's ordinary negligence.


[58] A return to the Lister principle of employee liability without regard to the individual circumstances of each case would create the potential for significant disruption to employer/employee relations. Obviously, certain types of employment are disproportionately fraught with risk. For example, in these days of increasingly complex technology, employees are required to handle ever more sophisticated machinery. Minor employee error can result in major equipment breakdown and, consequently, significant damages. In those circumstances, employment relations would be greatly challenged if an employee was to be held financially liable to the employer for the financial consequences of a momentary lapse of attention. As La Forest J. observed, at p. 340 S.C.R. of London Drugs, "an employee's capacity to cause loss does not bear any relation to his salary".

[59] Moreover, there is a power imbalance inherent in most employment relationships. An employee is usually not in a position to bargain at the outset of the employment relationship regarding the terms of his or her potential liability for an act of negligence. In contrast, an employer concerned about employee negligence is in a position to dictate terms of employment and can contract for the employee's liability. As La Forest J. points out, at p. 341 S.C.R. of London Drugs, employers are at liberty to establish "contractual schemes of contribution from negligent employees" and such contractual terms would be relevant to a tort claim.

[60] In addition, while employees are implicitly, if not explicitly, expected to exercise reasonable care in their employment, there are other means to encourage that care without burdening the employee with an impossible financial judgment. While the appellant argued that a finding of liability against the respondent will promote responsibility in all workers, I am not persuaded that is so. Discipline and dismissal are often cited as more useful tools to promote deterrence without the need to impose financial responsibility. Thus, a policy that supports good industrial relations weighs against the imposition of a duty of care.


[63] In addition, it would make no economic sense to require both the employer and the employee to obtain and maintain insurance coverage. An approach that promotes double insurance -- even assuming such insurance would be available to every employee -- has no social utility: see London Drugs, at p. 387 S.C.R.

[64] Finally, as I have already noted, a determination that, in the ordinary course, employees are not liable to indemnify employers for ordinary negligence, accords with practice or legislation in many other jurisdictions that have already abolished the right of insurers to subrogate against employees under general liability policies.

[65] Accordingly, in addition to my conclusion at the first stage of the Anns test that the parties' relationship lacks the necessary proximity, I would also conclude that the residual policy considerations at the second stage of the Anns analysis weigh against the imposition of a duty of care. In coming to this conclusion, I observe that the result could be different if the loss is occasioned by negligence outside the parties' reasonable expectations, such as one caused by an intentional tort or wilful misconduct on the respondent's part. London Drugs also references "gross negligence", a concept I would leave for discussion in another case where it is raised by the particular facts. Finally, the result may be different in other situations, such as if the negligence involved a vehicular accident, where different considerations may apply between insurers and, as well, if the defendant had been from a profession where, as the Lister Committee said, "it is accepted prudence" to purchase insurance.

As of the authoring of this post, Douglas v Kinger has been cited no fewer than eleven times on this point. Those decisions come from six different provinces and include one appellate decision. To date not one decision has challenged, questioned, or refused to follow the Douglas decision.

In Grant v. Electra Sign Ltd., 2016 MBQB 131 (CanLII), former Justice Minister Vic Toews, now a judge of the Manitoba Court of Queen’s Bench, in dismissing an employer’s claim for damages resulting from an employee’s negligence cited Douglas for the proposition that, “it is right to treat damage as a risk of the business to be borne by the employer alone unless it is due to the intentional or grossly negligent conduct of the employee.”

In Landry v Pointone Graphics Inc., 2016 ONSC 1131 (CanLII), Justice Pattilo, siting as a judge of the Divisional Court on appeal from a decision of the Small Claims Court, ruled that, “The Court of Appeal has closed the door on employer claims in tort against their employees for what might be called “ordinary negligence in the case of Douglas v. Kinger.” The Honourable Justice Sean F. Dunphy J. had written the exact same words in his reasons for decision in the case of 2261897 Ontario Inc. v Quest Audio Visual Inc., 2015 ONSC 2428 (CanLII).

In Shamac Country Inns Ltd v Sandy's Oilfield Hauling Ltd, 2015 ABQB 518 (CanLII), R.P. Wacowich, Master in Chambers, expressly cited Douglas for the proposition that an employer cannot bring an action against an employee in simple negligence.

In Movassaghi v. Steels Industrial Products Ltd., 2012 BCSC 1663 (CanLII), Justice Butler of the BC Supreme Court cited Douglas, amongst others, as authority for the refusal to impose liability on an employee for “negligence simpliciter.”

In Portage LaPrairie Mutual Insurance Company v. MacLean, 2012 NSSC 341, the employer’s insurer, Portage, brought suit against the negligent employee, McLean, after her negligence started a fire causing an insured loss. A motion for summary judgment dismissing the action was granted. In that case the court expressly endorsed Douglas, and held that in order to ground liability against an employee “something more” than ordinary negligence will be required. The court further found that the imposition of a duty of care to the employer would be unjust and unfair.

In Viktoria Granite and Marble Ltd. v. Franczuk, 2010 SKPC 166 (CanLII), the Provincial Court of Saskatchewan (Civil Division) cited Douglas for the proposition that, “mere negligence” in the work place is not sufficient to warrant action against the employee; rather it must be gross negligence or wilful misconduct which would accrue liability to the employee.


I feel comfortable saying that it would appear clear that it is now settled law that employers cannot claim indemnification from their employees for ordinary negligence; especially if that claim is advanced by way of a subrogated action.

In short, Canada’s judiciary appear to have accepted that there are valid policy reasons for finding that employers are better suited to absorb the loss than employees and that it would be contrary to the principles of vicarious liability if employers who were found to be vicariously liable could, nonetheless, make claim over as against their employees for contribution and indemnity. Where those cases are advanced by way of subrogated action, courts appear to be even more hesitant.

Takeaways for Employees with Labour Pains

Do these cases mean that an employee can never be successfully sued by his employer if he causes damage in the workplace? No. It is important to note, first and foremost, that even Justice Lang in Douglas held that it was only in respect of “ordinary negligence” that the court should not observe a duty of care. What counts as “ordinary negligence” will depend on the facts of any particular case. Anyone reading this post should obtain an actual legal opinion with respect to the facts of their case. Second, the 'immunity' appears to apply only in respect of negligence. There is nothing to suggest that the court would refrain from imposing liability where an employee commits an intentional tort. Next, the door still appears to be open to claims for indemnification where the employee employs some sort of special skill, such as a professional calling. Finally, employees must be mindful that their individual contracts of employment may include a provision entitling the employer to seek indemnification in the case of loss.

Takeaways for Employers with Labour Pains

As with a lot of my posts, the first thing I am going to tell employers is that they should be using professionally drafted employment agreements. While the law since Douglas is not on the side of employers, those decisions do repeat the point that if the employer specially contracted for the right of indemnity, the court will likely give effect to such contract. To that end, even if you may never use it, having a contractual right to indemnification is an important arrow to have in one’s quiver.

The second point is that employers (and insurers seeking to advance subrogated claims) should think long and hard before commencing any legal proceedings against one of their employees. While older decisions may have technically allowed such claims, if there is any consistent pattern since Lord Denning’s proclamation in 1973, it is this most judges are pretty sceptical about transferring a loss suffered by an employer onto to an individual employee. Absent some sort of insurance regime, (see e.g. the comments of Justice Hockin of the Ontario Superior Court of Justice in Trainor v. Barker, 2006 CanLII 32927 (ON SC); especially at paragraphs13 and 14), employers' claims for indemnification arising from an employee’s “ordinary negligence” seem doomed to failure.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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