Groundbreaking decisions in labour and employment law may have some companies wondering what they would do if they were ever hit with a major claim they hadn’t budgeted for — could they foot the bill, not only for any damages awarded by a court, but for the legal costs incurred?
In the last few years, a combination of factors has led to greater claims influenced by economic uncertainty and the fact employees are much more likely to exercise their legal rights.
At a seminar in February hosted by Hicks Morley Hamilton Stewart Storie and Chubb Insurance Company of Canada, speakers discussed employment practices liability (EPL) insurance in light of recent labour and employment decisions and the financial impact on the organizations involved.
As Chubb describes it, EPL insurance is an “HR malpractice policy.” The most common claims in EPL insurance are wrongful termination claims, harassment and discrimination, said Laila Brabander, vice-president and claims manager at Chubb.
For example, when an employee is terminated and not enough common law notice is given, he sues for increased common law notice based on a variety of factors.
“The intent of the policy is to step in when the employer got that common law determination wrong,” said Brabander. “Our insurance policy is there to top up where our insured’s got that common law deliberation wrong.”
There are things the policies don’t cover, including statutory minimum amounts or non-monetary awards.
The policy also requires that when an insured submits an employment claim under the policy, it “tenders the defence” to Chubb. That means Chubb appoints counsel that is “appropriate for the handling of the lawsuit.”
“It is neither in the insured or our best interest to have the lawsuit defended by counsel who do not know or have experience in this specialty area of the law. Nor do you want a conflict of interest where the same law firm defending the lawsuit is the law firm that advised on the termination,” said Donna Cassidy, an executive underwriter at Chubb.
EPL events common
One-third (33 per cent) of respondents from Canadian, privately held companies experienced an EPL-related event in the last three years, according to Chubb’s 2013 Private Company Risk survey.
These include allegations of sexual harassment, retaliation or workplace bullying in the workplace or misuse of social media for hiring or firing purposes.
Of those surveyed and those that reported losses, 41 per cent had losses with total costs ranging from $20,000 to $500,000.
The average total costs associated with EPL events (including discovery, defence expenses, fines or judgment, or settlement costs) was $122,000. This is double the amount disclosed in 2010 and 2007 and higher than the average disclosed amount by U.S. respondents, which was $70,000.
Despite those numbers, just eight per cent purchased EPL insurance separate from a general liability policy. And 42 per cent believed their GL policy provided EPL — which they did not.
In terms of factors influencing higher damage awards, Maureen Quinlan, an associate at Hicks Morley, pointed to the 2012 Pinto report as one factor that has led to increased awards to plaintiffs in human rights cases.
The report by Andrew Pinto was a statutory review of the Ontario human rights system. One of its key recommendations was the tribunal should far exceed the previous $10,000 cap when it came to breaches of the code by corporate defendants.
“We have seen that come to fruition,” said Quinlan. “Numbers now range up to the $80,000 range. The numbers have steadily increased from case to case. Each case tops the previous one.”
There is a common misconception in how to calculate damages in a human rights context, she said, referencing the 2013 case Fair v. Hamilton-Wentworth District School Board, which involved an individual awarded damages going back 10 years.
“A lot of people assume it’s the same calculation we use in a common law context,” said Quinlan.
“When it comes to human rights, if someone’s rights are breached and it’s found to be either a termination or a change in position that is discriminatory, the tribunal puts the individual in the shoes that they would have been in if the discrimination had never occurred.
“What that means is if an individual is terminated and they are unemployed for the next 10 years as in Fair, the tribunal can award lost wages for that 10-year period.”
Sharon Fair was an employee of the school board involved with asbestos removal. She became disabled as a result of a medical condition and wasn’t accommodated. Her employment was eventually terminated.
Fair was able to find casual and part-time work but ultimately wasn’t able to find any sustainable work. As part of her application to the human rights tribunal, she applied for reinstatement to her former position as well as compensation for lost wages.
The tribunal found the employer failed to accommodate Fair and a position was available she could have filled.
She was awarded 10 years’ lost wages and compensation for lost benefits including contributions to government pension plans and private plans.
Also, there was a payment to recognize the tax consequences of receiving the large payment in one lump sum.
“It was a huge damage reward for a case that took a long time to get to trial,” said Quinlan.
Today, it takes about one to two years to get from application to hearing.
“Usually, we don’t have someone who has been out of work for eight-and-half years, but now we’re in a situation where we get to a hearing faster, but it can be a significant cost for the employer when they have to pay those monetary remedies for simply wage loss and, in addition to that, the tribunal can award damages to breach of the code,” she said.
“Damage awards have been steadily increasing in that area, particularly after the Pinto report.”
Assessing reasonable notice has also become more complicated. While the rule of thumb used to be one month for each year of service, that is no longer the case, said Quinlan.
“The Ontario Court of Appeal has ruled there is no such thing as any ‘rule of thumb’ and that’s what makes it difficult to assess what a reasonable notice period is,” she said. “It’s truly more of an art than a science.”
The court now looks at each case individually to determine how long it would take the person to find other work.
The absence of mandatory retirement at 65 in Ontario and other provinces has led to employees working longer and has also had an impact on what their notice entitlements are.
“Instead of seeing notice periods drop off at the age of 65, notice periods carry on. A cap of what was 24 months can be exceeded now in exceptional circumstances,” said Quinlan.
“Those with long service — 24 years and beyond — or someone who is very senior in the organization, can now stretch from 26 to 28 months, although they have been rare, to date.”
When it comes to reasonable notice periods, it can be expected people will be arguing for longer notice periods due to the economy in order to find comparable employment, said Quinlan.
Jennifer Brown is editor of Canadian Lawyer InHouse, a sister publication to Canadian HR Reporter. For more information, visit www.canadianlawyermag.com.
© Copyright Canadian HR Reporter, HAB Press. All rights reserved.