Employee negligence not a lost cause

Loss caused by employee carelessness could be recouped if caused by a failure to perform expected duties in a skilled position

Finding recompense for employee negligence

An employee who just doesn’t care makes a mistake and the employer is faced with a financial or other loss as a result. The employer can consider discipline or termination, but that doesn’t cover the damage done. Often, the employer can only try to absorb the loss and move on. However, in certain circumstances, the employer may be able to recoup something from the negligent employee.

Employees in unskilled jobs are not held liable for causing losses to their employers through negligence, but when the job requires specific skills and the employee is not properly using those skills due to negligent conduct, the courts can consider it a breach of the employment contract. Whether it’s a professional driver guilty of careless driving or an investment advisor making poor investments an employer might just be able to recoup losses suffered as a result of a skilled employee not doing the job properly.

When an unskilled employee 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.

Car salesman who damaged dealership’s vehicles not liable

In 864475 Alberta Ltd. v. Hilton, a car dealership brought an action against Ross Hilton, its used car salesman, to recover damages caused when he negligently drove one of its vehicles into two others on the dealership lot. The dealership sustained more than $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 the 1956 British case of Romford Ice & Cold Storage Co. v. Lister. Lister, a truck driver employed by Romford, ran over his father while driving a Romford truck. Lister’s father sued Romford, which was held vicariously liable for Lister's fault, and Romford’s insurer sued Lister to recover the payout. 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. It 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., 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, the British Columbia Court of Appeal limited the liability arising from Lister to situations where the claim of the employer arose because of vicarious liability for the employee’s negligence and the employee was hired to do a particular skilled job and failed in the skilled work for which he was hired. The B.C. appeals court further outlined the approach courts should follow when considering employee liability for work-related negligence. As interpreted in Hilton, the B.C. Court of Appeal “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 the framework from Overmyer, 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.

“In the absence of any express term to the contrary, the implied agreement between the parties was (the employer) would bear the risk of damage to its property and would insure that risk under a policy under which (Hilton) would be protected as an unnamed insured,” the court said.

The court accepted the limitations imposed in Lister and said “the claim in this action does not engage the law relating to third-party liability….” Moreover, the court found Hilton was not a skilled employee in the context of driving the car.

“An unskilled employee is not liable for damage caused to the employer’s property accidentally or negligently,” the court said in dismissing the dealership’s attempt to recoup its losses.

Employees liable for not getting the job done as expected

The decision in Hilton follows Douglas v. Kinger and Kleinsasser v. Alexander, both actions brought by employers against employees for negligence that were dismissed. Hilton also provides a useful contrast to Pinto v. BMO Nesbitt Burns Inc. and Dominion Manufacturers Ltd. v. O’Gorman, two Ontario cases where an employee was held liable to the employer. In each case, the court found the employee to possess a particular skill 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 employee liability.

In Pinto, the Ontario Superior Court of Justice held an investment advisor liable for settlements 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 her 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 Ontario District Court reached a similar conclusion in O’Gorman, where a registered industrial accountant was held liable in tort for failing as a comptroller to make payments to government agencies on account of payroll deductions, municipal taxes and utility bills. This failure caused his employer to be assessed late penalties of more than $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.”

It also found there was an implied term of the employment contract between the parties that the accountant was capable of carrying out the responsibilities of his employment and “the employer would be indemnified for the losses caused by the acts or non-acts of the employee.”

Implied terms of employment relationship for skilled workers

This illustrates 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 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 employment agreements to require its employees to pay for losses caused by their own negligence. When using such clauses, employers should have regard to employment standards legislation that precludes employers from setting off such losses against wages.

For more information see:

864475 Alberta Ltd. v. Hilton, 2007 CarswellAlta 1766 (Alta. Prov. Ct.).
Romford Ice & Cold Storage Co. v. Lister (1956), [1957] 1 All E.R. 125 (U.K. H.L.).
Overmyer Co. v. Wallace Transfer Ltd. (1975), 1975 CarswellBC 220 (B.C. C.A.).
Douglas v. Kinger (Litigation Guardian of), 2006 CarswellOnt 8695 (Ont. S.C.J.).
Kleinsasser v. Alexander, 1994 CarswellSask 166 (Sask. Q.B.).
Pinto v. BMO Nesbitt Burns Inc. (2005), 2005 CarswellOnt 2161 (Ont. S.C.J.).
Dominion Manufacturers Ltd. v. O’Gorman, 1989 CarswellOnt 752 (Ont. Dist. Ct.).

Rich Appiah is an associate with Israel Foulon LLP, an employment and labour firm in Toronto. He can be reached at (416) 604-1550 or [email protected]

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