Vicarious liability case a reminder for employers to know risks

By Staff

The Ontario Court of Appeal (OCA) has set the record straight in ruling that employees may be personally liable for their own negligent conduct while carrying out duties in the course of their employment, insurance defence lawyer Heather Vaughan tells

The ruling “is also a reminder that the employer will generally be found liable for wrongs committed by an employee,” says Vaughan, a partner with Benson Percival Brown LLP.

The case involved a negligence claim brought by a customer at a popular coffee chain, who alleged that she was injured when scalding water was poured on her hands. She sued the barista and the store manager, alleging that she was owed a duty of care by the two individual defendants and that they were personally liable for breaching that duty.

A motion judge ruled in favour of the defendants and struck the statement of claim, finding that it failed to disclose a reasonable cause of action against either defendant and that suing them both was an abuse of process.

The plaintiff then challenged the motion judge’s ruling, and the Court of Appeal agreed.

Vaughan says the appeal was successful because “the motion judge misstated the law. The law is that the individual employees are liable for what they do within the scope of their employment, but that liability flows through to the employer,” she says.

The Court of Appeal noted the motion judge held that the claim against the individual defendants did not disclose a reasonable cause of action because “‘the general rule remains that employees are not liable for what they do within the scope of their authority and on behalf of their corporation.’ Respectfully, the general rule is the opposite,” the OCA noted, adding that “there is no general rule in Canada that an employee acting in the course of her employment cannot be sued personally for breaching a duty of care owed to a customer.”

The court continued: “The motion judge’s ruling conflates two separate concepts: the employer’s vicarious liability for its employees acting within the scope of their employment; and employees’ personal liability for their own negligence while acting within the scope of their employment. Under Canadian law, the two concepts can live together.”

Vaughan says she was surprised by the discussion generated by the case as it’s not a particularly contentious issue.

“There’s an expectation that any involved employees are named personally in litigation, and tactically, it’s important for plaintiffs to do so because they get rights of examination of those parties — which is really important in order to find out what happened in a particular case,” she says.

A corporate defendant can choose who it will produce for discovery, and generally only one party can be examined per defendant, Vaughan explains. But if a party is named independently in a statement of claim, a plaintiff has a right of discovery against that party, she says, adding that a motion can be brought before the court for permission to add another corporate discovery witness.

Defences are available for employers in vicarious liability litigation, including the intentional acts defence, where an employee’s acts are intentional and “beyond the scope of employment,” Vaughan says.

The intentional acts defence is often raised in sexual assault cases, she says, referring to an OCA decision that found a taxi company was not liable for a sexual assault allegedly committed by one of its drivers on a passenger.

“Vicarious liability should not be applied when an employee was acting so far out of the course of their employment that there isn’t a connection between their work-related wrongful activity and the harm to the patron,” she says. “It’s not enough that the employer created an opportunity.”

When it comes to insurance coverage, Vaughan reminds insurers: “You need to know your risk, the employment structure of the insured company, as well as what those employees are doing and their core obligations so that appropriate insurance can be placed.

“What safeguards are there to prevent employees from acting outside the course of their employment and creating harm to customers? What steps has the employer taken to ensure there will not be independent allegations of negligence?” she says.

These questions, Vaughan says, are all part of an underwriting and risk-management assessment when setting a premium or figuring out how to insure entities who have exposure to “serious risks of a finding of vicarious liability for wrongs committed by employees.”

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