Employees Generally Not Liable To Employers For Negligence

Some cases, Pinto v. BMO Nesbitt Burns Inc. (2005), 40 C.C.E.L. (3d) 293 (Ont. S.C.J.) and Dominion Manufacturers Ltd. v. O'Gorman (1989), 24 C.C.E.L. 218 (   Ont. Dist. Ct.), for example, have held that an employee can be liable to their employer for damages in negligence (in Pinto the damages claimed were hundreds of thousands of dollars and the award was in the hundreds of dollars – the principle was applied but the result was not so clear). 

Today’s Court of Appeal decision in Douglas v. Kinger, 2008 ONCA 452 makes it clear that such employee liability is extraordinary and will be found only where there is conduct that amounts to willful misconduct or, perhaps, the grossest of negligence.

The Court holds:

 

 [46]          Accordingly, in his view, employees generally should not be liable in tort to indemnify an employer for damages payable to a third party injured by their negligence, except where the employee is “grossly negligent”.  In arriving at this conclusion, LaForest J. referenced the approach established in Germany, which limits the circumstances in which an employee can be held liable for torts to circumstances involving either intentional or grossly negligent conduct.  He also referred to the policy reasons in support of this approach, which are set out by B.S. Markesinis in A Comparative Introduction to the German Law of Torts, 2nd ed. (Oxford: Clarendon Press, 1990) at pp. 574-75:

Thus, damage done by an employee without intention or gross negligence while engaged on a dangerous job is one of the employer’s business risks and must be borne by him alone.  To allot damage done by the employee to the risks of the business, in the absence of gross negligence, is justified by the fact that it is the division of labour within the business which exposes the employee to the risks specific to his work.  Division of labour and organizational structure are matters for the employer whose ownership and power of management enable him to determine how the work of the business is to be organized.  The employee, on the other hand, given his subordinate position, has little or no influence on these factors which are relevant to the damage caused.  Since the employer is better able to deploy technical and organizational measures to reduce the special risks of the business and to take out any necessary insurance, it is right to treat damage as a risk of the business to be borne by him alone unless it is due to the intentional or grossly negligent conduct of the employee.

[47]           Thus, La Forest J. would restrict the circumstances in which an employee is liable in tort to situations of intentional wrongdoing or gross 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 LaForest J. observed at p. 340 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 LaForest J. points out at p. 34 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.

[61]          Second, risk and resource allocation are important policy considerations.  These considerations, which are particularly relevant to employment situations, support the conclusion that the employer should be the party charged with protecting his or her own interests.  This is because the employer is generally in a better position than the employee to internalize the cost of ordinary employee negligence, whether as a cost of doing business or by acquiring appropriate insurance.  Generally speaking, employers do so.  This was the view taken in Morris v. Ford Motor Co. Ltd., [1973] 1 Q.B. 792 (C.A.), where Lord Denning emphasized that the employer should bear the liability for employee negligence because the employer enjoys the benefit of the work and should, in turn, bear the burden.  He supports this view by pointing to the fact that the employee’s wages are fixed on the basis that the employer will bear the expense of employee negligence, usually through insurance.  If the employer chooses not to obtain insurance, he or she should still absorb the cost of avoiding harm as a matter of sound resource allocation.  If it was otherwise, and the employee is expected to bear the risk, his or her wages should be increased to cover that risk. 

[62]          In concluding that liability must depend on the individual contractual circumstances of the employment, Seaton J.A. in Overmyer observed at pp. 723-24 that an employer accepts the risk of employee fallibility and takes that fallibility into account in the costs of doing business, supervising the employee, and insuring the enterprise.  Regarding any presumption of employee liability, he stated at pp. 724-25:

If an employee, by lack of care, causes loss to his employer, I do not think that it should be presumed that the employee will be liable, and I do not think that we should look at decisions on other employment contracts for the answer. We should look at the hiring to see what was said and at the circumstances to see what might properly be implied. It follows that this employment and this error must be looked at to see what terms were in the contract and whether they were breached. [Emphasis added.]

[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. 

[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 (Gardiner at 655).