THE EMPLOYERS' EDGE
Employees Cannot Make Personal Claims Against Management where Employment Contract Precludes any Claims other than Negotiated Contractual Notice Periods
A limitation of liability clause in an employment agreement may protect an employee from personal liability even though the employee is not a party to the agreement, the Ontario Court of Appeal recently ruled.
In Richards v. Media Experts M.H.S. Inc., the plaintiff was employed as Media Expert’s CEO. Less than a year after she began working at Media Experts her employment was terminated for cause. The employment contract between the parties provided for 12 months’ pay upon termination, and included a limitation of liability clause (the “exclusion clause”) where the plaintiff agreed that she shall have no other rights to any severance payment, damages or indemnity upon termination. The plaintiff sued Media Experts for wrongful dismissal, and named its founder and executive chairman, Mark Sherman as a personal defendant, claiming that she suffered intentional and negligent infliction of nervous shock as a result of Mr. Sherman’s actions during termination.
At trial Mr. Sherman moved to strike the claim against him in its entirety, arguing that he is entitled to rely on the exclusion clause in the employment agreement. The plaintiff took the position that since Mr. Sherman was not a party to the employment agreement, the exclusion clause did not apply to him. The Superior Court of Justice found that the exclusion clause extended to Mr. Sherman, and struck the claims against him. To find otherwise, the Court reasoned, would have the effect of allowing the plaintiff to circumvent the exclusion clause.
On appeal, in a short endorsement the Ontario Court of Appeal agreed with the Superior Court of Justice. The Court relied on the Supreme Court of Canada’s 1992 decision in London Drugs Ltd. v. Kuehne & Nagel International Ltd., where the Supreme Court found that employees may obtain the benefit of a limitation of liability clause between the employer and another employee if the limitation of liability clause, expressly or impliedly, extended its benefit to the employee seeking to rely on it, and the employee seeking to rely on the clause was acting in the course of his or her employment.
The Court found that Mr. Sherman personally negotiated the plaintiff’s employment agreement, and that the exclusion clause implicitly applied to him as well as to Media Experts since, when the parties negotiated the agreement, the parties did not contemplate that the plaintiff would be able to make claims against Mr. Sherman arising out of her employment contract that she could not make against Media Experts. In addition, Mr. Sherman was acting on behalf of Media Experts when he terminated the plaintiff’s employment. The test articulated by the Supreme Court was satisfied.
In Richards the Court of Appeal confirmed that a well drafted limitation of liability clause would protect not only the employer, but also its human resources personnel, officers, directors, or any other individuals involved in the termination of employment process. The common law doctrine of privity of contract does not allow a plaintiff to circumvent a limitation of liability clause in the employment contract by filing personal claims against other employees.
The lawyers at Crawford Chondon & Partners LLP can assist employers in drafting clear limitation of liability clauses to ensure that both employers and their key employees are insulated from personal claims arising out of termination of employment.
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