Litigation arising from employment disputes continues to be an active area of exposure for businesses. The most common claims are wrongful dismissal, harassment, or discrimination by an employer, fellow employee, or third party. With the expansion of Employment Practices Liability Policies (“EPL”), also known as HR Malpractice Insurance and employment practices endorsements in CGL policies, costs related to an employment dispute will often be covered by insurance. Although the specific coverage varies from policy to policy, most EPL policies will cover the legal fees associated with defending a claim. Notably, EPL policies will usually not cover damages attributed to insufficient notice of termination, also known as “wrongful dismissal”. However, costs associated with employment practices litigation often eclipse the actual amount in dispute, making these policies or endorsements particularly attractive to smaller businesses.
The use of summary judgment motions in the wake of Hryniak v Mauldin, 2014 SCC 7, means matters can be resolved by a judge within months of the claim being issued. While these motions are an effective way of resolving disputes early, they are resource intensive and add increased upfront costs to the employer. A recent decision on costs by Perell J., in Cosolo v. Geo. A. Kelson Limited, 2017 ONCS 4928 found an employer liable for $96,013.32 in legal fees after the employee’s successful summary judgment motion. This was in addition to fees it would have to pay its own lawyer.
In contrast, Perell J. relieved an employer of its $239,420.83 legal bill in Precidio Design Inc. v. Great American Insurance Co., 2013 ONSC 7148, when he found that the applicant employer was entitled to coverage under an EPL policy.
The most common dispute that arises is the provision of proper notice of termination or pay in lieu of notice. Several notable Ontario Court of Appeal and Divisional Court decisions in 2018 have continued to muddy the waters around the validity of termination clauses. Employers continue to struggle to draft termination clauses that will suit the needs of their organizations while also complying with the requisite legislation. This uncertainty leads to frequent disputes.
In addition to the courts, employment related disputes are increasingly being referred to administrative tribunals. While administrative tribunals usually do not provide for an order of costs against an employer, Ontario has removed the monetary limits on claims at the Human Rights Tribunal and Labour Relations Board. Employers now face greater exposure to large awards and even reinstatement of a dismissed employee. A prime example is the Ontario Human Rights Tribunal decision of Fair v. Hamilton-Wentworth District School Board, 2013 HRTO 440,which was upheld by the Ontario Court of Appeal in 2016. In that decision, the employer’s failure to accommodate a teacher resulted in an Order for reinstatement, with back pay, after 10 years, in addition to $30,000.00 for injury to dignity, feelings, and self-respect.
With the proliferation of increasingly accessible judicial and administrative forums, litigation arising out of the employment relationship is on the rise. As demonstrated by Wood, Nemeth, Amberber, and Bergeron, employment litigation on matters as straight forward as valid termination clauses are common and are routinely being adjudicated at the Court of Appeal level.
EPL policies allow employers to promptly refer employment matters to their insurer and assigned counsel. In many situations, prompt assignment and referral of a claim can avoid the need for protracted litigation, particularly in situations where a policyholder failed to properly limit an employee’s entitlement to notice upon termination.
While Ontario presently enjoys robust economic growth and low unemployment, these conditions may change, resulting in significant layoffs, terminations and accompanying litigation. With the increased popularity of EPL policies and their CGL endorsement counterparts, insurers will likely face increased claims in the future. When underwriting EPL policies or endorsements to a pre-existing CGL policy, it is prudent to take a hard look at whether the policyholder’s written employment contracts, if any, and whether they would stand up to legal scrutiny. Similarly, reviewing whether a policyholder has appropriate internal policies to deal with harassment, discrimination and progressive discipline will be important in assessing current, or future, risk. The answers to those questions may significantly alter the level of risk an insurer is taking on when providing coverage.
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