Canadian HR Reporter

Canadian HR RepoRteR March 23, 2015 employmeNt law 5 Jennifer Brown Legal View COMPENSATION (416) 498-7800 ext. 1 www.resourcecorporation.com Compensation Surveys Incentive Programs Job Descriptions Job Evaluation Pay Equity Performance Appraisal Salary Administration Sales Compensation CONSULTING e rise of HR malpractice insurance Most of the common claims in EPL insurance in Canada include wrongful termination, harassment and discrimination claims Groundbreaking decisions in labour and employment law may have some com- panies wondering what they would do if they were ever hit with a major claim they hadn't budgeted for — could they foot the bill, not only for any damages awarded by a court, but for the legal costs incurred? In the last few years, a combina- tion of factors has led to greater claims influenced by economic uncertainty and the fact employ- ees are much more likely to exer- cise their legal rights. At a seminar in February hosted by Hicks Morley Hamilton Stew- art Storie and Chubb Insurance Company of Canada, speakers discussed employment practices liability (EPL) insurance in light of recent labour and employment decisions and the financial impact on the organizations involved. As Chubb describes it, EPL insurance is an "HR malpractice policy." e most common claims in EPL insurance are wrongful termination claims, harassment and discrimination, said Laila Bra- bander, vice-president and claims manager at Chubb. For example, when an employ- ee is terminated and not enough common law notice is given, he sues for increased common law notice based on a variety of factors. "e intent of the policy is to step in when the employer got that common law determination wrong," said Brabander. "Our in- surance policy is there to top up where our insured's got that com- mon law deliberation wrong." ere are things the policies don't cover, including statutory minimum amounts or non-mon- etary awards. e policy also requires that when an insured submits an em- ployment claim under the policy, it "tenders the defence" to Chubb. That means Chubb appoints counsel that is "appropriate for the handling of the lawsuit." "It is neither in the insured or our best interest to have the law- suit defended by counsel who do not know or have experience in this specialty area of the law. Nor do you want a conflict of interest where the same law firm defend- ing the lawsuit is the law firm that advised on the termination," said Donna Cassidy, an executive un- derwriter at Chubb. EPL events common One-third (33 per cent) of respon- dents from Canadian, privately held companies experienced an EPL-related event in the last three years, according to Chubb's 2013 Private Company Risk survey. These include allegations of sexual harassment, retaliation or workplace bullying in the work- place or misuse of social media for hiring or firing purposes. Of those surveyed and those that reported losses, 41 per cent had losses with total costs ranging from $20,000 to $500,000. e average total costs associ- ated with EPL events (including discovery, defence expenses, fines or judgment, or settlement costs) was $122,000. is is double the amount disclosed in 2010 and 2007 and higher than the average disclosed amount by U.S. respon- dents, which was $70,000. Despite those numbers, just eight per cent purchased EPL in- surance separate from a general liability policy. And 42 per cent believed their GL policy provided EPL — which they did not. In terms of factors influencing higher damage awards, Maureen Quinlan, an associate at Hicks Morley, pointed to the 2012 Pinto report as one factor that has led to increased awards to plaintiffs in human rights cases. e report by Andrew Pinto was a statutory review of the On- tario human rights system. One of its key recommendations was the tribunal should far exceed the previous $10,000 cap when it came to breaches of the code by corporate defendants. "We have seen that come to fruition," said Quinlan. "Num- bers now range up to the $80,000 range. e numbers have steadily increased from case to case. Each case tops the previous one." Calculating damages ere is a common misconcep- tion in how to calculate damages in a human rights context, she said, referencing the 2013 case Fair v. Hamilton-Wentworth Dis- trict School Board, which involved an individual awarded damages going back 10 years. "A lot of people assume it's the same calculation we use in a com- mon law context," said Quinlan. "When it comes to human rights, if someone's rights are breached and it's found to be ei- ther a termination or a change in position that is discriminatory, the tribunal puts the individual in the shoes that they would have been in if the discrimination had never occurred. "What that means is if an indi- vidual is terminated and they are unemployed for the next 10 years as in Fair, the tribunal can award lost wages for that 10-year period." Sharon Fair was an employee of the school board involved with as- bestos removal. She became dis- abled as a result of a medical con- dition and wasn't accommodated. Her employment was eventually terminated. Fair was able to find casual and part-time work but ultimately wasn't able to find any sustainable work. As part of her application to the human rights tribunal, she applied for reinstatement to her former position as well as com- pensation for lost wages. e tribunal found the employ- er failed to accommodate Fair and a position was available she could have filled. She was awarded 10 years' lost wages and compensation for lost benefits including contributions to government pension plans and private plans. Also, there was a payment to recognize the tax consequences of receiving the large payment in one lump sum. "It was a huge damage reward for a case that took a long time to get to trial," said Quinlan. Procedure Today, it takes about one to two years to get from application to hearing. "Usually, we don't have some- one who has been out of work for eight-and-half years, but now we're in a situation where we get to a hearing faster, but it can be a significant cost for the employer when they have to pay those mon- etary remedies for simply wage loss and, in addition to that, the tribunal can award damages to breach of the code," she said. "Damage awards have been steadily increasing in that area, particularly after the Pinto report." Assessing reasonable notice has also become more complicated. While the rule of thumb used to be one month for each year of ser- vice, that is no longer the case, said Quinlan. "e Ontario Court of Appeal has ruled there is no such thing as any 'rule of thumb' and that's what makes it difficult to assess what a reasonable notice period is," she said. "It's truly more of an art than a science." e court now looks at each case individually to determine how long it would take the person to find other work. e absence of mandatory re- tirement at 65 in Ontario and oth- er provinces has led to employees working longer and has also had an impact on what their notice entitlements are. "Instead of seeing notice peri- ods drop off at the age of 65, notice periods carry on. A cap of what was 24 months can be exceeded now in exceptional circumstanc- es," said Quinlan. "ose with long service — 24 years and beyond — or someone who is very senior in the organi- zation, can now stretch from 26 to 28 months, although they have been rare, to date." When it comes to reasonable notice periods, it can be expected people will be arguing for longer notice periods due to the econo- my in order to find comparable employment, said Quinlan. Jennifer Brown is editor of Canadian Lawyer InHouse, a sister publication to Canadian HR Reporter. For more information, visit www.canadianlaw- yermag.com. e average total costs associated with epl events (including discovery, defence expenses, fines or judgment or settlement costs) was $122,000.

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