Do managers typically think of personal liability when making decisions to dismiss? They perhaps should

Directors and senior managers and their employers should consider the recent Court of Appeal decision in the Osipov whistleblowing case very carefully. Briefly, by way of scene-setting, Osipov had made a series of protected disclosures and he was ultimately dismissed as CEO of the employer company pursuant to a decision of two non-executive directors (NEDS) of the company. He brought a  whistleblowing claim (for approx. £1.7m) against the company.  He also added the two NEDS as respondents on the basis that they had subjected him to a detriment for (amongst other allegations) their part in the decision to dismiss him.

A worker has the right not to be subjected to detriment on the ground that they have made a protected disclosure (e.g. a disclosure of some wrongdoing). This protection applies to detriments caused by the employer as well as a detriment by the worker’s colleagues or an agent of the employer. Since 2013, in the case of detriment by a colleague, it will be treated as also having been done by the employer (vicarious liability).

A worker who is also an employee will have a claim for automatically unfair dismissal (no cap on compensation) if they are dismissed by the employer for the sole or principal reason that they have made a protected disclosure.

An employee cannot bring a claim for detriment where “the detriment in question amounts to dismissal” (within the meaning of the unfair dismissal provisions of the relevant statute).  The employee would need to bring a claim for unfair dismissal instead. However, a worker who is not an employee (and so who is not eligible to claim unfair dismissal) can bring a detriment claim in respect of termination of the engagement.

The question posed in Osipov was whether, although the only claim for Osipov against the employer arising out of the dismissal would be unfair dismissal, the claims against the NEDs could include a detriment claim where the detriment was the dismissal itself?  The answer was yes, it could. This made the NEDS jointly and severally liable with the employer for the full amount of the £1.7m.

Naming individuals as respondents to claims is common in discrimination cases and has been for quite some time. There is a psychological and practical advantage to the claimant in doing this. The individual respondent is made to feel uncomfortable by the personal nature of the accusation and, in some cases, financially vulnerable too.  Naming an individual respondent also offers a practical advantage to the claimant if the employer is subject to solvency issues. Adding individuals in whistleblowing cases will I think increase as a result of cases such as Osipov.

In the majority of cases the employer will indemnify the individual employee or officer (the NEDS had the benefit of D&O insurance in Osipov) for any liabilities in relation to such a claim (which would otherwise be joint and several). However, there may be instances where the culpability of an individual becomes more apparent as the evidence develops through an investigation or trial and the employer’s appetite for indemnifying the individual may change. I doubt whether such a potential liability is in the contemplation of many senior managers when they take decisions to dismiss.

Osipov also highlights why employers should think through carefully who is involved in decisions to dismiss. Each person who has a part to play in the dismissal is likely to be called as a witness and may also be named as an individual respondent. It might be, for example, that a “c-suite” director who only had a cursory input to a decision to dismiss, would nevertheless have to give evidence in determining what the “sole or principal reason” for the dismissal was. Most employers would want to avoid their senior executives having to give evidence in such cases and therefore they should give some thought to how such decisions might be contained. If a decision to dismiss is escalated – as good governance might dictate in some circumstances – it should only be done in the full  knowledge of this possible outcome. For their part managers involved in decisions to dismiss might want to think about their potential personal liability.

Another reason why this decision is significant is that a detriment claim (not available to an employee against the employer when a dismissal has occurred and the claim is about the dismissal itself) may be more attractive to a claimant because of the lower burden of proof. For whistleblowing dismissal claims it must be shown that the sole or principal reason for the dismissal is the protected disclosure, whereas for a detriment claim it need only be established that the protected disclosure was a materially influential cause of the detriment.

 

“Daddy day-care” some highlights on paternity leave

In November 2015 the Labour Laws Amendment Bill (the Bill) was tabled to parliament.  The Bill was adopted with the intention of amongst others, regulating (and extending) paternity leave.  As of 22 August 2018, the Bill has been passed by the National Assembly and the National Council of Provinces. All that remains is authorisation and signature by the President.

What is the current leave entitlement?

As it stands, adoptive parents and commissioning parents are not included in the definition of parents in terms of the family responsibility leave provisions of  section 27 of the Basic Conditions of Employment Act, 1997 (BCEA).  Biological fathers are entitled to three consecutive days’ leave at the birth of their child.   Biological mothers are entitled to four months maternity leave which can be paid or unpaid leave as per the employer’s discretion.

What will the Bill change?

In essence, once signed into law, the Bill will amend family responsibility leave in two ways:

  • First it will increase the family responsibility leave entitlement from three days to 10 consecutive days. Fathers and/or parents who are non-primary caregivers will therefore be entitled to 10 consecutive days of parental leave.
  • Secondly, it extends the definition of parental leave to include adoptive parents and commissioning parents in a surrogate motherhood agreement. Parents who adopt a child below the age of two will be entitled to 10 weeks of consecutive leave (or 10 days leave if they are non-primary caregivers) from the date the adoption is granted or upon the pronouncement by a court.  Commissioning parents are also entitled to 10 weeks consecutive leave.

Some take-home points

It is important to note that the Bill does not seek to legislate paid parental or paternity leave.  Therefore, it still remains unpaid leave unless otherwise agreed to by the employee and the employer.  As it stands employees may be able to claim from the Unemployment Insurance Fund.

The amendments have been drafted to provide more beneficial minimum terms and conditions of employment for working parents, whether biological, adoptive or commissioning.  The amendments also offer equal treatment to same-sex and LGBTQI families.

A number of employers, in anticipation of the amendments, have adopted more liberal parental leave policies.  It may only be a matter of time before this Bill becomes law.  In order for employers to be considered employers of choice within their respective industries, employers across South Africa would do well to reconsider their leave policies.

This article was written by Nomazizi Dlamini, Candidate Attorney, Norton Rose Fulbright South Africa Inc

Taking the lot: Account of profits for breach of fiduciary duty

A party affected by a breach of fiduciary duty may elect to claim equitable compensation, or to pursue an account of the profit or benefit derived by the party committing the breach and any party who knowingly assisted the breach.

Pursuing an account of profits is often more attractive because it spares the innocent party from having to prove the loss it has suffered from the breach. Such loss may be difficult to prove – for example, clients who have been snatched away by an employee in breach of his/her fiduciary obligations are unlikely to agree to give evidence about the affair.

Moreover, the value of the provable loss may be modest and compare unfavourably with the legal costs involved in obtaining the relief. The results of an account of profits can be much more substantial.

This is illustrated by a recent decision of the High Court of Australia (Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43) in which it was held that an account of profits can include the total net capital value of a business that was established by reason of the breach, including future net profits.

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Family Responsibility Leave – Bereavement rights

South African labour law does not have any specific legislation solely dealing with compassionate leave in the event of bereavement. However, the Basic Conditions of Employment Act, 1997 (BCEA) provides for what is termed family responsibility leave.

The BCEA was introduced specifically to give effect to the right to fair labour practices by establishing and enforcing basic conditions of employment and also regulating the variation of the basic conditions of employment.

Section 27 of the BCEA provides that an employee who has been in employment with his/her employer for a period longer than four months and who works for at least four days a week for that employer must be granted three days paid family responsibility leave during each annual leave cycle. An annual leave cycle means the period of 12 months employment with the same employer immediately following an employee’s commencement of employment or the completion of that employee’s prior leave cycle.

An employee is entitled to take the family responsibility leave when the employee’s child is born, when the employee’s child is sick, in the event of the death of the employee’s spouse, life partner, parent, adoptive parent, grandparent, child, adopted child, grandchild or sibling.

Section 27(7) allows for collective agreements entered into between employers and employees (usually represented by a trade union) to vary the number of days and the circumstances under which family responsibility leave is to be granted.

The BCEA requires an employer to pay an employee the wage the employee would ordinarily receive. An employer may require an employee to provide it with proof of the event that required the family responsibility leave.  This requirement should be incorporated in the contract of employment, alternatively into a policy dealing with family responsibility leave.

At present, the legislature is planning to amend the BCEA and in particular section 27 sealing with family responsibility leave to increase an employee’s entitlement from three days to 10 days leave. The amendment bill has not yet been signed by the President and as such, the status quo of three days’ entitlement remains.

This article was written by Phathutshedzo Rambau, Candidate Attorney, Norton Rose Fulbright South Africa Inc

Can an employee be compelled to give evidence in a coronial inquiry where the employer is facing a WHS proceeding?

A coronial inquiry being conducted at the same time as a criminal proceeding may constitute interference with the due administration of criminal justice amounting to contempt of court.

A recent Federal Court decision[1] has considered whether the examination of an employee witness at an inquest will constitute ‘interference’ for the purposes of the criminal proceeding against the employer.

The inquest, which commenced in September 2017, was concerned with the death of Captain David Wood (Captain Wood) in Antarctica on 11 January 2016.  The inquest raised questions about the responsibility of Captain Wood’s employer, Helicopter Resources Pty Ltd (Helicopter), and the responsibility of the Commonwealth.  Subsequent to the commencement of the inquest, Helicopter was charged with three summary offences under Work Health and Safety Act 2011 in relation to 3 separate incidents.  One of those alleged contraventions related directly to the circumstances giving rise to Captain Wood’s death.

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Bill 47: Making Ontario Open for Business Act, 2018 – Employment Standards Act, 2000 Considerations

Overview

On October 23, 2018, the Ontario Government announced its much anticipated legislation in relation to employment and labour law matters. The legislation, dubbed the Making Ontario Open for Business Act, 2018 (Bill 47), will remove or modify many of the obligations placed on Ontario employers by way of the Fair Workplaces, Better Jobs Act, 2017 (Bill 148). Please see the summary below for an overview of the changes to the Employment Standards Act, 2000 and the table thereunder for a more thorough review. For the Ontario Ministry of Labour’s Backgrounder on the issues, please click here. For the full text of Bill 47, please click here. For an overview of changes to the Ontario Labour Relations Act, click here:

Summary of Changes – Employment Standards Act, 2000

Minimum Wage

  • The minimum wage will be frozen at $14.00 until October 1, 2020.
  • The minimum wage will be subject to an annual inflation adjustment starting on October 1, 2020.

Scheduling

  • Employees will no longer be able to submit a request to the employer requesting changes to the employee’s schedule or work location.

Leave Provisions Generally

  • Family medical leave, family caregiver leave, critical illness leave, child death leave, crime-related child disappearance leave, and domestic or sexual violence leave will no longer be in addition to any of the aforementioned entitlements of leave.
  • If an employee takes a paid or unpaid leave of absence under an employment contract in circumstances for which they will be entitled to take sick leave, family responsibility leave, or bereavement leave, the employee will be deemed to have taken the leave under that section.

Personal Emergency Leave to be Replaced by Sick Leave, Family Responsibility Leave, and Bereavement Leave

  • Personal emergency leave will be repealed and replaced with unpaid sick leave, family responsibility leave, and bereavement leave, each of which will apply separately from, and in addition to each other.
  • In order to be eligible for sick leave, family responsibility leave, and bereavement leave, employees must have worked for two consecutive weeks.
  • Under these new categories of leave, the employer will be able to require evidence reasonable in the circumstances, which may include a doctor’s note.
  • Additionally, leave days will be deemed to be taken as full days.

Sick Leave

  • Bill 47 will establish three days unpaid leave per year for personal illness, injury or medical emergency.

Family Responsibility Leave

  • Bill 47 will establish three days unpaid leave per year for illness, injury, medical emergency or urgent matters of a parent, grandparent, child, spouse, sibling or dependent relative.

Bereavement Leave

  • Bill 47 will establish two days unpaid leave per year for the death of a parent, grandparent, child, spouse, sibling or dependent relative.

Public Holiday Pay

  • Bill 47 proposes that public holiday pay will be calculated by the pre-Bill 148 formula of regular wages earned and vacation pay payable to the employee in the four weeks before the work week the holiday lands in, divided by 20.

Employee Misclassification

  • The reverse onus requiring the employer to prove that an individual is not an employee where there is a dispute over whether the individual is an employee will be repealed. However, the employer obligation to properly classify employees will remain.

Equal Pay for Equal Work

  • The definition of “difference in employment status” will be been repealed, thereby no longer requiring equal pay for equal work on the basis of number of hours regularly worked (i.e. part-time or full-time) or differences in the term of employment (i.e. permanent, casual, temporary, seasonal).
  • Bill 47 will repeal the right of employees to have their rate of pay reviewed by employers. Additionally, employers will no longer be required to provide a written response with reasons if an employee does request a review of their rate of pay.

Penalties for Contravention

  • The government will be returning to the previous administrative penalties for contraventions of the ESA by decreasing the maximum penalties for first, second, and third contraventions from $350/$700/$1500 to $250/$500/$1000, respectively.On October 23, 2018, the Ontario Government introduced Bill 47, Making Ontario Open for Business Act, 2018, which was created to repeal many of the employment and labour reforms that were introduced by the previous Ontario Government as part of Bill 148, Fair Workplaces, Better Job Act, 2017.

Table of Changes

Subject Matter Current Entitlement under the Employment Standards Act New Entitlement (Bill 47, once enacted)
Minimum Wage $14 minimum wage

$15 minimum wage on January 1, 2019

Minimum wage frozen at $14 until October 1, 2020

Minimum wage will be subject to an annual inflation adjustment starting October 1, 2020

Scheduling Starting January 1, 2019, employees can request changes in work schedule or location. Employers will  have to provide reasons for denial.

Starting January 1, 2019, employees are entitled to three hours’ pay if their shift is cancelled within 48 hours before it begins

Starting January 1, 2019, employees will have a right to refuse a change in schedule or on call shift if the request is made fewer than 96 hours before the shift was scheduled to start

Starting January 1, 2019, employees are entitled to three hours’ pay if they are on call and not required to work, or if they work fewer than three hours

Employers must keep records of dates and times the employee was scheduled to work or be on call and any cancellations

Nearly all of the changes in respect of scheduling have been repealed

Employees who regularly work more than three hours a day, and are required to present themselves for work, but who work fewer than three hours, will be entitled to a minimum of three hours’ pay

An exception to the three hour minimum still exists for fire, storm, power failure, lightning, and other similar events beyond the employers control

Personal Emergency Leave Ten days of leave due to personal illness, injury, or medical emergency for employees and/or certain family members

The first two days are paid

Employers may not require a doctor’s note to substantiate these absences

Personal emergency leave has been repealed and is being replaced with sick leave, family responsibility leave, and bereavement leave, each of which apply separately from each other

Employees are entitled to three sick leave days, three family responsibility leave days and two bereavement leave days

Each new category of leave is unpaid

Eligibility for these leaves begins after two consecutive weeks of employment with the employer

These leave days are deemed to be taken as entire days, regardless of whether or not the employee is off work for the entire day

Evidence reasonable in the circumstances can be requested by an employer, including a doctor’s note

Sick leave: three unpaid days for personal illness, injury, or medical emergency

Family responsibility leave: three unpaid days for illness, injury, medical emergency, or urgent matters relating to a parent, grandparent, child, spouse, sibling, or dependent relative of the employee

Bereavement leave: two unpaid days for the death of a parent, grandparent, child, spouse, sibling or dependent relative.

Leaves, Generally Two new categories of leave:

o    Domestic and sexual violence leave (up to 10 individual days and up to 15 weeks, with the first five days paid); and

o    Death of a child or crime-related disappearance leave (up to 104 weeks)

Increased entitlements for Parental leave (61 weeks if the employee took a pregnancy leave and 63 weeks if the employee did not take a pregnancy leave); family medical leave (28 weeks in a 52 week period); critical illness care leave (37 weeks in a 52 week period for a child, 17 weeks in a 52 week period for an adult)

New leaves and increased entitlements remain the same, however, if an employee takes a paid or unpaid leave under an employment contract in circumstances for which they would also be entitled to take sick leave, family responsibility leave, or bereavement leave, then the employee is deemed to have taken the statutory leave.
Employee Classification Employers face a reverse onus to prove that a worker is not an employee if the employees status is in question Repeals the reverse onus provision

Employers must still classify employees correctly

Public Holiday Pay and Vacation Time/Pay Calculated as all regular wages earned by the employee in the four work weeks before the work week in which the holiday occurs, plus all vacation pay payable during those four weeks, divided by 20

Three weeks’ vacation time/pay for employees with give or more years of service.

Two weeks’ pay for employees with less than five years’ service

Law remains the same
Equal Pay for Equal Work Equal pay for equal work for those who perform substantially the same (but not necessarily identical) jobs for the same employer

Equal pay for equal work on the basis of number of hours worked (part-time, full-time, seasonal, casual) and employment status (temporary)

Will maintain equal pay for equal work for those who perform substantially the same (but not necessarily identical) jobs for the same employer

Will repeal equal pay on the basis of hours worked and employment status

Penalties for Contravention $350/$700/$1500 for first/second/third administrative contravention Reduced to $250/$500/$1000 for first/second/third administrative contravention
Wage Review Employees can request a review of their wages and the employer must respond with a pay adjustment or written explanation for why they won’t adjust their rate of pay This obligation has been repealed
Scope of Act ESA currently exempts an individual who performs work in a simulated job or working environment if the primary purpose in placing the individual in the job or environment is his or her rehabilitation Repeals this exemption. Those who perform work in a simulated job or working environment (for the primary purpose is his or her rehabilitation) will be covered by the ESA

Bill 47: Making Ontario Open for Business Act, 2018 – Labour Relations Act Considerations

Overview

On October 23, 2018, the Ontario Government announced its much anticipated legislation in relation to employment and labour law matters. The legislation, dubbed the Making Ontario Open for Business Act, 2018 (Bill 47), will remove or modify many of the obligations placed on Ontario employers by way of the Fair Workplaces, Better Jobs Act, 2017 (Bill 148). Please see the summary below for an overview of the changes to the Labour Relations Act and the table thereunder for a more thorough review. For the Ontario Ministry of Labour’s Backgrounder on the issues, please click here. For the full text of Bill 47, please click here. For an overview of changes to the Ontario Employment Standards Act, click here:

Summary of Changes – Labour Relations Act

Alternate Certification Removed

  • The alternate certification process in the building services industry, the home care and community services industry and the temporary help agency industry will be repealed.

Employee Lists

  • Trade unions will no longer be able to obtain a list of the employees or their contact information from an employer.
  • Upon coming into force, a trade union will be required to destroy any employee list obtained under the previous section that allowed for a trade union to obtain an employee list.

Remedial Certification

  • The pre-Bill 148 test and preconditions for the Ontario Labour Relations Board (“OLRB”) to certify a union as a remedy for employer misconduct will be reinstated. Certification in the event of contraventions will only be available if no other remedy would be sufficient to counter the effects of the contravention.

Structure of Bargaining Units

  • The OLRB will no longer be able to review and consolidate newly certified bargaining units with existing bargaining units.
  • However, the OLRB will be able to review the structure of the bargaining unit if an application is made requesting the review and the board is satisfied that the bargaining unit is no longer appropriate for collective bargaining.

Reinstatement of Employees After Strike

  • The Act will be amended to provide for reinstatement of an employee if an application is made within six months following the commencement of a lawful strike.

First Contract Mediation and Mediation-Arbitration Removed

  • Bill 47 will repeal the provisions requiring first collective agreement mediation and mediation-arbitration in any circumstance.
  • First collective agreement arbitration will be implemented in their place, under similar rules prior to Bill 148 (The OLRB will consider, upon application, any reasonable justification for the uncompromising nature of the parties, the failure to make reasonable efforts to agree, or any other reason the Board considers relevant, before requiring arbitration).

Penalties

  • The government will be returning to the previous maximum fines for offences under the Act by decreasing the fines from $5,000 to $2,000 for individuals and from $100,000 to $25,000 for organizations.

Table of Changes

Subject Matter Current Entitlement under the Labour Relations Act New Entitlement (Bill 47, once enacted)
Union Certification Card-based certification introduced for home care and community services industries, building services industry, and temporary help agency industry Repeals card-based certification. Regular certification rules will apply in each of these industries
Remedial Certification If an employer contravenes the LRA and, as a result, the true wishes of employees in the bargaining unit were not likely reflected in the representation vote, or the union was unable to obtain membership cards from at least 40% of the proposed bargaining unit, the OLRB must certify the unit This power is being repealed to restore the pre-Bill 148 test and the original preconditions for the OLRB to certify a union as remedy for employer misconduct are reinstated (that there may be remedial certification is only available if no other remedy would be sufficient to counter the effects of the contravention)

 

First Collective Agreement Mediation In addition to arbitration, the LRA now provides for first collective agreement mediation where the parties are unable to effect a first collective agreement. Where the first collective agreement mediation is unsuccessful, the LRA provides for mediation-arbitration. First collective agreement mediation and mediation-arbitration are repealed

First collective agreement arbitration, in accordance with pre-Bill 148 is restored

Employee Lists If a union can establish at least 20% support of the employees involved, then it will be granted access to a list of employees and certain contact information. The list must include employee names, phone numbers and personal email addresses if the employee has provided that information to the employer. Trade unions can no longer obtain a list of the employees or their contact information from an employer

Upon coming into force, a trade union must destroy any employee list obtained under the previous section that allowed for a trade union to obtain an employee list

Educational Support Parties can request educational support in the practice of labour relations and collective bargaining This will be repealed
Successor Rights Successor rights will be extended to the retendering of building services contracts. The government will also be able to apply expanded successor rights by regulation to the retendering of other contracted services that are publicly funded. This will be repealed
Voting The OLRB may direct that voting take place outside of the workplace and may also permit that voting take place electronically and/or by telephone This remains the same
Just Cause Protection Employees will be protected from discipline or discharge without just cause in the period between certification and the parties’ conclusion of a first contract, as well as between the date of a legal strike or lockout and the date of a new collective agreement. This remains the same
Review of Bargaining Unit Structure An employer or union will be permitted to apply to the OLRB to review the structure of a bargaining unit after certification (but prior to entering into a collective agreement) and consolidate it with another bargaining unit at the employer already certified and represented by the same union This will be repealed, however, the OLRB may review the structure of a bargaining unit if an application is made and the board is satisfied that the bargaining unit is no longer appropriate for collective bargaining
Reinstatement of Employees after Strike An employer will be obligated to reinstate an employee at the end of a legal strike or lockout on such terms as the employer and union may agree upon. Will restore the pre-Bill 148 which provides for reinstatement of an employee if an application is made within six months following the commencement of a lawful strike
Notices and Communication Notice and communications have to be by mail For any proceeding under the LRA, any notice or communication will be able to be sent by mail, courier, fax, or email
Penalties and Fines Increasing the maximum penalties under the LRA to $5,000 for individuals and $100,000 for organizations Will restore the pre-Bill 148 maximum penalties of $2,000 for individuals and $25,000 for organizations

 

De nouvelles obligations en matière d’équité salariale pour les employeurs de compétence fédérale

Le gouvernement canadien a tenu promesse et a déposé, le 29 octobre dernier, son projet de loi intitulé Loi visant à établir un régime proactif d’équité salariale dans les secteurs public et privé fédéraux. En fait, ce projet de loi fait partie du projet de loi mammouth C-86, Loi no 2 portant exécution de certaines dispositions du budget déposé au Parlement le 27 février 2018 et mettant en oeuvre d’autres mesures. Ainsi, toutes les entreprises sous réglementation fédérale comptant 10 employés ou plus seront tenues de se conformer aux nouvelles obligations en matière d’équité salariale, qui entreront en vigueur un an après avoir reçu la sanction royale.

Pour l’instant, nous savons que le projet de loi prévoit une obligation de créer un programme d’équité salariale dans un délai de trois ans suite à son entrée en vigueur. Par contre, rappelons que l’entièreté du corpus réglementaire à adopter n’a pas encore été discuté et il y a fort à parier que toutes les parties concernées (employeurs, syndicats, groupes de pression, etc…) voudront se faire entendre. Il y a donc loin de la coupe aux lèvres.

Comme nous vous l’annoncions dans une publication antérieure, il s’agit tout de même d’un premier pas dans la direction annoncée par le gouvernement Trudeau il y a déjà plusieurs mois. Il était clair depuis un certain temps que la protection offerte par l’article 11 de la Loi canadienne sur les droits de la personne lui semblait insuffisante et que son intention était de créer un régime d’équité salariale comparable à celui en place dans d’autres juridictions, notamment au Québec.

Si, tel que nous l’entrevoyons, la mécanique pour instaurer un programme d’équité salariale ressemble à celle existant au Québec, les employeurs de compétence fédérale auront tout intérêt à suivre les développements entourant le sujet de manière proactive. Comme dans bien d’autres domaines, mieux vaut prévenir que guérir.

D’autres publications suivront, notamment pour analyser les impacts de plusieurs autres sections du projet de loi C-86. Par exemple, toute une section traite de la modernisation des normes du travail prévues au Code canadien du travail. Des changements importants à suivre pour les employeurs concernés.

Vicarious liability in the data breach context – bad news for UK employers

The Court of Appeal has upheld a decision of the High Court holding that an employer can be vicariously liable for data breaches caused by the actions of an employee, even where the employee’s actions were specifically intended to harm the employer. This decision is significant as it means a company can be held liable to compensate affected data subjects for loss caused by a data breach, even where the company has committed no wrongdoing and regardless of the employee’s motive.

In reaching this conclusion, the Court of Appeal confirmed that the Data Protection Act 1998 (DPA) does not preclude an employer from being vicariously liable at common law for an employee’s misuse of private information or breach of confidence. Whether or not an employer is ultimately found to be vicariously liable will depend on two factors; (i) the nature of the employee’s job and (ii) whether there is a sufficient connection between the position in which the employee was employed and their wrongful conduct.

The facts

The employee in this case was a senior IT internal auditor employed by a UK-based supermarket chain Morrisons. He held a grudge against his employer following disciplinary proceedings.  Subsequently, in 2014, he leaked payroll information of almost 100,000 employees which included names, addresses, national insurance numbers, bank accounts and salaries. The employee was arrested and convicted for various criminal offences. A group of 5,518 employees whose data had been disclosed brought a claim against Morrisons, alleging misuse of private information, breach of confidence and breach of statutory duty under section 4(4) DPA 1998. They claimed Morrisons should be held both directly liable for the losses arising out of the breach, and vicariously liable for the wrongful acts of the employee.

In the High Court, it was held that Morrisons was not directly liable in respect of any breach of confidence or misuse of private information. In addition, it was the employee, rather than Morrisons, who was the data controller at the time of any breach of Data Protection Principles. The Court did, however, find that Morrisons fell short of its obligations under the seventh principle (i.e. to take appropriate technical and organisational measures to protect data against unauthorised or unlawful processing) as there was no organised system for the deletion of data on the employee’s computer. However, this did not make Morrisons directly liable as that failure neither caused nor contributed to the unauthorised disclosure which occurred.

With regard to vicarious liability, the High Court rejected Morrisons’ arguments that the DPA excludes any possibility of vicarious liability or that the effect of the DPA is to exclude any scope for vicarious liability under the common law torts of misuse of private information or breach of confidence. Applying previous case law in this area, the Judge held there was a sufficient connection between the position in which the employee was employed and his wrongful conduct to make it appropriate for Morrisons to be held vicariously liable.

The Court of Appeal judgement

The Court of Appeal held that the High Court Judge had been correct to find that the DPA does not exclude either the possibility of vicarious liability or an employer’s vicarious liability at common law for an employee’s misuse of private information and breach of confidence.

In relation to the question of vicarious liability the Court of Appeal applied the test used by the Supreme Court in Mohamud v Wm Morrison Supermarkets plc (a case which, co-incidentally, also involved Morrisons supermarkets) . The test requires the court to consider two matters; first, what functions or ‘field of activities’ have been entrusted by the employer to the employee; and second, whether there was sufficient connection between the position in which he was employed and his wrongful conduct to make it right for the employer to be held liable.

The Court of Appeal agreed with the High Court that the first question was satisfied by the fact that the employer deliberately entrusted the employee with the payroll data. It was a task specifically assigned to him. His role was to receive, store the data and disclose it to a third party. The fact that he chose to disclose it to a third party other than the external auditors was not authorised, but it was closely related to what he was tasked to do.

Counsel for Morrisons argued that the second limb of the test i.e. a “sufficient connection”, was not satisfied since the tortious act which caused the harm was done by the employee at his home, using his own computer on a non-work day and several weeks after he had downloaded the data on to his personal USB stick.  However, the Court of Appeal judgment stated that there are numerous cases in which employers have been held vicariously liable for torts committed away from the workplace.  It agreed with the High Court that the employee’s actions were an unbroken thread that linked his work to the disclosure and were a “seamless and continuous” sequence of events which had all been part of a plan.

One feature of the case that the Court felt was novel was that the motive of the employee was to harm his employer rather than to achieve some benefit for himself or to inflict injury on a third party. Morrisons argued that to impose vicarious liability on the employer in these circumstances would render the Court an accessory in furthering the employee’s criminal aims. Morrisons also argued that a finding of vicariously liability would be contrary to public policy, as this would place an enormous burden on innocent employers. However, the Court rejected both of these arguments and affirmed the position that an employee’s motive is irrelevant, even in circumstances where the motive is to cause financial or reputational damage to the employer.

The Next Steps

This judgment affirms that employers can be held vicariously liable for employee’s actions even where an employer has no primary liability and has taken steps taken steps to prevent employees misusing personal data which they have access to. Vicarious liability may even arise where the misuse or disclosure was effected purely for the purpose of damaging the employer.

This will, understandably, be concerning to employers, particularly as the nature of personal data breaches means the likelihood is that many data subjects will have been affected. Even if the loss suffered per person is minimal, an employer’s total liability can be huge where there are thousands or even millions of affected data subjects, particularly bearing in mind the ability of affected data subjects to seek compensation for non-material harm such as distress which is enshrined in GDPR and the Data Protection Act 2018. Interestingly, the Court suggested that the solution for employers to protect themselves against claims of “potentially ruinous amounts” is to insure against losses caused by dishonest or malicious employees. How the insurance market will react to this reasoning remains to be seen, but clearly, this is indicative of a growing expectation that liability risks in this area will be insured and may lead insurers adopt a cautious approach at the underwriting stage.

Morrisons have indicated that they intend to appeal to the Supreme Court. Should the decision survive this final appeal, focus will then shift to the quantum of compensation to be awarded to each employee, at which point the full extent of the liability risk to employers will be clearer. The stage may then be set for a range of similar claims to be brought against employers in future on a group litigation basis.

This post was co-written with Steven Hadwin, Mya Joel and Marcus Evans and can also be seen in the Data Protection Report.

Vicarious liability in the data breach context – bad news for UK employers?

 

 

 

Model term for family friendly working arrangements to be included in modern awards

As part of the Commission’s four-yearly review of modern awards,[1] the Full Bench of the Fair Work Commission (Commission) recently handed down a decision (Decision),[2] to insert a new model term (Model Term) into all modern awards, which will:

  • complement the flexible working provisions contained in s 65 of the Fair Work Act 2009 (Cth) (Act); and
  • impose further obligations on employers when responding to an employee’s request for family friendly working arrangements.

We set out below some background, the new obligations imposed on employers and the impact of the Model Term for employers.

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