A form of insurance popular in the United States is now making inroads in Canada.
Employment Practices Liability insurance, or EPL for short.
In the United States, wrongful dismissal and human rights awards tend to be much higher than in Canada. This is one reason EPL insurance is more popular south of the border.
But there are important differences between Canadian and American employment law.
I am not an American lawyer. As I understand it, in the United States, wrongful dismissal often involves elements of tort law, at least more so than in Canada. A tort is a civil wrong that causes a claimant to suffer harm. A tortious cause of action is quite different from a contractual cause of action.
While an employee can certainly have several causes of action against an employer, in Canada, wrongful dismissal is a contract-based claim. Canadian employment contracts often have a term implied by the common law that the employee will not be dismissed without reasonable notice (or pay in lieu of that notice).
Specific wording is required to displace this implied term.
Exclusions for Contractual Liability
There is a general principle that insurance policies are presumed not to insure against liability that arises under a contract. The concern is that covering contractual liability may encourage people to break their contracts.
So, most insurance policies contain an exclusion for contractual liability. EPL policies tend to have such an exclusion, too.
This exclusion makes sense in the U.S. It may make less sense in Canada, where this exclusion may largely negate the coverage.
An EPL policy containing this exclusion might, unless another exclusion applies, only cover any additional amounts, over and above the amount owing for the reasonable notice period. Examples include additional damages for a bad faith dismissal, punitive damages, and other types of damages.
It is possible, though, that other exclusions may well apply to those additional amounts.
Exclusions for Breach of Duty of Good Faith
Canadian courts have consistently stated that employers owe a duty of good faith and fair dealing to their employees.
If EPL insurance covers damages awarded for breach of good faith and fair dealing, would this encourage employers to breach these duties? Would they no longer be motivated to treat employees humanely, because – apart from the deductible – the insurer will pay any liability resulting from this type of conduct? In Canada, would such coverage be viewed as contrary to public policy?
It would not be surprising for damages resulting from an employer’s breach of the duty of good faith to fall within other exclusions in an EPL policy.
Employment law in Canada differs from employment law in the United States, where these policies are common.
Depending on the provisions of the specific EPL policy, an employer may find that in Canada, this type of policy provides less coverage than was anticipated.
Organizations that are considering this type of insurance should consider scrutinizing the policy provisions and consulting with someone with an advanced understanding of employment law. It is possible that these policies may assist with defense costs, but whether they will cover much more is less certain.
Depending on the situation, and the wording of the specific policy, it is possible that some employers may be better off being self-insured.
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