I had an interesting experience yesterday driving down from the Wilson Vukelich offices to my downtown office.  As I was merging to get onto the highway there was a cargo van, cube van or whatever you wish to call it that was merging a few cars ahead of me.  The back door was completely open and I could see the pallets of cargo sitting there and the pallet jack moving from side to side.  At some point either the pallet jack or the cargo could conceivably come hurtling out at any vehicles behind this cargo van.  Why was the door open?  There are two simple answers: (a) the latch for the door was broken or (b) the employee didn’t secure the latch properly.  Does this matter for the employer?  In most instances, the answer will be no – the employer will be liable for any damage that is caused if the pallets or the pallet jack were thrown from the van.

In the first instance, the employer is liable as the owner of the vehicle and the claim would be that the owner failed to adequately keep the vehicle maintained.  But what about the second situation – if it was the employee who failed to take proper care to ensure that the latch was secured, why should the employer be liable for the damages?  The answer is that the employer is the one who has control over the actions of the employee.  If the employee was incompetent, the employer could have (and should have) fired the employee.  If the employee was competent then the breakdown would be said to be either in the training provided to the employee or the employer’s system for preventing accidents. 

Ultimately, the question asked by the courts is whether the act or omission by the employee was sufficiently related to the conduct authorized by the employer to justify a finding of liability on the part of the employer.  In the example from yesterday, if the employer hires an employee to drive a truck and in the course of his duties the employee has a crash with the truck, or the cargo that he is in charge of comes flying out of the back of the truck, then it will not be difficult for the courts to find that the employee’s conduct was related to his duties.  However, where you have a baker who works at a school who commits an assault, the employer was not found liable by the Supreme Court of Canada because the baker’s job was to bake and not to be involved with the children in a position that might lead to the possibility of a such assaults.

In today’s economy there is more of a focus on outsourcing and the use of independent contractors.  This is usually motivated by the desire to not have to pay various benefits that employees would receive or to avoid the need for having to withhold taxes, Canada Pension and employment insurance premiums (whether this is possible would be the subject all on its own of a blog post).  If you are trying to determine whether to go with employees or independent contractors, another factor to consider is employer liability.  An “employer” is liable for its employees but generally is not liable for the acts of independent contractors which are done without the knowledge or authority of the business for whom the independent contractor is working.  The key question, though, is whether the person is truly an “independent contractor” or an employee and just because the parties have said that the person is an independent contractor is not determinative of the issue.

In the end, the best defence to claims that an employee has caused harm to someone else is to have good training and to hire good people so that such claims are avoided altogether as well as having sufficient insurance coverage so that if any problems do ever arise and cause an employer to be found liable that the amount of the liability does not cause significant damage to the employer’s business.  When you think of insurance, you can ask yourself the following question: “If I had a judgment made against me for $10,000, could I pay it off in a lump sum and still have the business survive?”  Then, if the answer is “Yes”, keep asking the question but increase the amount of the judgment.  When you finally get to the point where the answer is “No”, then that would be the absolute minimum amount of insurance coverage you should have.

CALC

“Dumpster diving”, as it is fondly called, has now been given the green light by the Supreme Court of Canada.  In its criminal law decision in Patrick yesterday, the Court upheld the ability of the police to search through someone’s garbage for evidence of crime.  The Court held that when someone throws away documents, etc. in the garbage then he/she has given up his right to privacy and confidentiality over the documents (unless he could prove, for example, that it was done by accident and never intended to give up this right).

At first thought, this could be brushed off as just a criminal law case and it has no application to small businesses.  But think about what you put into the garbage (or the recycling bin) at your business.  Then think about situations where “dumpster diving” has occurred.  For example, a few years ago Westjet and Air Canada became embroiled in a lawsuit in which one of the allegations was that Air Canada sent someone to dumpster dive through the trash of one of Westjet’s executives for evidence of Westjet’s improper actions.

So, on the one hand, you have to be careful that whatever you put out for recycling or garbage could be used against you at some later point.  What’s the solution?  The easy answer is to shred your unwanted documents – preferably using a cross-cut shredder.  But I do want to highlight a corresponding problem: spoliation.

What is spoliation?  It is a rule of evidence that if a record existed but has since been destroyed by a party, then a presumption is made that the record would have been helpful to the other side.  The presumption can be rebutted, but litigation is easier if you don’t have to overcome presumptions against your position.

So, you need to beware that if you throw anything out you run the risk that anyone could find out the information and use it to his/her/its advantage.  Similarly, if you throw away or destroy the document(s), you run the risk that the other side will be able to urge the court to presume that the contents of the document would have proven that they were correct – and to therefore rule against you in the litigation.  How do you cover yourself?

In terms of a best practice solution, my recommendation is that as a starting point you should keep all key documents for at least five years.  Key documents would be contracts, exchanges of correspondence where anything of substance is discussed, etc.  Why five years?  The limitation period in Ontario for most claims is two years.  Then there is the discoverability rule which provides that the two years doesn’t start to run until a reasonable person would have realized that he/she had a claim.  Out of an abundance of caution, add three years to the limitation period and you should be safe – as a general rule.  For any “non-critical” documents, I would generally recommend that you keep the documents for three years.  Why?  Again, because of the limitation period, but also because you never know if you are going to be audited for taxes and it would be preferable to keep receipts, etc. in case the taxman comes along looking for support for your tax returns.  That said, before you get rid of any documents – and especially key documents – you should scan them and keep the electronic copy.  This way you do not have the “clutter” of the actual paper documents but you do have a copy that can be provided if it is ever necessary.  Then, as mentioned above, if you do dispose of the document(s), cross-cut shred them so that any dumpster diver cannot access the information.  And, finally, when it comes to e-mails, I HIGHLY recommend that you keep copies of all e-mails.  Spoliation applies just as equally to electronic documents as it does to paper documents.  Large external hard drives, with terabytes of storage, are now available at relatively inexpensive prices.  There is little reason why even the smallest of businesses cannot keep their e-mails and their electronic documents.

Why have I gone on about this for so long today?  Because I would venture a guess that 90% or more of lawsuits are either settled or determined at trial based upon the documents.  I had a trial recently where the other side said that an issue was absolutely critical to their decision to the contractual arrangement they ultimately entered into.  The problem, though, was that none of the contractual documents made mention of the issue.  Moreover, after the dispute arose, the principal of the company sent a series of e-mails to my client saying how all sorts of things were wrong.  But there was never any mention of the supposedly “critical” issue.  During cross-examination, I was able to repeatedly hammer the principal of the company on the fact that this supposedly critical issue was never mentioned in the documentation.  And, similarly, if the contractual documents had gone missing, I would have been able to hammer the principal of the company on the fact that they were intentionally destroyed because either they would not have shown that the critical issue was critical or they could have shown that, in fact, the issue was agreed to not be critical at all.  In both what happened and what could have happened, the existence or non-existence of the documents was central to trial.  And for that reason, I cannot stress enough the need to properly retain records and to properly dispose of them when there is no longer a need to retain them.

CALC