Employment Practices Insurance

What is Employment Practices Insurance?

Employment Practices Liability Insurance provides comprehensive protection against errors and/or omissions in the management and administration of human resources. In essence, it is an Human Resources malpractice policy. Employment Practices Liability insurance responds to specific employment exposures including but not limited to:

  • Sexual Harassment
  • Constructive Dismissal
  • Employment Related Misrepresentation

Following established human resources practices can assist in mitigating exposures but can’t eliminate them completely. A Employment Practices Liability policy arranged by AC&D provides broad coverage for companies against the financial impact of employment related actions.

Your employees are your greatest asset; don’t let them turn into liabilities.

For many small and medium businesses it isn’t possible to have a full time dedicated human resources expert who is able to assist you in making the correct business decisions around such matters as creating binding and enforceable employment contracts, accommodating staff with health issues, and managing the workforce. As a result, employment related issues can sometimes become an unexpected, and expensive, problem for your business.

Addressing this problem is two-fold. First, it is important to have the services of a qualified legal expert who is knowledgeable and practices in matters related to employment law. Second, an insurance policy can protect you from unexpected litigation arising from employee relations.

We have provided some scenarios to give you a look at some of the most common legal issues employers have faced: what the legal issues are, which laws apply and which suggested actions or procedures would prevent problems from developing or escalating.

Scenario 1 – Dismissing Employees with Notice or Pay

Due to some recent changes in service levels, Chris realizes that his accounting firm is overstaffed and can let someone go. He decides to terminate the employment of Mark, a 50-year-old accountant who has worked for Chris for the past six years. Chris is not sure if Mark is due any severance pay and, if so, how much.

As an employer, what are Chris’ obligations to Mark?

You can generally dismiss an employee by simply providing them with adequate working notice; in other words, by advising the employee that they will continue working for a set period of time before their employment comes to an end. In certain cases, you may be able to dismiss the employee immediately and provide them with the equivalent pay they would have received had they been given working notice.

The amount of working notice an employee should receive depends on several factors. First, British Columbia has legislation setting out the minimum severance requirements each employee is entitled to receive. These requirements permit you to either provide a period of working notice or equivalent pay instead of working notice.

The minimum amount of working notice or pay in lieu of notice depends on the length of employment. This ranges from no notice or pay for employees with less than 3 months service, to 8 weeks’ notice or pay in lieu for employees with 8 years’ service or more.

For employees with no contractual terms that define the amount of notice or pay in lieu they will receive should the employer choose to terminate their employment, they are entitled to the minimum standards of the ESA and potentially common-law reasonable notice as well. Common law reasonable notice is assessed on an individual basis, and concerns an assessment of the employee’s age, their length of service, the type of work they are performing and the availability of comparable work. In essence, the employee is entitled to receive working notice of the termination of their employment. Where employees are terminated without being provided with working notice, it is normal practice to negotiate an appropriate financial severance package with the employee.

In Mark’s case, the period of reasonable notice could be in the range of 6 months, although the length of reasonable notice or pay in lieu you agree to pay mark could be less.

Scenario 2 – Terminating Employees for Misconduct

Soon after dismissing Mark, Chris begins to regret his choice. One long-term employee of eight years, Patricia, has recently become a thorn in his side. She routinely arrives late which causes difficulties for the person on the previous shift, she ignores tasks assigned by Chris while she does things she sees as more important, she forgets to do routine tasks, and she can display a poor attitude when confronted about her lack of interest in improving her performance.

Chris has told Patricia verbally, on at least a half dozen occasions, to arrive on time and attend to him in a timely manner when he directs her to do so, but these instructions were never put in writing. If asked, Chris probably could not recall the specific dates or times when most of these warnings were delivered, although he knows they happened.

One day, Patricia comes in ten minutes late for the start of her shift. When Chris confronts her, she rudely tells him to “keep it together” and tells him she’ll be with him in a minute. This is the last straw for Chris. At the end of the day, Chris speaks to Patricia privately and tells her that she is terminated with “just cause”, meaning her employment is ended immediately with no severance pay. She expresses her concern about finding a new job at 60 years of age, but Chris has reached his limit and stands by his decision.

Did Chris have the right to dismiss Patricia? If not, what are the potential consequences?

As an employer, you are generally relieved of the requirement to provide a dismissed employee with notice or pay in lieu of notice, where that employee is dismissed for misconduct serious enough to meet the legal standard of “just cause.” Just cause can range from a persistent inability to meet the standards of the job to serious actions such as theft or dishonesty.

Where there are problems with an employee’s performance, the employer must:

  • advise the employee they are not meeting the reasonable standard of performance
  • ensure the employee has the opportunity to improve their performance, and;
  • advise the employee that failure to meet the stated standards may result in termination.

When it comes to more serious misconduct, establishing just cause will depend on whether the employee has acted in such a way as to irreparably damage the employment relationship. This usually involves an extreme breach of trust caused by the employee’s poor judgment. Keep in mind this is not assessed on the basis of whether you personally believe the relationship is damaged beyond repair; a judge may have a different view and you may therefore be liable for your decision.

In Patricia’s case, Chris has a history of undocumented warnings regarding her performance. Further, while her communication with the staff member on duty was clearly inappropriate, it may not have been so inappropriate as to warrant immediate dismissal.

This example highlights the importance of documenting employee issues and doing appropriate research before making decisions. Had Chris followed these steps, he would have provided Patricia with clear guidance on his expectations, in a way that would increase the chance she would improve her performance. He would also have the documentation he needs to justify decisions about her employment, if she did not improve. Given Patricia’s age and length of service, the alternative is a lawsuit with a potentially significant judgement in her favour.

Scenario 3 – Accommodating Employees under the Human Rights Code

Patricia’s replacement Gurjit, who has been employed for less than three months, has a snowboarding accident on the weekend and breaks her leg. Given the physical nature of her work, she is unlikely to be able to return for at least two months. While Chris is able to make arrangements to replace her, the circumstances are more than a little inconvenient. He needs to find temporary staff and they will require orientation. If he can’t find qualified people willing to accept temporary work, he will need to use a temp agency.

After some frustration, he decides that he needs to replace Gurjit immediately in order to restore some normalcy to his daily routine. Because of Chris’ prior decision to get legal assistance drafting his employment contracts, he believes he can dismiss Gurjit immediately without providing her with any notice or severance pay because she is a probationary employee who has been employed for less than three months.

Can Chris dismiss Gurjit?

British Columbia provides employees protection under the Human Rights Code. Employers are not allowed to discriminate against employees or dismiss them based on their race, colour, ancestry, place of origin, political belief, religion, marital status, family status, physical or mental disability, sex, sexual orientation, age or criminal conviction unrelated to their employment.

Because of the nature and severity of her injury, Gurjit may have a physical disability under the Human Rights Code, even though it is a temporary one. And as an employer, Chris has a duty to accommodate Gurjit to the point of “undue hardship.” Generally, the threshold for undue hardship is quite high and may include such factors as the financial costs of accommodation, any health or safety risks involved, and the size and flexibility of the workplace. Given the present circumstances, the heavy nuisance caused by Gurjit’s absence may not be enough to justify her dismissal. As such, dismissing her could be a breach of the Human Rights Code and result in Chris defending a claim before the Human Rights Tribunal. The Human Rights Tribunal enforces the Code and they have the authority to adjudicate complaints of discrimination and order payment of lost wages, provide additional damages to compensate employees for the injury to their dignity, and even require that the employee be reinstated to their former position. Gurjit’s example once again highlights the importance of obtaining sound advice before making major workplace decisions such as how to accommodate a disabled employee, and the perils of failing to do so.

As the above scenarios explain, understanding how to manage employees, dismiss employees, and accommodate various issues is a complicated matter that concerns both rights employees have in court, and through various statutory bodies. A small investment has the potential to rescue your business from disruptive and potentially expensive labour issues.

If you are interested in learning more about Employment Practices Insurance and how it will protect your business, please Contact Us. If you have questions about managing your workforce and would like to know if a dedicated employment law specialist is right for you please contact Andres Barker of Kent Employment Law at 604-266-7006.

NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action, based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. We recommend contacting Andres Barker of Kent Employment Law who would be pleased to discuss any specific legal concerns you may have. Contact Andres Barker.