Employers Must Sue for Indemnification Within Two Years: ONCA

What is the limitation period applicable to a claim for indemnification, where the right to indemnification is contained within an employment contract? According to the Court of Appeal for Ontario, two years from the date upon which the original claim is served on the employer.

As reported earlier by this blog in the post Limitation Period Applicable to a Claim for Indemnification in October of last year the Honourable Madam Justice Heidi Polowin of the Ontario Superior Court of Justice sitting at Ottawa found that the limitation period applicable to a claim for indemnification pursuant to an employment contract was not affected by section 18 of the Ontario Limitations Act, 2002.

In my January 2013 post, mentioned above, I argued that the decision was incorrect and contradicted two earlier decisions from 2010, one from the Court of Appeal for Ontario and one from the Superior Court.

Yesterday, June 7, 2013 the Court of Appeal released its decision, Canaccord Capital Corporation v. Roscoe, 2013 ONCA 378. The Court of Appeal reached the same conclusion as did this author.

Facts

As framed by the Court of Appeal, the facts of the case were as follows:

[2] The appellant, [Mr.] Roscoe (“Roscoe”), was an investment advisor employed by the respondent, Canaccord Capital Corporation (“Canaccord”), an investment dealer. Roscoe’s employment agreement contained a provision providing that Roscoe would indemnify Canaccord for any claim made against Canaccord arising out of Roscoe’s acts or omissions within or without the course of his activities or employment.

[3] In August 2008, two of Roscoe’s former clients, Thomas and Kathleen Cavanagh (the “Cavanaghs”), served Canaccord and Roscoe with a statement of claim for losses arising out of an investment for which Roscoe was their investment advisor. The statement of claim alleged that both Roscoe and Canaccord owed the Cavanaughs a duty of care, inter alia, to assess their risk tolerance and to use due diligence with respect to investment recommendations. It further alleged that that duty had been breached by both Roscoe and Canaccord and asserted a claim for damages.

[4] Canaccord funded a joint defence and delivered a joint statement of defence.. Canaccord did not cross-claim against Roscoe for indemnity. In April or May 2009, Canaccord entered settlement discussions with the Cavanaghs. Roscoe retained independent counsel who advised Canaccord that Roscoe denied any wrongdoing, would dispute any indemnity claim and reserved his right to assert any available defences to any claim for indemnity. In July 2009, without Roscoe’s involvement, Canaccord settled with the Cavanaghs.

[5] In January 2010, a vice-president at Canaccord wrote to Roscoe requesting indemnification pursuant to Roscoe’s employment agreement. Article 5.02 of the agreement provides:

In the event that any claim is made against the Company or the Company is found vicariously liable or jointly or severally liable with the Registered Representative resulting from a claim made against the Registered Representative and/or the Company principally arising out of an act or omission of the Registered Representative within or without the course of his activities or employment, the Registered Representative shall be responsible for and shall indemnify, reimburse and save harmless the Company for all losses, damages or amounts due to any claimant and as well as e [sic] expenses or costs including legal fees reasonably incurred by the Company in defence of any claim or legal action arising from such act or omission. Such liability of the Registered Representative shall extend to indemnify and reimburse the Company as aforesaid whether or not such liability arises as a result of a judgment of a court of law, decision of an administrative body, an arbitration [award] or a settlement reasonably made by the Company to avoid the necessity of a trial or hearing.

[6] Through a letter from his counsel in February 2010, Roscoe denied any liability and resisted Canaccord’s claim for indemnification.

[7] In June 2011, almost three years after the delivery of the Cavanagh statement of claim, Canaccord commenced this indemnity action against Roscoe, claiming the amount of the settlement plus Canaccord’s legal fees. The claim is pleaded as a claim for damages for breach of contract.

Roscoe brought a motion for summary judgment dismissing the action, arguing that as Canaccord’s action was commenced more than two years after Canaccord was served with the Cavanagh claim, it was time-barred by operation of s. 18 of the Ontario Limitations Act. Justice Polowin dismissed the motion and Roscoe appealed.

Finding of Justice Polowin

As framed by the Court of Appeal, the finding of the motion judge was that:

Canaccord’s action was more properly categorized for limitations purposes as a claim for breach of Roscoe’s employment contract, and that it was therefore governed by the basic two-year limitation period that ran from the date Canaccord settled the Cavanagh action. The motion judge held that a breach of contract claim for damages is fundamentally different from a claim for contribution and indemnity as between two wrongdoers and that s. 18 does not apply to claims for damages for breach of contract. (Para. 11)

Writing for the unanimous court, the Honourable Justice Robert J. Sharpe found that Justice Polowin had erred in law in her conclusion.

Decision of Court of Appeal for Ontario

In finding that the claim for indemnification pursuant to the employment agreement was, in fact, governed by the provisions of section 18 of the Limitations Act Justice Sharpe held that:

[26] The claim Canaccord asserts against Roscoe in its statement of claim is that he “indemnify” Canaccord for the amount it paid to settle the Cavanagh claim. The source of the Canaccord claim is the claim the Cavanaghs asserted against both Canaccord and Roscoe as wrongdoers jointly liable to pay damages caused by the alleged breach of duty they owed the Cavanaghs as their investment dealer and advisor. It follows that Canaccord’s claim against Roscoe falls squarely within the grammatical and ordinary meaning of the language of s. 18 as “a claim by one alleged wrongdoer against another for contribution and indemnity”.

[27] When s. 18 is read harmoniously with the scheme and object of the Act and the intention of the legislature, the conclusion that Canaccord’s claim against Roscoe is governed by s. 18 gains added strength. As I have noted, the Act reflects a marked departure from the past when different limitation periods were found in different statutes and based upon the characterization of the specific cause of action pleaded. The Act achieved a significant reform by eliminating that plethora of limitation periods and replacing them with a “basic limitation period” based upon the discovery of the claim. 

[28] Section 18 creates a specific rule for determining when a claim for contribution and indemnity is discovered. Section 18 provides that a claim for contribution and indemnity is discovered on the day the first alleged wrongdoer is served with the claim in respect of which contribution and indemnity is sought. In other words, once the party seeking indemnity is served with the injured party’s statement of claim, the claim is discovered and the two-year limitation period starts to run.

[Emphasis added.]

Critically for employment law, Justice Sharpe then added:

[29] I therefore cannot agree that the fact that Cavanagh’s claim is based upon the employment agreement rather than upon the Negligence Act excludes the claim from the reach of s. 18. In my respectful view, to so hold would be to ignore a fundamental feature of the Act. It is, on its face, a claim for indemnity brought by one alleged wrongdoer against another and the fact that it is grounded in contract has no bearing on the question of whether or not it falls within the reach of s. 18. I agree with Roscoe that the motion judge’s interpretation creating one start date for limitation period for claims for contribution and indemnity based upon the Negligence Act, R.S.O. 1990, c. N.1 and a different start date for limitation period for claims for contribution and indemnity based upon contract is inconsistent with the overall aim of the Act to achieve clarity and uniformity.

Commentary

It is hard not to agree with the Court of Appeal's decision when the conclusion reached is essentially the same as one's own. As this blog argued earlier, the scheme and purpose of the Limitations Act is to have all the claims tried at the same time, which was the finding of Justice Feldman in the Waterloo case referenced in my earlier post.

The case is important for employees as it is becoming more common for employment agreements to contain indemnification provisions. Had Justice Polowin's decision been upheld employers could have waited until they settled with an upset client, potentially for an improvident amount, and then sued the employee pursuant to the terms of the employment agreement claiming breach of contract and not indemnification. That course of action would have been very detrimental to employees as their right to defend their actions would have been removed.

Takeaways for Employees

The takeaway for employees is that it is prudent to have an employment agreement reviewed prior to signing it. It is important to appreciate the implications of an indemnification provision and what the same might mean if errors are made or are alleged to have been made.

If you are an Ontario worker and your employment agreement contains an indemnification provision or if you are being offered new employment and the agreement contains an indemnification provision it may be prudent to seek out a professional legal opinion. The experienced and cost-effective employment lawyers at Ottawa's Kelly Santini LLP would be happy to be of service to you.

Takeaways for Employers

The takeaway for employers is that if a claim is received in which it might be prudent to cross-claim against an employee, do not wait until resolving the first case, bring the employee into the action as soon as possible. Not only does doing so afford the employee the ability to defend his or her actions, which may also help the employer if the claims are unfounded, but not doing so may be fatal to the claim.

If you are an Ontario business and you have been sued on the allegation of one of your employees being negligent, it may be prudent to seek a professional legal opinion. The employment lawyers at Ottawa's Kelly Santini LLP, who are also experienced litigation lawyers, would be happy to be of service to you.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation and it is always prudent to seek professional legal advice before taking any decisions on one’s own case.

Sean Bawden, publisher of the law blog for the suddenly unemployed, can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321.

Sean P. Bawden is an Ottawa, Ontario employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, and part-time professor at Algonquin College teaching Trial Advocacy for Paralegals. He is a trustee of the County of Carleton Law Association for 2013.