Employment Contracts and Limitation of Liability Clauses: Is there any Room for Personal Liability?

In an action against a company whose financial status is questionable, it is common to consider whether or not it might be possible to sue an individual representative of the company, such as its owner or president, in the hope that if a judgment is not enforceable against the company, it might be enforceable against the individual.  Sometimes, such an action is brought as a tactical step, intended to intimidate or unsettle the company’s decision-maker into a quick settlement.

The law is very clear on the point.  As a general rule, an individual representative of a corporate entity will not be liable for wrongful conduct unless it can be established that the individual committed what the cases refer to as an “independent tort”.  In other words, the alleged wrongful conduct on the part of the individual has to be independent from the tort or breach of contract allegedly committed by the company.  Otherwise, and if the individual was simply making decisions on behalf of the company, there is no personal liability.

An interesting twist on the point arose on the facts of a recent Court of Appeal decision, Richards v. Media Experts M.H.S. Inc. and Mark Sherman.

In that case, Ms. Richards sued her former employer, Media Experts, for damages for wrongful dismissal.  She also sued Mr. Sherman, the executive chairman of Media Experts, for damages for the torts of intentional and negligent infliction of nervous shock.  The alleged shock arose out of the act of termination.

The courts have become very sensitive to any attempt to fix liability on an individual where the claim against his company is problematic.

Mr. Sherman brought a motion to have the claim dismissed as against him, and succeeded.  The motion judge noted that the Plaintiff’s employment contract contained a clause limiting the company’s liability for wrongful dismissal to compensation equal to 12 months’ pay.  The judge went on to conclude that to permit a claim to proceed against Mr. Sherman would allow the Plaintiff to circumvent that clause, by obtaining compensation over and above the contract amount.

The Plaintiff’s argument was that Mr. Sherman was not a party to the employment contract and therefore, that he was not entitled to the benefit of any limitation of liability clause in any event.

Having lost the motion, the Plaintiff appealed to the Court of Appeal.

The Court of Appeal agreed with the motion judge and dismissed the appeal.  The Court found, firstly, that Mr. Sherman was entitled to the benefit of the limitation of liability clause.  If the parties had contemplated that he might be liable for damages arising out of the Plaintiff’s termination over and above the provisions in the employment agreement, that would have rendered the clause meaningless.  Secondly, the Court of Appeal determined that Mr. Sherman at all times acted on behalf of Media Experts when the Plaintiff’s employment was terminated.  Everything he did was done on behalf of the company.  There was no independent tort and, therefore, no personal liability.

The courts have become very sensitive to any attempt to fix liability on an individual where the claim against his company is problematic.  Usually, this scenario takes place when the company’s financial status is in doubt.  That is not the only circumstance where such an attempt might be made, as this case demonstrates.  However, it also demonstrates the difficulty inherent in asserting such a claim.

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