NOVEMBER 2001

Supreme Court of Canada: Vicarious Liability

In 671122 Ontario Ltd. v. Sagaz Industries Inc. [2001] S.C.C. 28 (reasons released September 28, 2001) the SCC again examined the law relating to vicarious liability, this time in the context of the distinction between independent contractors and employees. The Court stated that, except in exceptional circumstances, vicarious liability does not apply where the relationship is one of employer and independent contractor rather than employer and employee. The SCC also examined the guidelines for deciding whether the relationship is the former or the latter. The headnote is a good summary. "Although the categories of relationships in law that attract vicarious liability are neither exhaustively defined nor closed, the most common one to give rise to vicarious liability is the relationship between master and servant, now more commonly called employer and employee. This is distinguished from the relationship of an employer and independent contractor which, subject to certain limited exceptions, typically does not give rise to a claim for vicarious liability. The main policy concerns justifying vicarious liability are to provide a just and practical remedy for the plaintiff's harm and to encourage the deterrence of future harms. Vicarious liability is fair in principle because the hazards of the business should be borne by the business itself; thus, it does not make sense to anchor liability on an employer for acts of an independent contractor, someone who was in business on his or her own account. In addition, the employer does not have the same control over an independent contractor as an employee to reduce accidents and intentional wrongs by efficient organization and supervision. There is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor. What must always occur is a search for the total relationship of the parties. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks. … Absent exceptional circumstances which are not present in this case … the relationship … [of] employer and independent contractor, is not one which attracts vicarious liability."

In what is an odd coincidence, and an unfortunate one of time, in Thiessen v Mutual Life Assurance Co., [2001] B.C.J. No. 1849 (decided September 12, 2001), a trial judge of the B.C. Supreme Court held Mutual Life vicariously liable for a theft of funds by its agent, even though the court held the agent was an independent contractor. The agent had diverted investment funds for his own purposes. The court found no negligence of any sort on the part of Mutual Life.

The judge, relying on the decision of the S.C.C. in Bazley v. Curry, [1999] 2 S.C.R. 534, which, although involving the intentional tort of an employee, when read literally does not distinguish between independent contractors and employees, held that the analysis used in Bazley does extend the class of people for whom a person can be liable to independent contractors. The reasons in Thiessen do not indicate that the judge gave any consideration to the fact that Bazley was an employer - employee case, rather than one involving the activities of an independent contractor, and that the portions of Bazley quoted by the judge use employee, specifically. The Court held that, as Mutual Life had contracted with the agent to advance its own interest, and thereby introduced the risk of his wrongdoing into the community, it was appropriate that Mutual Life also bear the risk of loss caused by wrongful acts within the risk it created. The judge stated, at paragraph 73 of the reasons: "A finding of vicarious liability in this case conforms with the policy consideration summarized in Bazley, supra. It provides a "just and practical remedy". Given that Mutual had contracted with Dennis for him to advance Mutual's interest, thereby introducing the risk into the community, it is fair that Mutual should bear the risk of this loss. In fact, in this case, Mutual introduced Dennis to the plaintiffs; assigning him to them to be their Mutual agent. Mutual controls both the price of the product and the amount of the commission. In this respect, Mutual is in the best position to spread the loss. Mutual profits from the economic activity. It should bear responsibility for misconduct committed in the course of the activity."

Thiessen seems inconsistent with Sagaz and one wonders whether the result would have been different if the Sagaz decision had been available to the trial judge.

DC

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