Douglas v. Kinger, 2008 ONCA 452

Douglas v. Kinger, by his Litigation Guardian, Kinger [Indexed as: Douglas v. Kinger (Litigation Guardian of)]

90 O.R. (3d) 721

Court of Appeal for Ontario,

Rosenberg, Lang and Juriansz JJ.A.

June 9, 2008

Torts -- Negligence -- Duty of care -- Employees -- Plaintiff hiring 13-year-old defendant to perform chores at plaintiff's cottage -- Defendant negligently starting fire in plaintiff's boathouse -- Relationship between plaintiff and defendant not falling into category already recognized as giving rise to duty of care -- No duty of care existing on application of Anns test.

The plaintiff hired the defendant, who was then 13 years old, to perform chores at the plaintiff's cottage on a part-time basis for $8 an hour. Contrary to a rule prohibiting him from using power equipment unless an adult was present, the defendant tried to refuel the plaintiff's gas-powered lawn mower while alone. In order to see whether there was enough fuel in the gas can, he held a lighted match to the mouth of the can. The flame ignited the vapours, and the resulting fire burned the plaintiff's boathouse and its contents. The plaintiff's insurer settled the insurance claim, and the plaintiff, by way of a subrogated claim brought by the insurer, sued the defendant in contract and in negligence. The action was dismissed. The plaintiff appealed.

Held, the appeal should be dismissed.

The relationship between the parties did not fall into a category already recognized as giving rise to a duty of care.

The application of the test in Anns v. Merton London Borough Council did not lead to the imposition of a duty of care in the circumstances of this case. The component of reasonable foreseeability under the first stage of the Anns test was established based on the trial judge's unchallenged finding that the defendant knew about the dangers of an open flame near gasoline. However, having regard to the nature of the parties' relationship, a duty of care should not be imposed for the defendant's ordinary negligence. While employee negligence was foreseeable, the plaintiff was aware that the defendant was unlikely to have the financial resources to compensate for any loss, such as the $285,000 loss that actually occurred. An expectation that the defendant would be able to compensate for loss, through insurance or otherwise, was not articulated at the time of his employment and, in any event, would be unreasonable given the defendant's youth and his wage of $8 an hour. The plaintiff had insurance to guard against many losses. Given the parties' expectations, representations and reliance, it would be neither just nor fair to impose the loss on the defendant. Finally, the residual policy considerations at the second stage of the Anns analysis weighed against the imposition of a duty of care. Minor employee error can result in significant damages, and employment relations would be greatly challenged if an employee were to be held financially liable to the employer for the financial consequences of a momentary lapse of attention. Moreover, there is a power imbalance inherent in most employment relationships. An employee is usually not in a position to bargain at the outset of the employment relationship regarding the terms of his or her potential liability for an act of negligence. In contrast, an employer concerned about employee negligence is in a position to dictate terms of employment and can contract for the employee's liability. There are other means of encouraging care by an employee without burdening him with an impossible financial judgment, such as discipline and dismissal. The employer is generally in a better position than the [page722] employee to internalize the cost of ordinary employee negligence, whether as a cost of doing business or by acquiring appropriate insurance.

The contract of employment could not be enforced against the defendant because it did not satisfy the common-law requirement that the contract as a whole be for the benefit of the minor defendant.

APPEAL from the judgment of Stach J., [2006] O.J. No. 3121 (S.C.J.) dismissing an action for damages for negligence and breach of contract.

Cases referred to Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492 (H.L.), apld D.H. Overmyer Co. of Canada Ltd. v. Wallace Transfer Ltd. (1975), 1975 CanLII 951 (BC CA), 65 D.L.R. (3d) 717, [1976] 2 W.W.R. 656 (B.C.C.A.); Harmer v. Cornelius (1858), 5 C.B. (N.S.) 236, [1843-1860] All E.R. Rep. 624 (C.P.); Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555, [1957] 1 All E.R. 125 (H.L.); London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, [1992] S.C.J. No. 84, 97 D.L.R. (4th) 261, 143 N.R. 1, [1993] 1 W.W.R. 1, J.E. 92-1650, 18 B.C.A.C. 1, 73 B.C.L.R. (2d) 1, 43 C.C.E.L. 1, 13 C.C.L.T. (2d) 1, 36 A.C.W.S. (3d) 669; Petrone v. Marmot Concrete Services Ltd., 1996 CanLII 10344 (AB KB), [1996] A.J. No. 104, [1996] 5 W.W.R. 439, 37 Alta. L.R. (3d) 222, 179 A.R. 241, 18 C.C.E.L. (2d) 170, 60 A.C.W.S. (3d) 1167 (Q.B.); Pinto v. BMO Nesbitt Burns Inc., 2005 CanLII 18720 (ON SC), [2005] O.J. No. 2172, 40 C.C.E.L. (3d) 293, 139 A.C.W.S. (3d) 875 (S.C.J.), consd Other cases referred to 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, [2001] S.C.J. No. 61, 2001 SCC 59, 204 D.L.R. (4th) 542, 274 N.R. 366, J.E. 2001-1832, 150 O.A.C. 12, 17 B.L.R. (3d) 1, 11 C.C.E.L. (3d) 1, 8 C.C.L.T. (3d) 60, [2002] CLLC Â210-013, 12 C.P.C. (5th) 1, [2001] 4 C.T.C. 139, 108 A.C.W.S. (3d) 300; Aeichele v. Jim Pattison Industries Ltd., 1992 CanLII 986 (BC SC), [1992] B.C.J. No. 1952, 44 C.C.E.L. 296, 35 A.C.W.S. (3d) 695 (S.C.); Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021, [1992] S.C.J. No. 40, 91 D.L.R. (4th) 289, 137 N.R. 241, 11 C.C.L.T. (2d) 1, 33 A.C.W.S. (3d) 357; Childs v. Desormeaux, [2006] 1 S.C.R. 643, [2006] S.C.J. No. 18, 2006 SCC 18, 266 D.L.R. (4th) 257, J.E. 2006-986, 210 O.A.C. 315, [2006] R.R.A. 245, 39 C.C.L.T. (3d) 163, 30 M.V.R. (5th) 1, 147 A.C.W.S. (3d) 719, EYB 2006-104570; Cole v. Lockhart, 1998 CanLII 28698 (NB QB), [1998] N.B.J. No. 377, 205 N.B.R. (2d) 48, 82 A.C.W.S. (3d) 914 (Q.B.); Cooper v. Hobart, [2001] 3 S.C.R. 537, [2001] S.C.J. No. 76, 2001 SCC 79, 206 D.L.R. (4th) 193, 277 N.R. 113, [2002] 1 W.W.R. 221, J.E. 2001-2153, 160 B.C.A.C. 268, 96 B.C.L.R. (3d) 36, 8 C.C.L.T. (3d) 26, 110 A.C.W.S. (3d) 943; Creasy v. Sudbury (Regional Municipality), 1999 CanLII 3820 (ON CA), [1999] O.J. No. 4843, 133 O.A.C. 54, 10 M.P.L.R. (3d) 64, 93 A.C.W.S. (3d) 561; Daley v. Depco International Inc., [2004] O.J. No. 2675, [2004] O.T.C. 526, 37 C.C.E.L. (3d) 255, [2004] CLLC Â210-035, 131 A.C.W.S. (3d) 883 (S.C.J.); Dominion Manufacturers Ltd. v. O'Gorman, [1989] O.J. No. 485, 24 C.C.E.L. 218 (Dist. Ct.); Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562, [1932] All E.R. Rep. 1 (H.L.); Edgeworth Construction Ltd. v. N.D. Lea & Associates Ltd., 1993 CanLII 67 (SCC), [1993] 3 S.C.R. 206, [1993] S.C.J. No. 101, 107 D.L.R. (4th) 169, 157 N.R. 241, [1993] 8 W.W.R. 129, J.E. 93-1687, 32 B.C.A.C. 221, 83 B.C.L.R. (2d) 145, 11 B.L.R. (2d) 101, 17 C.C.L.T. (2d) 101, 12 C.L.R. (2d) 161, 43 A.C.W.S. (3d) 158; Kamloops (City) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2, [1984] S.C.J. No. 29, 10 D.L.R. (4th) 641, 54 N.R. 1, [1984] 5 W.W.R. 1, J.E. 84-603, 66 B.C.L.R. 273, 11 Admin. L.R. 1, 29 C.C.L.T. 97, 8 C.L.R. 1, 26 M.P.L.R. 81, 26 A.C.W.S. (2d) 453; Kleinsasser v. Alexander, 1994 CanLII 4914 (SK QB), [1994] S.J. No. 434, [1994] 10 W.W.R. 100, 122 Sask. R. 52, 50 A.C.W.S. (3d) 63 (Q.B.); Morris v. Ford Motor Co., [1973] 1 Q.B. 792, [1973] 2 All E.R. 1084 (C.A.); Odhavji Estate v. Woodhouse, [2003] 3 S.C.R. 263, [2003] S.C.J. No. 74, 2003 SCC 69, 233 D.L.R. (4th) 193, 312 N.R. 305, J.E. 2004-47, 180 O.A.C. 201, 11 Admin. L.R. (4th) 45, 19 C.C.L.T. (3d) 163, 127 A.C.W.S. (3d) 178; Pearson v. Black, [1922] O.J. No. 447, 22 O.W.N. 20 (H.C.J.); [page723] Syl Apps Secure Treatment Centre v. B.D., [2007] 3 S.C.R. 83, 2007 SCC 38, [2007] S.C.J. No. 38, 2007 SCC 3, 284 D.L.R. (4th) 682, 365 N.R. 302, J.E. 2007-1512, 227 O.A.C. 161, 49 C.C.L.T. (3d) 1, 39 R.F.L. (6th) 245, 159 A.C.W.S. (3d) 464 Authorities referred to Atiyah, P.S., Vicarious Liability in the Law of Torts (London: Butterworths, 1967) England, Geoffrey, et al., Employment Law in Canada, 4th ed., looseleaf (Markham, Ont.: LexisNexis Butterworths, 2005) Fleming, John G., The Law of Torts, 9th ed. (Sydney: LBC Information Services, 1998) Gardiner, Gerald, "Lister v. The Romford Ice and Cold Storage Company, Ltd. (Report of the Inter-Departmental Committee)" (1959), 22 Mod. L. Rev. 652 Linden, Allen M., and Bruce Feldthusen, Canadian Tort Law, 8th ed. (Markham, Ont.: LexisNexis Canada, 2006) Markesinis, B.S., A Comparative Introduction to the German Law of Torts, 2nd ed. (Oxford: Clarendon Press, 1990) Taylor, Allison, "Employee Status: Independent Contractors and Alternative Work Relationships" in Law Society of Upper Canada Special Lectures 2007: Employment Law (Toronto: Irwin Law, 2007)

Alexander W. Demeo and Edward S.E. Kim, for appellant. Vernol I. Rogers and Thomas Harley, for respondent.

The judgment of the court was delivered by

LANG J.A.: -- Overview

1A cottage owner hired a 13-year-old local boy to work as a "boat boy". In the course of his chores, the boy accidentally caused a fire. The cottage owner's insurer paid $285,000 on the resulting claim. The central question raised by this appeal is whether the cottage owner, by way of a subrogated claim brought by the insurer, can recover from the boy either in tort or in contract. The trial judge, Stach J., held that the cottage owner cannot and dismissed the claim. For the reasons that follow, I agree.

Background

2The appellant, Bryce Douglas, hired the respondent, Mitchell Kinger, as a "boat boy" to perform menial chores at the appellant's cottage during the summer of 2000. The appellant assigned the respondent tasks to be performed using the appellant's equipment. The assigned tasks included lawn mowing, [page724] raking, removing weeds, clearing brush, sweeping walks, cleaning boats and carrying groceries. The respondent worked on a part-time basis for $8 per hour, calculated on the basis of time sheets that he submitted. While school was in session, he was expected to work on Saturdays. During summer vacation, he was expected to work three days a week, for six hours a day. The respondent also did yard work for his family. In addition, he worked for a fast food restaurant.

3While the appellant did not supervise the respondent closely, he did set rules. These rules included a prohibition on travelling to the cottage, which was on an island, in a small boat or in bad weather. Another rule specifically prohibited the respondent from using power equipment unless an adult was present on the island. The respondent broke this rule on June 17, 2000, when he attempted to refuel the appellant's gas-powered lawn mower while alone on the island. Because he was unsure whether the gas can, which was stored in the boathouse, contained enough fuel for this purpose, he held a lighted match to the mouth of the can to peer in and check the gasoline level. The flame ignited the vapours. The resulting fire burned the appellant's boathouse and its contents. The insurance claim was resolved and this lawsuit ensued.

The Trial Decision

4Although the respondent did not know that gas vapours were flammable, the trial judge found him "negligent" because he did know that "bringing an open flame in close proximity to a source of gasoline is a danger". Thus, the trial judge found that the fire was foreseeable.

5In characterizing the nature of the relationship between the parties, the trial judge relied on the leading authority of 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, [2001] S.C.J. No. 61. He concluded [at para. 16] that the respondent was the appellant's employee, rather than an independent contractor, because he was "singularly unable to find . . . any factual support for the proposition that Mitchell Kinger was an independent contractor".

6The trial judge referred to two cases where employees were held liable to employers for negligence: Pinto v. BMO Nesbitt Burns Inc., 2005 CanLII 18720 (ON SC), [2005] O.J. No. 2172, 40 C.C.E.L. (3d) 293 (S.C.J.) and Dominion Manufacturers Ltd. v. O'Gorman, [1989] O.J. No. 485, 24 C.C.E.L. 218 (Dist. Ct.). However, the trial judge distinguished those cases from the present situation on the basis that they involved highly skilled employees receiving substantial [page725] professional income. He determined that the respondent was an unskilled employee, and that unskilled employees are treated differently for necessary and well- founded reasons. Referring to Kleinsasser v. Alexander, 1994 CanLII 4914 (SK QB), [1994] S.J. No. 434, 122 Sask. R. 52 (Q.B.), the trial judge concluded that the terms of the respondent's employment as an unskilled employee did not contemplate liability and, in any event, liability was not reasonable in the circumstances. The trial judge concluded, at para. 19, that there is "no presumption under Ontario law that an unskilled employee will be liable to his employer for negligently caused loss in the workplace". He reasoned, at paras. 20-22, that each case requires consideration of the individual circumstances and the character of the parties' relationship:

The circumstances of the hiring need in each case to be considered along with the unique character of the employer and the employee. If, in the case of unskilled employees, there is to be an expectation that the employee will be liable for negligently caused losses in the workplace, that expectation ought to be set out in the employment contract in writing or capable of being unambiguously implied from the circumstances.

Where an unskilled employee is confronted with the expectation that he or she will be liable for workplace negligence losses to their employer, that employee ought to have the ability to negotiate a higher income to offset the purchase of insurance where necessary or to take other appropriate precaution.

The case before me is that of a school boy unskilled, earning -- by adult standards -- a low rate of pay for the performance of mundane chores. It is not the kind of circumstance, in my opinion, that should found liability in substantial amounts for his disobedience to the instruction of his employer intended for the child's own safety.

7In the result, the trial judge dismissed the appellant's action on the basis of policy considerations relating to unskilled employees that negate the imposition of a duty of care.

Analysis

8The appellant's claim is framed both in tort and in contract. I will begin by dealing with the appellant's claim in tort, followed by the appellant's claim in contract.

Claim in tort

9The foundational authority for the law governing tort liability is Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562, [1932] All E.R. Rep. 1 (H.L.). Its "neighbour" concept, that one owes a duty of care to those whom one may foreseeably injure, was considered in Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 All E.R. 492 (H.L.). In that case, the House of Lords [page726] provided an analytical framework for establishing a duty of care. This framework involves a two- stage analysis involving proximity and policy considerations. The Supreme Court of Canada adopted a nuanced Anns test in Kamloops (City) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2, [1984] S.C.J. No. 29, at pp. 10-11 S.C.R., which posed two questions: (1) is there a sufficiently close relationship between the parties to justify the imposition of a duty (proximity) and, if so, (2) are there any residual policy considerations which ought to negative or limit the scope of the duty, the class of persons to whom it is owed or the damages to which breach may give rise? The plaintiff bears the burden of establishing a prima facie duty of care; however, if the plaintiff does so, the defendant has the evidentiary burden to show countervailing policy considerations: see Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, [2006] S.C.J. No. 18, at para. 13.

10While the later case of Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, [2003] S.C.J. No. 74, was initially seen to adjust the two-stage test, the Supreme Court observed at para. 12 of Childs that Odhavji simply clarified that "proximity will not always be satisfied by reasonable foreseeability". The court explained at para. 12 of Childs that "at stage one, foreseeability and factors going to the relationship between the parties must be considered with a view to determining whether a prima facie duty of care arises". Stage two of the test inquires whether any duty is negated by broader policy considerations beyond the relationship between the parties.

11The two components of the stage one test were discussed in Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83, [2007] S.C.J. No. 38. In explaining the purpose for the requirement of sufficient proximity, at para. 26, Abella J. referred to Allen M. Linden and Bruce Feldthusen's text, Canadian Tort Law, 8th ed. (Markham, Ont.: LexisNexis Canada, 2006). At p. 304 of that text, the authors explain that a court must inquire "whether, despite the reasonable foresight of harm, it is unjust or unfair to hold the defendant subject to a duty because of the absence of any relationship of proximity between the plaintiff and the defendant". Abella J. concluded, at para. 30, that "[d]epending on the circumstances of the case, the factors to be considered in the proximity analysis include the parties' expectations, representations and reliance." [page727]

12Referring to Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, [2001] S.C.J. No. 76, Abella J. explained, at para. 32, what policy considerations are relevant at the first and at the second stage of the Anns analysis:

[P]olicy is relevant at both the "proximity" stage and the "residual policy concerns" stage of the Anns test. The difference is that under proximity, the relevant questions of policy relate to factors arising from the particular relationship between the plaintiff and the defendant. In contrast, residual policy considerations are concerned not so much with "the relationship between the parties, but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally" (Cooper, at para. 37).

13To summarize, the first stage of the analysis asks whether a duty of care has been established by considering both the foreseeability of the harm and the relationship between the parties that would make the imposition of a duty unjust or unfair, including any factors arising from the relationship, such as the parties' expectations, representations and reliance. Where foreseeability and sufficient proximity are established in the first stage of the test, the second stage requires a consideration of residual policy factors, including the impact of the proposed duty of care on other legal obligations, the legal system and on society generally.

14Before embarking on the two-stage analysis, the Supreme Court instructed in Cooper that a court must first determine whether the parties' relationship falls into a category already recognized as giving rise to a duty of care. If it does, a prima facie duty of care is established and it becomes unnecessary to undertake the Anns analysis. If the case falls outside an established category, Anns must be applied.

15Accordingly, I begin with the preliminary question of whether the relationship between the appellant and the respondent in this case falls into a category already recognized as giving rise to a duty of care.

1. As a preliminary matter, does the parties' relationship fall within a recognized category?

16The appellant argues that the relationship between the parties in this case falls within one of three categories that have already been recognized as giving rise to a duty of care: independent contractors, indemnification in situations of employer vicarious liability, and skilled employees. I find that the relationship in this case does not fall into any of these suggested categories. I will consider each category in turn. [page728]

(a) Was the respondent an independent contractor?

17The appellant argues that the trial judge erred in concluding that the respondent was an employee rather than an independent contractor. I do not agree.

18It is well recognized that the relationship between an independent contractor and his or her employer is generally one of sufficient proximity to give rise to the imposition of a duty of care. This duty of care is justified by the nature of the relationship: the independent contractor, who is carrying on a business on his or her own account, controls the work. Since the work is under the independent contractor's control, he or she creates the situation of risk and should be held responsible for any resulting harm. As a result, independent contractors are expected to insure or otherwise protect against their own negligence. In practice, the independent contractor's liability is often addressed in the contract entered into between the parties. ¹

19The leading authority describing the difference between an employment relationship and an independent contractor relationship is Sagaz. The appellant argues that the trial judge's findings in applying Sagaz were conclusory. In my view, a fair reading of the entirety of the trial judge's reasons make it clear that his decision was amply supported by his factual findings regarding the degree of control the appellant exercised over the respondent's work and the respondent's corresponding lack of control.

20The appellant's control is illustrated by the following factors: the appellant assigned the respondent's chores; the appellant provided all tools and supplies for the respondent's work; the respondent was not authorized to and did not hire helpers to assist him; the respondent undertook no financial risk and he had no opportunity to profit from his efforts. Although the respondent also performed yard jobs for others, primarily family members, he was not in the business of providing landscaping or caretaker services. He was a young student who took part-time employment to earn spending money. Looking at the relationship as a whole, the respondent was not engaged as a "contractor" running an "independent" business on his own account; rather, he was engaged in performing the appellant's work. Even if the [page729] appellant did not supervise each chore closely, he had the right to control the scope of the respondent's work and the respondent's performance. In this sense, the respondent agreed to a contract of service rather than a contract for services. Accordingly, I agree with the trial judge's finding that the respondent was not an independent contractor, but an employee.

(b) Was the relationship in this case analogous to employee liability in vicarious liability situations?

21The appellant analogizes the relationship in this case to a situation of vicarious liability. Vicarious liability, which is essentially a form of strict liability, holds an employer liable to a third party for the negligent act of the employee. While the concept of vicarious liability is not determinative of whether the employee should be liable to indemnify the employer for that liability, negligent employees have been held liable on the basis of a common law implied right of indemnity: see Creasy v. Sudbury (Regional Municipality), 1999 CanLII 3820 (ON CA), [1999] O.J. No. 4843, 133 O.A.C. 54 (C.A.), at para. 45. Whether that right to indemnification should apply in all employment contexts apparently has not been addressed.

22In my view, the combined application of vicarious liability and implied indemnification is not without its difficulties. First, even assuming that employers generally have an implied right of indemnity against employees in vicarious liability situations, different policy considerations may well apply where the employer is seeking to recover directly from the employee in the absence of a third-party claim. Second, in my view, it is not settled law that an employee is required to indemnify an employer for its vicarious liability in all circumstances.

23Regarding the first point, different policy considerations may apply where an employer has already compensated a third party for employee negligence, as opposed to a situation where the employer is seeking to recover from the employee in the absence of a third-party claim. Vicarious liability is a legal construct that provides a remedy for an injured third party against the employer who created the risk and benefited from it, and who can usually best afford to pay compensation for the harm that resulted. This construct was developed in part because it serves the social utility of deterring against future harm by encouraging employers to shoulder the safety risks posed by their employees and to absorb the cost of employee negligence as a cost of doing business. As La Forest J. observed in London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (SCC), [1992] 3 S.C.R. 299, [1992] S.C.J. No. 84, at p. 336 S.C.R., vicarious liability is best viewed as [page730] a response to broader policy concerns "linked to compensation, deterrence and loss internalization". Thus, the reasons for imposing vicarious liability involve the relationship between a business and an injured third party; they do not address the relationship between the business and its negligent employee.

24This leads to the second point. While employers held vicariously liable have succeeded in obtaining indemnification from their employees, this right to indemnification has been called into question, as I will explain more fully later in these reasons. ²

25For these reasons, I do not accept that any category arising from vicarious liability and implied indemnification clearly encompasses the employee liability situation raised in this case.

(c) Was the respondent a skilled employee?

26Finally, the appellant argues that the respondent was a skilled employee in the sense that he held himself out to be capable of performing the tasks he was assigned and that, because of that skill, he should be required to indemnify his employer for his negligence. However, apart from the question of whether the respondent in this case was a skilled employee, in my view, the cases relied upon by the appellant do not appear to turn solely on the employee's skill set. Rather, an analysis of those decisions suggests that liability depended not as much on whether the employee was skilled or unskilled, but rather on whether the employee's negligence amounted to more than carelessness or inattention, both of which come within the scope of ordinary negligence, and whether, as required by the analysis, it was just and fair to impose a duty of care based on the circumstances of their relationship.

27The genesis of the distinction between skilled and unskilled employees began with Harmer v. Cornelius (1858), 5 C.B. (N.S.) 236, [1843-1860] All E.R. Rep. 624 (C.P.), which addressed the duty of an employee who held himself out to his employer as a skilled scene painter. It quickly became apparent that the employee had misrepresented his skill. The employer was held to be entitled to dismiss the employee for incompetence because an employee provides "an implied warranty that he is of skill reasonably competent to the task". In making a clear distinction between skilled and unskilled employees, Willes J. observed in Harmer at p. 246 C.B. (N.S.), that "[i]t may be that, if there is no general and no particular representation [page731] of ability and skill, the workman undertakes no responsibility". Although there is an obvious difference between dismissing an employee for incompetence, such as in Harmer, and the present situation of holding an employee liable for negligence, the comments in Harmer are nonetheless important for their distinction between skilled and unskilled employees. ³

28However, the usefulness of this distinction was queried by the House of Lords in Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555, [1957] 1 All E.R. 125 (H.L.). In holding the employee liable to indemnify the employer, Viscount Simonds observed at p. 573 A.C. that he saw no "valid reason for saying that a distinction is to be made between possessing skill and exercising it". The word "skill", Viscount Simonds observed, "embraces care" and "even in so-called unskilled operations an exercise of care is necessary to the proper performance of duty". In other words, Lister appears to abrogate any distinction between skilled and unskilled employees as a stand- alone criterion for determining liability. I agree with this aspect of Lister, although, as I will discuss later, not with other aspects of that decision.

29Nonetheless, the distinction between skilled and unskilled employees was revisited in more recent cases. One example of such a case is D.H. Overmyer Co. of Canada Ltd. v. Wallace Transfer Ltd. (1975), 1975 CanLII 951 (BC CA), 65 D.L.R. (3d) 717, [1976] 2 W.W.R. 656 (B.C.C.A.), which importantly was based on contract rather than tort. In that case, the court focused on, and disagreed about, the employee's exercise of skill. The employee, a general manager, had negligently failed to give the notice required to terminate a warehouse tenancy. The majority decided in five paragraphs that the employee, who performed managerial duties, failed to exercise reasonable care and "skill" and was contractually liable to his employer for his negligence.

30However, in a compelling and often-quoted dissent, Seaton J.A. determined at p. 722 D.L.R. that employee liability "is restricted to those who fail in the skilled work for which they were hired" and, because the employee in question was a young and inexperienced employee with no previous managerial experience who was virtually unskilled, he should not be liable for his negligence. Thus, Seaton J.A. has been read to reinstate a distinction between unskilled and skilled employees. [page732]

31Seaton J.A.'s reasoning has been adopted in a number of cases. While those cases appear to focus on whether the employee was skilled or unskilled, in my view, they were essentially decided not on the basis of this categorization, but on the degree of employee negligence, or absence of "care", reflected in the particular facts, including the reasonable expectations of the parties in the context of the particular employment situation.

32In Dominion Manufacturers, referenced by the trial judge in this case, the court held a skilled registered industrial accountant liable to his employer, albeit on the basis of an implied contractual term that the employee would indemnify the employer for his negligence. However, this decision too must be considered in the context of its facts. Not only did the accountant in that case fail to remit 60 employees' deductions to the government, he also failed to pay outstanding public utility bills and municipal taxes. These were found to be intentional failures to perform the basic functions of his employment. Accordingly, to quote the trial judge at p. 222 C.C.E.L., the employee's negligence was a "more serious omission" that re-occurred over a prolonged period of time. In my view, the significant aspect of this decision is that the employee's conduct amounted to much more than ordinary negligence.

33Similarly, in Petrone v. Marmot Concrete Services Ltd., 1996 CanLII 10344 (AB KB), [1996] A.J. No. 104, 18 C.C.E.L. (2d) 170 (Q.B.), Fraser J. applied the Overmyer dissent and concluded that a superintendent who represented himself as possessing a certain level of "skill", was liable for breach of an implied contractual obligation to use reasonable skill in supervising other employees. Petrone is relied upon as authority for the proposition that a skilled employee is contractually liable. However, the facts of Petrone suggest another basis for liability. Mr. Petrone's breach amounted to much more than ordinary negligence; not only did he fail to ensure that the labourers under his supervision used the correct form in laying an entire section of sidewalk, when the error came to his attention, Petrone did nothing to correct it and continued to deny his error. From a negligence perspective, the conduct involved was tantamount to wilful misconduct.

34Another case where damages were awarded was Pinto, which was also referenced by the trial judge in this case. In Pinto, the conduct of the employee, a "skilled" investment advisor, also amounted to more than ordinary negligence. Indeed, the trial judge found at para. 63 "a pattern of unauthorized and impermissible discretionary trading by an intelligent and experienced investment advisor, followed by a pattern of dishonesty to cover it [page733] up that included the provision of fabricated evidence to the employer". Again, the employee's conduct amount to much more than an act of ordinary negligence.

35It follows that, in my view, there is no established category defined by whether and employee is skilled or unskilled; rather, liability appears to depend on the degree of the employee's negligence in the context of the employment relationship.

36To summarize, I do not accept the appellant's argument that this case can be included in a category of skilled or unskilled employees.

2. Application of the Anns test

37Since I conclude that employee liability to an employer for ordinary negligence does not fit into and is not analogous to any of the existing categories, it is necessary to undertake an Anns analysis to determine whether a duty of care should be imposed.

38Since, in my view, the nature of the parties' relationship and its broader implications inform both the first and second stages of the Anns test, it is helpful to situate the analysis by considering the case law and academic commentary on the policies informing the duty of care in the employment context in both situations of direct and third-party liability.

39In dealing with the direct liability of an employee to an employer in Cole v. Lockhart, 1998 CanLII 28698 (NB QB), [1998] N.B.J. No. 377, 205 N.B.R. (2d) 48 (Q.B.), at para. 14, McLellan J. observed the limitations on employee liability noting that "[t]he courts have recognized for many years that an error of an employee will not necessarily permit an action for negligence against the employee by the employer". In that case, a part-time student employee employed on an elk ranch failed to remove all the binder twine from the feed and an elk choked on some of the twine. In dismissing the employer's claim, the trial judge concluded at, paras. 22-23, that the employer "voluntarily subjected himself to the risks that inevitably accompanied" the work and the student's "very slight error" did not entitle the employer to damages for the business risk. Along similar lines, the court in Dominion Manufacturers observed that public policy dictated against litigation between employer and employee and noted, at p. 222 C.C.E.L., that, apart from negligence in the vicarious liability situation, "[i]n practice, [c]ourts have been reluctant to order the employee liable in tort".

40However, it is seen as settled law by some that an employee who causes damage to a third party in the course of his or her employment must be liable to that third party, and as an [page734] extension of that principle, liable to the employer for the same conduct if the employer is held vicariously liable. Yet there are important differences between holding a tortfeasor liable to a third-party stranger and holding an employee liable to an employer. The nature of an employment relationship raises different policy considerations than other circumstances involving negligent conduct. The renowned tort scholar John G. Fleming suggests, in The Law of Torts, 9th ed. (Sydney: LBC Information Services, 1998), that an employee should be held personally liable for negligence only in limited circumstances and, further, that policy reasons support the view that courts should generally be reluctant to allow third parties to pursue negligence actions even directly against employees. He observes, at p. 411, that those policy reasons relate to resource allocation and suggests an abolishment of the ability of insurers of third-party claimants to subrogate against employees. He notes that this result has been achieved in other jurisdictions either by practice or by legislation:

The master's vicarious liability does not displace the servant's personal liability to the tort victim. But this conclusion is neither self-evident nor beyond all objection. For one thing, ordinarily it is positively desirable that the master absorb the cost as a matter of sound resource allocation rather than that he be considered merely as guaranteeing the servant's primary responsibility to pay for the damage. For another, to hold the servant liable will either tend to overtax his financial resources (especially under modern conditions when these have become increasingly unequal to his capacity for causing great loss) or require double insurance, covering both him and his employer against the same risk. For these reasons, there is now a growing momentum in many countries for "channelling" liability to the employer alone; the employee being freed altogether from claims by third parties and liable at most to his employer for a limited contribution when this is justified on disciplinary grounds. This mostly corresponds also with practices elsewhere; employees are joined as defendants usually only pro forma or to enlarge the scope of discovery. Moreover, in Australia subrogation against employees under general liability policies has now been formally abolished and in New South Wales, South Australia and the Northern Territory employees also become entitled to indemnity from their employer -- all except in cases of "serious and wilful misconduct". ⁴ (Footnotes omitted)

41These policy reasons were not addressed by the majority in London Drugs when exculpating negligent employees from liability for their third-party damage. Instead, the majority concluded [page735] in that case that the employees were entitled to the benefit of a contractual limitation of liability clause contained in the contract between the employer and the third party. However, the majority also commented on the claim framed in tort, saying, at pp. 407-08 S.C.R., that there is no general rule in Canada that an employee performing the "very essence" of the employer's contractual obligations does not owe a duty of care to the employer's customers. In making this observation, the majority accepted the unchallenged finding of foreseeability made by the trial court and did not undertake a separate proximity analysis of the type envisaged in the later decision of Childs.

42However, the minority decision of La Forest J. undertook a complete proximity analysis that included an instructive review of the policy considerations that arise from an employment relationship. This analysis required an examination of the House of Lords decision in Lister, discussed earlier in these reasons. The facts in Lister involved a truck-driver employee who injured a third person through his negligence, for which the truck driver's employer was held vicariously liable. The employer's insurer subrogated its claim and sued the employee. Lister concluded that all employees are liable to their employers for even the simplest act of ordinary negligence. This conclusion was received with strong criticism.

43Indeed, the reaction against Lister was so strong that the British government intervened. It struck an Inter- Departmental Committee to address Lister's ramifications for industrial relations. Those ramifications are discussed by P.S. Atiyah in Vicarious Liability in the Law of Torts (London: Butterworths, 1967), at p. 426. While Atiyah discusses the issue in regard to vicarious liability, his comments apply with even greater force to the issue of direct employee liability:

It is obvious that the whole foundation of vicarious liability as it operates today would be seriously affected if employers made a regular practice of suing their servants for indemnities when they had been rendered vicariously liable. As was said by a Committee set up to enquire into the implications of the Lister case:

There can . . . be no doubt that if there were any real possibility of employees regularly being called upon to pay out of their own pockets damages resulting from acts of carelessness or inattention occurring in the course of their employment, a situation would be created for which some remedy would have to be provided.

44The Committee resolved the controversy without the need for a legislative response by recommending insurers enter into "gentleman's agreements" that they would not enforce their rights of subrogation against employees, except in cases of [page736] collusion or wilful misconduct. ⁵ Importantly, the agreements were not premised on the level of the employee's skill, but on the degree of the employee's negligence. The agreements, which have largely endured, are also apparently honoured by Canadian insurers, since there have been few cases of employer claims against employees for negligence.

45In his reasons in London Drugs, La Forest J. acknowledged Lister's virtual nullification and observed, at p. 333 S.C.R., that "in general employees are not realistically in a position" to contract with their employer, or their employer's customer, regarding their potential tort liability for foreseeable property damage. Furthermore, he noted, at p. 341 S.C.R., that indemnification of an employer by an employee in the vicarious liability context is contrary to the very "policy foundation of vicarious liability" (employer liability) and further, at p. 356 S.C.R., that "there is no logical necessity that the employer's liability in tort depend on the personal liability of the servant".

46Accordingly, in his view, employees generally should not be liable in tort to indemnify an employer for damages payable to a third party injured by their negligence, except where the employee is "grossly negligent". In arriving at this conclusion, La Forest J. referenced the approach established in Germany, which limits the circumstances in which an employee can be held liable for torts to circumstances involving either intentional or grossly negligent conduct. He also referred to the policy reasons in support of this approach, which are set out by B.S. Markesinis in A Comparative Introduction to the German Law of Torts, 2nd ed. (Oxford: Clarendon Press, 1990), at pp. 574-75:

Thus, damage done by an employee without intention or gross negligence while engaged on a dangerous job is one of the employer's business risks and must be borne by him alone. To allot damage done by the employee to the risks of the business, in the absence of gross negligence, is justified by the fact that it is the division of labour within the business which exposes the employee to the risks specific to his work. Division of labour and organizational structure are matters for the employer whose ownership and power of management enable him to determine how the work of the business is to be organized. The employee, on the other hand, given his subordinate position, has little or no influence on these factors which are relevant to the damage caused. Since the employer is better able to deploy technical and [page737] organizational measures to reduce the special risks of the business and to take out any necessary insurance, it is right to treat damage as a risk of the business to be borne by him alone unless it is due to the intentional or grossly negligent conduct of the employee.

47Thus, La Forest J. would restrict the circumstances in which an employee is liable in tort to situations of intentional wrongdoing or gross negligence. ⁶ Bearing in mind these discussions about policy issues surrounding employee liability, I turn to the necessary Anns analysis.

(a) Stage one -- Reasonable foreseeability and sufficient proximity

48In this case, the component of reasonable foreseeability under the first stage of the Anns test is readily established based on the trial judge's unchallenged finding that the respondent knew about the dangers of an open flame near gasoline.

49I turn to discuss the second component of sufficient proximity. I do so mindful of McLachlin C.J.C.'s description at para. 25 of Childs that proximity is "two-sided" and requires not only foreseeability of the plaintiff's loss, but also an explanation of "why it is just and fair to impose the cost of that loss on the particular defendant before the court". I am also mindful of the guidance provided in Syl Apps, at para. 30, that "the factors to be considered in the proximity analysis include the parties' expectations, representations and reliance".

50Accordingly, the question of sufficient proximity asks whether the relationship between the parties was of such a nature that it would be just and fair to impose the employer's loss on the employee based on the parties' expectations, representations and reliance. As I have already discussed, this analysis does not focus only on whether the respondent was skilled or unskilled, but instead looks at the overall parameters of the relationship.

51Thus, it is preferable to consider the parties' relationship by focusing on the expectations they had of each other and to situate the negligence under consideration within the parameters of those expectations. ⁷ [page738]

52An examination of the employment relationship demonstrates that employee negligence was foreseeable and that the employee's liability for ordinary negligence was not. This is apparent from the expectations that can be readily inferred from any common-sense consideration of the employment relationship. Both an employer and an employee would normally expect the other to exercise reasonable care: the employer would expect the employee to perform his tasks with reasonable care, and the employee would expect the employer to take reasonable care for his or her safety. In addition, both would know that accidents happen, whether as a result of defective equipment provided by the employer, as a result of the employee's carelessness in the use of that equipment, or for some other reason.

53The fact that employee negligence was contemplated in this case is supported by the terms the appellant specified in the respondent's employment. When the appellant hired the respondent as a "boat boy", he knew that the respondent's negligence could cause harm and, accordingly, imposed rules to protect his safety. As in most other employment relationships, the appellant was also aware that it was unlikely the respondent would have the financial resources to compensate for any loss, such as the $285,000 loss that actually occurred. ⁸ An expectation that the respondent would be able to compensate for loss, through insurance or otherwise, was not articulated at the time of his employment and, in any event, would be unreasonable given the respondent's young age and his wage of $8 an hour. The appellant also knew that he had insurance to guard against many losses.

54On this view of the parties' expectations, representations and reliance, it would be neither just nor fair to impose the loss on the respondent. ⁹ While this is enough to conclude that the appellant has failed to establish a duty of care, in my view, the policy considerations discussed above pertaining to employment relationships as well as to other societal issues also negate liability, as I will discuss further under the second stage of the Anns analysis. [page739]

55To summarize, in the circumstances of this case, the component of reasonable foreseeability under the first stage of the Anns test is satisfied. However, having regard to the nature of the parties' relationship, the component of sufficient proximity is not. Accordingly, I conclude that a duty of care should not be imposed for the respondent's ordinary negligence.

56I turn to the second stage of the Anns test, which in my opinion also negates the imposition a duty of care on an employee who commits an act of ordinary negligence.

(b) Stage two -- Residual policy factors

57I begin this discussion bearing in mind that the considerations at this second stage of the analysis are concerned not with the particular relationship, "but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally" (Cooper, at para. 37).

58A return to the Lister principle of employee liability without regard to the individual circumstances of each case would create the potential for significant disruption to employer/employee relations. Obviously, certain types of employment are disproportionately fraught with risk. For example, in these days of increasingly complex technology, employees are required to handle ever more sophisticated machinery. Minor employee error can result in major equipment breakdown and, consequently, significant damages. In those circumstances, employment relations would be greatly challenged if an employee was to be held financially liable to the employer for the financial consequences of a momentary lapse of attention. As La Forest J. observed, at p. 340 S.C.R. of London Drugs, "an employee's capacity to cause loss does not bear any relation to his salary".

59Moreover, there is a power imbalance inherent in most employment relationships. An employee is usually not in a position to bargain at the outset of the employment relationship regarding the terms of his or her potential liability for an act of negligence. In contrast, an employer concerned about employee negligence is in a position to dictate terms of employment and can contract for the employee's liability. As La Forest J. points out, at p. 341 S.C.R. of London Drugs, employers are at liberty to establish "contractual schemes of contribution from negligent employees" and such contractual terms would be relevant to a tort claim.

60In addition, while employees are implicitly, if not explicitly, expected to exercise reasonable care in their employment, there are other means to encourage that care without burdening the employee with an impossible financial judgment. While the appellant argued that a finding of liability against the respondent will [page740] promote responsibility in all workers, I am not persuaded that is so. Discipline and dismissal are often cited as more useful tools to promote deterrence without the need to impose financial responsibility. Thus, a policy that supports good industrial relations weighs against the imposition of a duty of care.

61Second, risk and resource allocation are important policy considerations. These considerations, which are particularly relevant to employment situations, support the conclusion that the employer should be the party charged with protecting his or her own interests. This is because the employer is generally in a better position than the employee to internalize the cost of ordinary employee negligence, whether as a cost of doing business or by acquiring appropriate insurance. Generally speaking, employers do so. This was the view taken in Morris v. Ford Motor Co., [1973] 1 Q.B. 792, [1973] 2 All E.R. 1084 (C.A.), where Lord Denning emphasized that the employer should bear the liability for employee negligence because the employer enjoys the benefit of the work and should, in turn, bear the burden. He supports this view by pointing to the fact that the employee's wages are fixed on the basis that the employer will bear the expense of employee negligence, usually through insurance. If the employer chooses not to obtain insurance, he or she should still absorb the cost of avoiding harm as a matter of sound resource allocation. If it was otherwise, and the employee is expected to bear the risk, his or her wages should be increased to cover that risk.

62In concluding that liability must depend on the individual contractual circumstances of the employment, Seaton J.A. in Overmyer observed, at pp. 723-24 D.L.R., that an employer accepts the risk of employee fallibility and takes that fallibility into account in the costs of doing business, supervising the employee, and insuring the enterprise. Regarding any presumption of employee liability, he stated, at pp. 724-25 D.L.R.:

If an employee, by lack of care, causes loss to his employer, I do not think that it should be presumed that the employee will be liable, and I do not think that we should look at decisions on other employment contracts for the answer. We should look at the hiring to see what was said and at the circumstances to see what might properly be implied. It follows that this employment and this error must be looked at to see what terms were in the contract and whether they were breached. (Emphasis added)

63In addition, it would make no economic sense to require both the employer and the employee to obtain and maintain insurance coverage. An approach that promotes double insurance -- even assuming such insurance would be available to every employee -- has no social utility: see London Drugs, at p. 387 S.C.R. [page741]

64Finally, as I have already noted, a determination that, in the ordinary course, employees are not liable to indemnify employers for ordinary negligence, accords with practice or legislation in many other jurisdictions that have already abolished the right of insurers to subrogate against employees under general liability policies.

65Accordingly, in addition to my conclusion at the first stage of the Anns test that the parties' relationship lacks the necessary proximity, I would also conclude that the residual policy considerations at the second stage of the Anns analysis weigh against the imposition of a duty of care. In coming to this conclusion, I observe that the result could be different if the loss is occasioned by negligence outside the parties' reasonable expectations, such as one caused by an intentional tort or wilful misconduct on the respondent's part. London Drugs also references "gross negligence", a concept I would leave for discussion in another case where it is raised by the particular facts. Finally, the result may be different in other situations, such as if the negligence involved a vehicular accident, where different considerations may apply between insurers and, as well, if the defendant had been from a profession where, as the Lister Committee said, "it is accepted prudence" to purchase insurance (Gardiner, at p. 655).

Claim in contract

66Although the primary thrust of the appellant's action was based on negligence, the respondent points out that the contract of employment cannot be enforced against the respondent because it did not satisfy the common-law requirement that the contract as a whole be "for the benefit" of the minor: see Geoffrey England et al., Employment Law in Canada, 4th ed., looseleaf (Markham, Ont.: LexisNexis Canada, 2005), at 4.7. Liability in contract was not pressed by the appellant on appeal. In any event, in my view, the employment contract in this case cannot be said "as a whole" to be a contract for the respondent's benefit. Accordingly, I would reject the appellant's claim against the respondent in contract.

Disposition

67For these reasons, I would dismiss the appeal. The agreed-upon costs of $15,000, inclusive of disbursements and Goods and Services Tax, are awarded to the respondent.

Footnotes

1. 1The terms of the contract are more likely to be subjected to commercial legal principles than the often more informal terms of general employment contracts: see Allison Taylor, "Employee Status: Independent Contractors and Alternative Work Relationships" in Law Society of Upper Canada Special Lectures 2007: Employment Law (Toronto: Irwin Law, 2007).
2. 2See London Drugs and the commentary of John G. Fleming discussed at paras. 40-46 of these reasons.
3. 3See also Pearson v. Black, [1922] O.J. No. 447, 22 O.W.N. 20 (H.C.J.), where the court observed, at p. 21 O.W.N., that "[m]ore must be shewn to justify an action by the master against the servant than to justify a dismissal. Mere lack of skill, in the sense that another and more skilful person might have done better, falls short of what is required."
4. 4Fleming additionally points out that limitations on the personal liability of employees now exists in most Socialist countries, as well as Germany, Sweden and the U.S.
5. 5According to Atiyah, su[ra, at p. 427, the agreements were brought "to the attention of uninsured employers and stressed the desirability of all employers abiding by a common policy". See also Gerald Gardiner, "Lister v. The Romford Ice and Cold Storage Company, Ltd. (Report of the Inter-Departmental Committee)" (1959), 22 M. L. Rev. 652, which provides an overview of the findings of the Committee.
6. 6See also Daley v. Depco International Inc., [2004] O.J. No. 2675, 37 C.C.E.L. (3d) 255 (S.C.J.) and Aeichele v. Jim Pattison Industries Ltd., 1992 CanLII 986 (BC SC), [1992] B.C.J. No. 1952, 44 C.C.E.L. 296 (S.C.).
7. 7Although the appellant points out that there were no specific questions asked at trial about the parties' expectations in this case, this argument cannot assist him because it was he who bore the onus of calling that evidence.
8. 8I note that there is no suggestion that the respondent should pay some lesser amount as a result of his negligence, such as the insurance deductible. Accordingly, I specifically do note consider whether such a remedy would be either just or appropriate.
9. 9Acknowledging that such a stipulation raises consideration of contract, I note that the relevance of contractual considerations has been recognized in such authorites as Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021, [1992] S.C.J. No. 40, at pp. 1125-27, and 1164 S.C.R., in London Drugs, at pp. 347-48 S.C.R., and Edgeworth Construction Ltd. v. N. D. Lea & Associates Ltd, 1993 CanLII 67 (SCC), [1993] 3 S.C.R. 206, [1993] S.C.J. No. 101.