The core purpose of workers’ compensation legislation has been to offer injured workers easier access to benefits while immunizing their employers from direct liability. Workers’ compensation is in fact a form of insurance for employers, which pay premiums to the insurer (the provincial Workers’ Compensation Board) to fund the compensation system and to obtain immunity from liability.

That principle has taken a hit in the Alberta Courts.

Normally, under section 23 of the Alberta Workers Compensation Act, actions against employers who pay into the WCB system are prohibited when the accident is caused by, and injures, workers covered through the WCB system. Unfortunately, a recent decision in Dempsey v. Bagley, 2016 ABQB 124 allows the WCB to pursue a WCB-covered employer when there is an indemnity clause in a vehicle leasing agreement.

Two Brinks Canada Limited drivers caused single vehicle accidents while driving during the course of their employment. The accidents injured three other Brinks employees who were passengers in the vehicles. Brinks met the definition of an “employer” under the Workers Compensation Act and paid WCB premiums on behalf of its employees.

The Brinks vehicles were leased from a third-party leasing company, PHH Vehicle Management Services Inc. PHH was also an “employer” under the Act and paid premiums on behalf of its employees. The leases each contained an indemnity clause stating that Brinks would indemnify PHH for losses arising from the operation of the vehicles. The injured employees received compensation and medical treatment through the WCB system. The WCB, in the names of the injured employees, commenced lawsuits against the employee drivers, Brinks, and PHH.

The Court was asked to consider whether the WCB could recover against Brinks and PHH. The presumed answer is “no” because WCB premiums are mandatory for most employers. In exchange for paying WCB premiums, employers are granted a statutory immunity from lawsuits under section 23 of the Workers Compensation Act when workers covered by the WCB system are both the cause of, and the victims of, an accident.

It follows that it would be unfair to both impose mandatory WCB premiums on employers and then force an employer to incur costs defending litigation and potentially paying a judgment. Such double recovery would erase a supposed benefit of paying into the WCB system.

However, the Court took a different approach. It found that the WCB could not pursue Brinks or its employee drivers pursuant to section 23 of the Workers Compensation Act. Interestingly, protection was not afforded to PHH because its employees did not cause or contribute to the accident. As such, PHH could not avail itself of the statutory immunity provided in section 23, despite having paid WCB premiums.

Further, the Court relied on section 187(2) of the Traffic Safety Act to hold PHH, as owner of the vehicles, vicariously liable for the acts of the Brinks drivers. This was in spite of acknowledging the indemnity clause in the lease agreement that ultimately would require Brinks to indemnify PHH for any loss arising in connection with use of its vehicles.

The Court assessed the relative vicarious liability between Brinks and PHH as 75% and 25% respectively given that Brinks had control of the vehicles and was responsible for providing vehicle training to its employees, establishing operating guidelines regarding the use of the vehicles, and supervising the use of the vehicles. The end result was that the WCB could not pursue Brinks or its employees for 75% of the value of the claim, but it could pursue PHH (and Brinks) for 25% of the claim. Currently, neither party has filed an appeal of this decision.

Although prior Courts have held vehicle leasing companies liable for accidents involving their vehicles, those decisions did not consider the effect of an indemnity clause on a WCB-covered employer. The Court was not sympathetic to Brinks having to ultimately indemnify PHH because Brinks benefited from tax and other economic advantages by leasing its vehicles. The bottom line is that employers must now consider the financial benefit they receive from choosing to lease their vehicles and whether this offsets the risk of potential liability for injured workers’ claims. For smaller claims, like in this case, the impact on employers will not be significant. However, in catastrophic injury cases where damage awards can often exceed $2 million, the financial implications for employers may be momentous.

For almost a century, Canadian employers have counted on workers’ compensation legislation to address injured employees’ needs while insulating the employer itself from direct risk. Decisions which erode that principle may, in turn, erode employers’ commitment to the insurance scheme. That is an unnecessary risk for all concerned.