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Alert: Legalized Recreational Cannabis and its Impact on Employer Executive Risk

 

On 17 October 2018, the federal government’s Cannabis Act comes into force alongside its provincial counterparts, such as Ontario’s Cannabis Act. The legalization of recreational cannabis use in Canada presents new challenges and considerations for employers, including additional liability exposures for the corporate entity and its board of directors and officers.

While the new legislation does not affect the existing laws pertaining to the use of medical cannabis, employers would be wise to familiarize themselves with the provincial cannabis regimes in the provinces in which the company operates.  Many provincial statutes will contain similar requirements, but there will also be critical differences, such as the prohibitions relating to age or amount of cannabis used. Employers should also note that recreational cannabis use is limited to prescribed locations which, under Ontario’s provincial law, does not include enclosed workplaces. Employees travelling in the course of their job duties will also need to be mindful that driving under the influence of cannabis remains illegal, with police officers now authorized to use oral fluid roadside screening tests. Moreover, if an employee is leaving the country while travelling, this presents an additional set of concerns as cannabis remains illegal in many other countries, including the United States. Companies would be wise to adopt stringent policies and procedures for travelling employees, as well as implementing robust educational and training measures for all employees and individuals occupying management roles.

From an executive risk perspective, there are two key liability insurance policies that could potentially respond to specific cannabis-related claims: Employment Practices Liability (EPL) and Directors’ and Officers’ (D&O) Liability Insurance.

EPL insurance provides protection for the company, and its current and former directors, officers and employees, for lawsuits brought by employees alleging wrongful employment related practices, such as workplace discrimination, sexual harassment, wrongful termination and wrongful discipline. If an employee were to sue their employer for wrongful discipline or discrimination in connection with their recreational cannabis use, the EPL policy may respond to provide indemnity for defence costs and any related settlement or judgement amounts.

D&O liability insurance provides protection for directors and officers, and the corporate entity to some degree, for management liability claims. For instance, if an employee arrived at work impaired by cannabis use, and in the course of performing their job duties an injury resulted to a co-worker or third party due to the employee’s impairment, the board of directors may face a lawsuit alleging that they breached their fiduciary duties by not implementing sufficient policies and procedures related to employee cannabis use. A potential lawsuit could also allege that the board and/or officers turned a blind eye and permitted cannabis impairment in the workplace, thus also breaching their duties. A D&O policy would typically respond to provide defence costs coverage for directors and officers, as well as any resulting settlement and judgment amounts stemming from a supervisory claim. Private companies also typically have broad coverage under a D&O policy, while coverage for public companies is limited to securities claims.

Directors and officers could also face liability under s. 217.1 of the Criminal Code (Code) of Canada, which places a legal duty on those who have the authority to direct how a person does work to take reasonable steps to prevent bodily harm to that person. Moreover, s. 32 of the Ontario Occupational Health and Safety Act (OHSA) requires directors and officers to take reasonable care to ensure that the corporation complies with the provisions of the statute. The OHSA places numerous requirements on employers to ensure a safe work environment. Should a workplace injury result from the conduct of a cannabis-impaired employee, board members and executives could be found statutorily liable under either or both pieces of legislation, depending on the circumstances. If the policy contains robust language, D&O insurance could respond to provide defence cost coverage to insured individuals if charged under s. 217.1 of the Code or s. 32 of the OHSA.

Although we haven’t yet seen how cannabis legalization will impact the workplace, employers would be wise to be proactive in establishing robust cannabis-use policies and procedures, as well as reviewing any existing policies related to drug and alcohol use and disability and accommodation. Employee and supervisor education and training can also serve as an effective risk management tool. Finally, insurance policies, including those in the executive risk space such as EPL and D&O liability policies, can serve as a valuable last line of defence should a lawsuit arise.

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