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Personal Liability of D&Os in EPL Claims
By Adv. Yael Navon , Partner
In two Court rulings handed down recently, the Court imposed personal liability on the D&Os towards employees of the company.
1.1 The CEO's Duty to Obtain an Employers Liability Policy
In Civil Claim (Kfar Saba - Magistrate Court) 3477/04 Balalis Amit v. Haber Ordan Ltd. a claim was filed by an employee who worked as an assistant chef in a restaurant in Tel Aviv where he sustained an injury to his arm while he was trying to pull a piece of dough out of a dough mixer. The company which managed the restaurant entered into liquidation proceedings and therefore, the employee sought indemnification from the company's CEO - Amos Ordan (hereinafter: Ordan).
The employee alleged that Ordan should be held personally liable for his damages due to Ordan's failure to provide sufficient training to the employee, and to purchase Employer's Liability Insurance which would guarantee compensation to an employee who was injured.
The basic rule concerning a D&O's liability in tort is that such liability can be imposed if proven that the D&O himself breached his duty of care towards a third party. Namely, while personal liability cannot be imposed simply because the company breached its duties, the service of someone as a D&O does not provide him with immunity in cases where he breached his duty of care (C.A. 725/78 British Canadian Builders v. Oren, PD 35(4) 253).
Under the circumstances of this claim, the Court found that two CEOs served the company: Ordan, who was in charge of the financial aspects of the restaurant and another CEO who was in charge of the professional aspects of the restaurant. Therefore, the Court accepted Ordan's argument that he was not in charge of training the employees and thus, no liability should be imposed on him for the failure to provide such training.
On the other hand, the Court ruled that Ordan had the duty to ensure that the company had Employer's Liability insurance. Insuring an employee from risks to which he is exposed in his job has significant importance. The relationship between an employer and an employee, and the special reliance of the employee on his employer justifies imposing on the employer the liability to insure its employees.
Ordan, who was in charge of the financial affairs of the restaurant, should have ensured that a valid Employer's Liability insurance existed and his failure to do so constitutes a breach of his duty of care towards the employee and therefore, is a sufficient basis to impose on him personal liability.
1.2 The CEO's Personal Liability for Pregnancy Discrimination
In a labour case (Tel Aviv) 5524/03 Anat Kirsh v. Zchuchit Bidudit 18 Z.B. Ltd., an employee filed a claim in the District Court against her employer - and its CEO, Eyal Robanenco, due to pregnancy discrimination. The employee claimed that since she notified Robenenco of her pregnancy, she was subject to pressure to resign, her employment terms worsened and she was treated unfairly.
The Court accepted the employee's contention that she was discriminated against due to her pregnancy and that by doing so, her employer breached the Law of Equal Opportunities at Work - 1988. In addition, the Court decided to award NIS 50,000 to the employee as punitive damages.
As to Robenenco's personal liability, the Court ruled that in a claim filed due to breach of labour laws, the Court will impose personal liability on an officer only in a case it is convinced that the officer acted in bad faith or with the intention to deprive employees of their rights.
Since in our case the officer was behind the discrimination by the company and he acted in bad faith and with the intention to prejudice the employee's rights, he cannot hide behind the company's corporate veil and he should be held personally liable towards the employee.
1.3 Summary
From the above it appears that in cases in which a D&O of a company was personally involved in the breach of the company's duty towards its employees, the court may impose personal liability on the D&O, although he or she is not considered as the "employer".
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