Employment Obligations May Survive 3PL Contract

In a recent case we represented a forwarder who had been in a long term 3PL contract with a US shipper. The forwarder essentially handled all of the shipper’s Canadian warehousing and distribution needs. As is frequently the case, the shipper had placed an employee at the forwarder’s site to oversee their operations and act as a local liaison: his employment was arranged by the forwarder as agent for their US customer and with a 15% commission.

This arrangement worked out well for three years, but the deficiencies were revealed when the relationship was terminated by the shipper. In addition to the other contractual disputes, the forward faced a wrongful dismissal claim by the shipper’s local employee!Unbeknownst to the forwarder’s operational personnel, Canadian law recognizes the principle of ‘co-employment’, where more than one employer is responsible for an employee. Accordingly, the liability raised was not one that could simply be passed on to the principal, as we would argue is the case for other agency arrangements. Although the facts supported the existence of an agency as between the forwarder and shipper, nonetheless as between the forwarder and the employee, the forwarder was exposed to liability as a co-principal.

The forwarder’s contracts and standard terms, created to deal with transportation liability, were simply inadequate to responde to this liability, and no provision for dealing with the employee’s ongoing liability (in respect of notice, severance, benefits, expenses, etc) had been clearly incorporated. This oversight exposed the forwarder to a $100,000 claim, for which it was completely unprepared.

Happily, the US shipper remained a going concern, and accordingly could be brought to the table to negotiate their liability. In the result, a three-way settlement was arranged that provided the employee with a reasonable compensation package, the preponderance of which was paid by the shipper. But the situation could have worked out very differently, particularly if the 3PL arrangement had been cancelled because of the shipper’s insolvency.

Forwarders and other transport professionals are experts in their fields – but this was not a transportation problem, it was an employment problem. Operations knew what to do, but they didn’t stop to ask Human Resources how they should do it: they didn’t recognize that they were moving into an area of someone else’s expertise. This communications breakdown was almost very costly! Know what you know, and do it well – and allow others to do the same.

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