Northern Exposure

Canadian Court Trims $500K Dismissal Damages, Upholds Arbitrator’s Broad Authority

by Julia Kennedy

A Canadian court recently upheld most of a more than $500,000 arbitration award involving a unionized employee of the Greater Toronto Airport Authority (GTAA). But it ordered the arbitrator to reconsider the mental distress and punitive damages awards. In doing so, the court clarified the broad remedial authority of arbitrators to award a range of damages. Arbitrators are clearly not limited to reinstatement and lost wages.

A year ago we alerted our readers to this precedent-setting arbitration award (Employee Awarded $500,000 for Bad Faith Termination and Shocking Arbitration Decision in Ontario). A wrongfully dismissed vehicle fleet coordinator was awarded eight years of wages for both past and future employment income losses, damages for mental distress, pain and suffering, and another $50,000 of punitive damages.

Arbitrator’s remedial authority
GTAA challenged the arbitrator’s decision in court. It argued he didn’t have authority to order many of the remedies he did. The court disagreed for the most part. It ruled that GTAA’s collective agreement gave the arbitrator the power to order whatever penalties he deemed “just and reasonable in the circumstances.” It was reasonable for the arbitrator to conclude that the collective agreement placed no limits on the remedies the arbitrator could award.

Blameless employee compensated for full economic loss
The court agreed that a blameless employee, subjected to mistreatment by her employer, need not seek reinstatement even though that is the usual remedy under a collective agreement. Where the employer’s actions make reinstatement not viable, damages are appropriate.

The arbitrator’s award, the court found, was consistent with the principle that compensation for loss of a unionized position isn’t the same as calculating pay in lieu of notice in nonunion cases. Normally the employee would have had the right to be reinstated with back pay. Since she preferred not to be reinstated because of her employer’s wrongful actions, the arbitrator could reasonably award her wages until the estimated date of retirement.

Mental distress foreseeable from bad faith discharge
The court rejected the arbitrator’s unusual reasoning that a collective agreement is a contract “for peace of mind.” It was unreasonable for him to conclude that the purpose of the collective agreement was for the psychological benefit and mental security of employees. Damages for mental distress couldn’t be awarded on that basis.

But the court agreed with the arbitrator that a lack of good faith in the manner of dismissal can justify damages for mental distress. Still, it was unreasonable to award damages for general pain and suffering from an unrelated knee problem. The arbitrator was ordered to reconsider that part of his decision.

This decision thus clarifies the basis on which mental distress damages can be awarded by a labor arbitrator.

Punitive damages unjustified
The court noted how unprecedented punitive damages were in a case like this. It ruled that the arbitrator had made a number of errors in this part of the case. It sent the punitive damages issue back to the arbitrator to be reassessed in light of its determinations that:

  • Punitive damages must be based on an independent breach of the employee’s legal rights, apart from the termination.
  • An employer must be given notice of what independent legal breach is relied upon for such a claim.
  • Punitive damages can be awarded only if all other damages are inadequate for the purposes of retribution, deterrence, and denunciation.
  • There must be reasons to justify the amount of punitive damages.

Takeaway for employers
The stakes for dismissal of a unionized employee in Canada are higher than ever. This is especially true if the employer makes accusations it can’t prove and destroys the employment relationship.

There is no clear limit to the size such awards may reach, given an arbitrator’s ability to award past and future lost wages.

Employers who want to steer clear of similar grievances should remember the benefits of careful investigation, progressive discipline and expert professional advice. This case shows that dismissal can be tough on both sides — causing the employee serious harm and coming back to bite the employer.