Northern Exposure

Punitive damages awards increasing in Canadian employment cases

By David McDonald

In wrongful dismissal cases in Canada, punitive damages awards are available only in exceptional situations. That’s what the Supreme Court of Canada said in 2008 in Honda Canada v. Keays. The employer’s conduct in the course of termination must be proven to be harsh, vindictive, reprehensible, and malicious. Despite this high threshold, a number of recent trial decisions show how Canadian courts are becoming more open to providing employees with punitive damages awards.

One example is Higginson v. Babine Forest Products, a recent decision of the British Columbia Supreme Court. In this case, a long-service employee (34 years) was terminated for cause from his position as an electrical supervisor. He sued. His lawyer suggested that this termination was part of a larger plan to eliminate long-service employees and avoid the costs of severance with a mill closure pending.

Recognizing that the facts made his client somewhat sympathetic, the terminated employee’s counsel chose to elect a jury trial. Because it was a jury trial, there are no reasons for the decision. In the result, the employer’s allegation of cause failed. The employee was awarded pay in lieu of notice equivalent to 24 months or about $286,000, less $50,000 for failure to mitigate his damages by applying for alternate employment. But what’s really surprising is the punitive damages awarded by the jury: $573,000 or 48 months’ pay!

The company’s appeal of the punitive damages award was ultimately settled. So we don’t know the final outcome. However, this case reinforces that employers need to closely examine cause for termination allegations, particularly with long-service employees and especially when the cause allegations are related to poor, ongoing performance.

In another decision, also from the British Columbia Supreme Court, Kelly v. Norsemont Mining Inc., 2013 BCSC 147, the employee (who represented himself at a 33-day trial) won his case. In addition to pay in lieu of notice, he was awarded punitive damages in the amount of $100,000.

The reason for the punitive damages was the court’s finding that the company didn’t meet its implied obligation of good faith and fair dealing. First, the company had refused to pay the employee his final month’s salary after termination because he hadn’t signed a release. Second, the company was overly aggressive in how it tried to retrieve what it felt was company property, by withholding the employee’s personal belongings. Third and most problematic for the company was the behavior of one of its senior executives.

He had threatened the employee with expensive and time-consuming litigation (a threat that ultimately materialized). An additional factor was the defendant’s unsuccessful allegation of incompetence. This made it more difficult for the terminated employee to find a job in his industry.

In Vernon v. British Columbia (Liquor Distribution Branch), 2012 BCSC 133, the employee had worked at a liquor distribution branch for some 30 years, working up to the position of senior store manager. She had never received a complaint against her. She had only received exemplary performance reviews. She had never been told that her management style was in any way unacceptable. Then, there was a complaint alleging that the employee bullied, harassed, and intimidated her subordinates. After an investigation, the employee was summarily dismissed.

The court found that there was no just cause for dismissal. The investigation was found to be flawed. The final report contained numerous inaccuracies. The employee hadn’t been given the opportunity to respond to the allegations. The investigators inaccurately indicated that she had denied all allegations. The court went on to find that while the employee’s management style may have warranted some form of discipline, the employer didn’t have grounds to dismiss her without notice.

The employee was awarded 18 months’ salary in lieu of notice, plus $35,000 in aggravated damages. This was awarded because the employer didn’t act in good faith in the manner of dismissal. The court also awarded $50,000 in punitive damages because the employer had required that the employee resign prior to providing her with a reference letter. The court found this conduct “reprehensible.”

As we can see, while all of these cases have different facts, the common result is an employer being punished for what the court views as bad faith conduct in the course of and following termination.

It’s our view that these types of awards and decisions will continue to happen. Employers need to factor them into account while striving for best practices in the difficult circumstances of terminating an employee.

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