Northern Exposure

Extraordinary damages not automatic in ‘cause’ cases

by Keri Bennett

In Canada, courts can award two extraordinary forms of damages in a wrongful dismissal action: aggravated damages or punitive damages. In a wrongful dismissal action, employees who are terminated for cause often claim that they should be awarded aggravated and/or punitive damages in addition to reasonable notice damages.

In a recent decision of interest to employers in Canada, Smith v. Pacific Coast Terminals Co. Ltd., 2016 BCSC 1876, the British Columbia Supreme Court ruled that these types of damages will not be awarded simply because an employer continues to assert it has cause for termination at trial.

What happened in this case

Mr. S was employed by Pacific Coast Terminals as a manager of maintenance and engineering. In his role, he was responsible for obtaining permits for two large company projects. However, he engaged a third party to commence work on the projects prior to the permits being issued.

Mr. S’s employment was subsequently terminated. Initially, the company offered a severance package. However, once the company assigned a new employee to Mr. S’s work, it learned additional information about Mr. S’s actions during his employment, including disclosure of confidential board information and assisting a former employee with whom he had a relationship to negotiate a salary increase, contrary to Mr. S’s obligations to the company in his senior role. The company investigated and ultimately asserted after-acquired cause for termination.

What the court decided

The court agreed with the company that Mr. S had engaged in unacceptable conduct. The court also agreed that Mr. S made a significant error in judgment by commencing work without the permits. However, the court found that he did not intentionally mislead the company about the work permits. Therefore, the court did not uphold the termination for cause and awarded reasonable notice damages.

Mr. S claimed that he should also be entitled to aggravated damages or punitive damages because he alleged that the company breached its duty of good faith and fair dealing in the manner of dismissal.

The court did not agree with Mr. S. The court held that the termination was performed in a respectful manner, and the issue of cause reasonably arose after termination when another employee took over Mr. S’s projects and reviewed his correspondence. The investigation conducted by the company was fair and reasonable.

The court confirmed that even if a for-cause termination is not upheld, that does not mean that aggravated or punitive damages will be awarded by a court. In this case, the company acted in good faith in maintaining its position on cause through the trial.

What you should take away

This case highlights the importance of fair dealing with employees in the manner of termination. Many issues can cause a court to determine that a termination does not meet the legal threshold of “cause” for termination, including the way the evidence is entered at trial. However, when the employer acts in a reasonable and fair way when investigating employee misconduct and in the manner of termination, costly awards of aggravated and/or punitive damages may be avoided.

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