‘Mean’ employer behaviour leads to $750k damages award

It may not measure up to damage awards you’ll find south of the border but

BY Emily Douglas 16 Feb. 2018

It may not measure up to damage awards you’ll find south of the border but a recent decision from the Ontario Superior Court of Justice has shown that the right set of circumstances can lead to hefty damage awards against employers. In the case of Galea v. Wal-Mart Canada Corp. the huge international retail chain was ordered to pay $250,000 in moral damages and $500,000 in punitive damages to a former employee.

Ms. Galea commenced employment with Wal-Mart in September 2002 for the position of District Manager-in-Training following a 12 month negotiation of employment terms. Ms. Galea was promoted several times in a few years and eventually she accepted the very senior position of General Merchandise Manager. A condition of that promotion was that Ms. Galea would be bound by a non-competition agreement. The agreement included a number of terms but, importantly, it prevented Ms. Galea from working for any other mass retailer within two (2) years of her employment ending, regardless of the cause. In exchange, Wal-Mart would continue to pay Ms. Galea during the effective life of the non-compete agreement.

Following the conclusion of this agreement Ms. Galea continued to rise through the ranks and was promoted to the role of Vice President, General Merchandising. In January 2010 however, Ms. Galea was unexpectedly informed that her employment in that role was ending, and the company was seeking to find a new suitable position for her in one of Wal-Mart’s international subsidiaries. From that point forward Ms. Galea’s role and potential opportunities within Wal-Mart were in constant flux. Her situation reached a tipping point in November 2010 when she was offered the role of Senior Vice President E-Commerce, or alternatively, a severance package. When Ms. Galea sought clarity she was terminated.

The Court’s decision (fairly lengthy at just over 100 pages) provides a thorough analysis of what damages Ms. Galea was owed based on the non-competition agreement, but it will predictably be referred to for its analysis regarding her claims for moral and punitive damages. It is the latter two heads of damages which are more unique to the employment law landscape.

The test for moral damages was explained by the Supreme Court as requiring reasonable foreseeability. In other words, moral damages could flow if an employer fails to act in good faith in the manner of dismissal, and that failure leads to damages which were foreseeable and compensable. Moral damages are focused on compensating an employee for injury or harm suffered because of the employer’s conduct (as opposed to punitive damages which focus on admonishment of the employer’s conduct). Justice Emery reviewed Wal-Mart’s actions pre-termination, post-termination, and during litigation. The Court found that Wal-Mart’s dragging out of her dismissal from January 2010 to November 2010 breached its implied duty to perform the contract in good faith, referring to their behaviour as “the long goodbye”. Furthermore, Wal-Mart, without reason, ceased providing Ms. Galea with her continued base salary and benefits 11.5 months following her termination. Again, under the terms of the non-compete agreement, it was required to make payments for two years. Lastly, it was determined that the employer purposely delayed the litigation through dilatory procedural tactics. Each of these actions contributed to additional mental distress for Ms. Galea and a total award of $250,000 in moral damages.

As mentioned briefly above, punitive damages may arise out of the same circumstances leading to moral damages, but the purpose of punitive damages is to admonish offensive behaviour that is “malicious, high-handed, and oppressive” and to deter similar behaviour. With this in mind the court awarded in additional $500,000 to Ms. Galea for Wal-Mart’s conduct between January 2010 and her termination in November 2010. It was found that Wal-Mart throughout this period made representations to Ms. Galea about her career prospects but made decisions that specifically defeated those prospects. In its own words, the Court found that “That corporate behaviour was not just unduly insensitive, it was mean.”

The high damage awards, particularly the punitive damage award, must be viewed in light of the defendant’s identity. Courts have consistently recognized that deterrence cannot be achieved if the amount to be paid is treated like a minor fine. Wal-Mart will always be required to pay far more than your local small business. With this in mind, most Ontario employers can be fairly confident they won’t be forced to pay $500,000 punitive damage awards, but blameworthy and “mean” conduct during a dismissal may lead to significant award.

If you’re faced with the decision to terminate an employee the expert team at CCP can provide guidance and ensure the process is handled in good faith.