Wrongful dismissal damages explained

Two recent Ontario decisions delved into the murky waters of when punitive or aggravated damages should be awarded in cases of wrongful dismissal. In both cases the employer’s stance on whether just cause existed for the dismissal factored into the ultimate award on damages. The following will explain the differences in each case but first it is important to understand the difference between aggravated and punitive damages in the employment context.

The seminal case on punitive and aggravated damages was decided by the Supreme Court of Canada in Honda Canada Inc. v. Keays. Previous case law has defined aggravated damages as requiring a separate actionable wrong (i.e. separate from dismissal without cause) or as “moral damages” for the manner in which an employer handled the termination itself. A majority of the Supreme Court determined that aggravated damages, whether viewed as a separate actionable wrong or as damages relating to the manner of termination, should not be awarded through an extension of the notice period. Aggravated damages are compensatory in nature. Paraphrasing from the words of the Supreme Court, aggravated damages can be awarded if the manner of dismissal has caused mental distress and that was contemplated by the parties. Aggravated damages are not meant to compensate for normal distress and hurt feelings that would naturally flow from the loss of employment. Punitive damages are not meant to compensate a plaintiff for a measurable loss, although they do most often end up in the pocket of an employee. Punitive damages are meant to punish intentional acts of wrongdoing and act as a deterrent.

The first case, Walker v Hulse, Playfair and McGarry, involves an appeal of an award of aggravated damages by Deputy Judge Conway and was determined in Ontario Small Claims Court. The original claim was borne out of Mr. Walker’s dismissal from employment and included a claim for wrongful dismissal, mental distress, aggravated damages, punitive damages and intentional infliction of mental suffering. The original decision awarded $5,000 in aggravated damages and dismissed all other claims.

Mr. Walker was employed for approximately 15 months and was terminated following an investigation into alleged inappropriate comments towards a co-worker and failing to complete his job duties. The subsequent termination letter asserted cause but offered Mr. Walker two weeks’ pay pursuant to the Employment Standards Act, 2000 (ESA) and his employment contract if he signed a release. The employer ultimately abandoned the cause position, paid Mr. Walker pursuant to the contract and did not take a cause position at trial. The original award cited Honda Canada Inc. v. Keays and awarded $5,000 in aggravated damages because the termination letter threatened to take a just cause position.

On appeal the award of aggravated damages was overturned. There was no evidence to support the finding that the employer’s actions were in bad faith or unduly insensitive. Mr. Walker also presented no evidence of actual loss – which is the reason why damages for mental distress was dismissed. Case law also supports the position that a negative inference should not be drawn if an employer opts to abandon a legal position prior to or during trial. Taking a different legal position does not equate to the original position being unwarranted or baseless.

The second case, Budge v Dickie Moore Rental Inc, also took place in Ontario Small Claims Court and resulted in the Employer paying $4,000 in punitive damages. Mr. Budge was employed for nearly 6 months as a salesperson before being dismissed by his employer for cause. At trial the employer alleged fraud, dishonesty, and gross incompetence/neglect of his duties. It was alleged that Mr. Budge had falsified mileage records, had stolen money, and attempted to enter into a scheme with the employer to defraud the government through claiming Indian status.

The Court correctly referred to the leading case of Whiten v Pilot Insurance Co. to identify the principles for awarding punitive damages. Punitive damages are awarded against a defendant in exceptional cases, where they have exhibited malicious, oppressive and high-handed misconduct. Honda Canada Inc. v. Keays cited Whiten stating that “punitive damage should only be awarded in rare circumstances and are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.”

The employer in this case failed to prove any of their assertions relating to dishonesty, fraud, and theft. In fact, there was such a lack of evidence that Justice Lyon Gilbert believed the accusations were “concocted” as a response to the wrongful dismissal action. In fact, Mr. Budge moved to have his pleadings amended to include a claim for punitive damages following the first day of trial. None of the allegations had been raised at the time of termination. Justice Gilbert determined these serious allegations that disparaged Mr. Budge’s character were worthy of censure and awarded $4,000 in damages.

Cases such as these raise questions of when an employer should assert cause when terminating an employee, and whether the assertion will land an employer in hot water. Each circumstance must be analyzed individually but there are important general lessons that can be learned. It is important that employer’s act on misconduct as it happens. Court’s will not look favourably on employers that fail to investigate alleged serious misconduct, and then assert such claims without any evidentiary basis. However, as shown in the first case, there is nothing inherently wrong with employer’s abandoning a cause position in an effort to negotiate a resolution outside of the courtroom or to minimize legal costs inside the courtroom. The lawyers at CCP are well trained and experienced in guiding employers through the termination of employees and strategizing a legal course in cases of wrongful dismissal. Click here for a list of CCP team members who practice employment litigation.