Canadian Employment Law Today

Canadian HR Reporter, 2021 4 Moral and punitive damages against employers who lack empathy or show maliciousness may be becoming more common Taking the termination high road EMPLOYMENT CONTRACTS are a curious subspecies of contract law. As a commercial contract, the common law affords employers complete discretion to terminate relation - ships, provided reasonable notice is given. The reality, though, is that the employment relationship is characterized by a significant imbalance of power in favour of employ - ers. Legislation attempts to correct that im- balance, particularly through employment standards and human rights laws, but gaps remain. In any relationship characterized by an imbalance of power, abuse can result. In the employment context, the common law affords judges the ability to compensate employees with "moral damages" for men - tal distress caused by unfair or bad-faith employer conduct in the manner of dis- missal. Punitive damages may also be lev- elled against an employer to send a message of condemnation and deterrence to other employers, provided that the employer has engaged in misconduct that is considered "independently actionable" from the failure to provide reasonable notice. The distinction between moral and puni - tive damages lies in the purpose. Moral dam- ages are intended to compensate for hurt feelings and punitive damages are intended to punish the employer. Conduct that may be characterized simply as unfair may attract moral damages, provided there is evidence of mental distress, while punitive damages are reserved for more egregious legal breach - es. Some may argue, with good reason, that there isn't much of a distinction at all. Hostility Employees are particularly vulnerable at the time of termination, and often in the circum- stances that lead to it. Two recent decisions out of British Columbia highlight the con- sequences of hostile behaviour at the time of termination. Acumen Law Corporation v. Ojanen is a B.C. decision that highlights the consequences of hostile behaviour at the time of termina - tion. The employer precipitously concluded that it had just cause for termination, sued the employee, and served her with the lawsuit in front of her colleagues. The employee, an articling student, was particularly vulnerable to the employer's serious allegations of mis - conduct, none of which could be proven. She was ultimately awarded $100,000 in general damages as a result of the bad faith and an additional $25,000 in punitive damages. Fobert v. Medical Cannabis Resource Centre Inc. involved a young, short-service employ - ee who made only $17.50 an hour. At the termination meeting, the employer's repre- sentative was hostile and made unsubstan- tiated allegations of financial mismanage- ment and offered the employee "500 bucks" as severance. That insensitivity resulted in an award of aggravated damages of $25,000 and punitive damages of $35,000 — a high- ly notable result considering her reasonable notice entitlement was only eight weeks' wages. Failing to pay statutory minimums Increasingly, judges appear willing to pun - ish employers for delaying statutory entitle- ments to termination and severance pay. Chen v. MagIndustries Corp. is a recent ex- ample out of Ontario. The employee was the president and CEO of the defendant company. On termination, he was offered severance that exceeded his statutory en- titlements. However, payment of the sev- erance, including statutory amounts, was completely contingent on his execution of a release. As the employee declined the severance offer, his statutory entitlements were not paid. The court characterized that decision as "independently actionable" and "reprehensible," awarding $20,000 in puni - tive damages. Judicial condemnation of an employer's failure to pay termination and/or sever- ance pay on time is understandable given the obligations are minimum statutory en- titlements. It is, however, surprising to some that violations of minimum employment standards laws would be considered "in- dependently actionable." In particular, the legislation doesn't permit moral or punitive damages and wrongful dismissal damages entirely subsume termination and severance pay. Like human rights legislation, employ - ment standards laws represent a complete code, which arguably excludes moral or pu- nitive damages. Litigation conduct Courts are increasingly taking a dim view of aggressive litigation conduct, which can in- clude an employer taking a position of just cause without any reasonable basis and then abandoning that position at some point pri- or to trial. In 2019, the Ontario Court of Appeal af- firmed the trial decision in Ruston v. Keddco MFG. (2011) Ltd., which awarded $25,000 in moral damages and $100,000 in puni- tive damages for litigation conduct that in- cluded an unsuccessful and purely strategic counterclaim asserting fraud against the em- ployee, for $1,700,000. In Humphrey v. Mené, the court was un- impressed with the employer's behaviour during the employment relationship, which it characterized as toxic and abusive. It exag- gerated performance issues and took a base- less position of just cause for termination, maintaining it for a year after the litigation was commenced. As a result of that allega- tion, it also delayed statutory entitlements to termination and severance pay. The court awarded $50,000 to compensate for mental distress and $25,000 in punitive damages. Lack of transparency The frequency with which mental distress and punitive damages are being awarded may be worrying for employers and is lead - ing to concerns that the threshold for con- duct that qualifies for such conduct is being lowered. The recent decision in Russell v. The Brick Warehouse LP certainly suggests that. Tom Russell was employed by The Brick for over 36 years when he was terminated at 57 years old as part of a broader restruc - turing. He claimed 30 months' notice but was awarded 24. In addition, he asked for "aggravated damages" on the basis that the Brick's termination letter was deficient in a number of ways. Specifically, it did not advise that he would receive his statutory entitlement to 34 weeks' termination and CASE IN POINT: WRONGFUL DISMISSAL Bad faith and punitive damages were, at one time, an anomaly, but they appear to be arising with greater frequency. In addition, judges are not setting stringent thresholds for proving mental distress. While it may seem to some that there is little distinction between moral and punitive damages, it is more important than ever to clearly understand and avoid the kinds of conduct that will attract the ire of judges. BACKGROUND BY RISHI BANDHU Employees are particularly vulnerable at the time of termination and often in the circumstances that lead to it.

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