The Supreme Court of British Columbia in Kelly v. Norsemont Mining Inc., 2013 BCSC 147 (CanLII) considered a wrongful dismissal claim along with a claim for punitive damages arising out of the dismissal of an employee. He alleged that the dismissal was occasioned out of his insistence that the Company comply with securities regulations. The employer defended on the basis that it terminated the employee for just cause.
The facts are extensive, but, in the end, the Court concluded that, in all of the circumstances, the employer did not have just cause for terminating the employee's employment.
The employee and the employer were parties to a written contract of employment that provided that he could be terminated on 30 days notice or pay in lieu of such notice. The Court reviewed this, and the Employment Standards Act which, on the facts, provided that he receive only one week of notice. According to the Court, the contractual term exceeded the Employment Standards Act and the employee was entitled to receive $5000 plus interest representing the equivalent of 30 days pay in lieu of notice.
A number of other claims in relation, for example, to stock options, were denied.
An interesting part of the case, and the one I want to focus on, is the Court’s review of the law and facts as relates to the claim for punitive damages. In the circumstances, the Court awarded the employee $100,000 as punitive damages.
The claim for punitive damages and mental distress damages were based on the manner of his dismissal. The Court reviewed the seminal case of Honda Canada v. Keays, 2008 SCC 39 (CanLII) and held, in summary, that:
The object of punitive damages is to punish an employer in order to deter future unfair conduct. Punitive damages are not aimed at compensating the employee. These damages are exceptional and awarded only when the employer’s conduct is deserving of punishment because it is harsh, vindictive, reprehensible and malicious.
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Examples of conduct justifying punitive damages include the employer knowingly fabricating allegations of serious misconduct or incompetence against an employee to support dismissal; the employer utilizing “hardball” tactics to intimidate the employee into withdrawing or settling his or her wrongful dismissal suit; or the employer implementing the dismissal in a manner designed to disparage the employee’s capabilities or honesty in the eyes of other employees or future employers: Geoffrey England et al, Employment Law in Canada, 4th ed., (Markham, Ontario: LexisNexis Canada Inc.), ch. 16 at 138-39.
In deciding whether to award punitive damages, the Court must look at the totality of the damages awarded to determine if “punitive” damages are required or, as the Court put it:
Punitive damages should only be awarded where there is a heightened need to punish the wrongdoer because compensatory damages (including damages for mental distress) are not enough to achieve the objectives of deterrence.
The employee did not tender any medical evidence at trial in support of his claim for mental distress damages. Further, and in any event, the Court concluded that he had not suffered “mental distress markedly beyond that which he would have suffered had he been terminated on notice.” In the circumstances, the Court declined to award any damages for mental distress.
The Court found that the employer:
…. did not meet its implied obligations of good faith and fair dealing, and that compensatory damages in this case are not enough to achieve the objective of deterrence. [The employer] breached its duty of good faith and conducted itself both at the time of the termination and afterward in a manner which can appropriately be described as harsh, vindictive, reprehensible and malicious
The Court relied upon the following conduct:
- The employer refused to pay the employee his final month’s salary, telling him he would be paid only if he signed a release of all of his claims against the employer.
- The employer did not act in good faith regarding the employee’s belongings. It tried to "wrestle" his personal laptop away from him on the evening of the termination. In the weeks immediately following his termination, the employer refused to return personal items to the employee, including a signed photograph, yet demanded he return a Starbucks coffee card the company had issued to him.
- At meetings after the employee’s termination, the CEO threatened to bankrupt the employee and to put “Kelly Research and Training Technology” (“KRTT”) out of business. He told the employee that he would ensure that he did not have the funds to take his case to court.
- The employee was struggling to earn a living through KRTT after the termination and had secured a spot on a radio program about financial markets. The Court accepted his evidence that he was told him, at one of the post-termination meetings, that the employer knew the host and would make sure the employee was not asked back. In that regard, there was evidence that "the CEO’s broker took over the spot". Whether the employer acted on the "threat" did not appear material to the Court - it focussed on the fact that the "threat" was made which it saw as "indicative of a lack of good faith".
- The employer pleaded civil fraud and incompetence as grounds for dismissal, grounds which were found to be without merit. These allegations were found to have made it more difficult the employee to find work.
- The Court found that the defendant’s repeated references at trial to the employee "selling health drinks during his time at [the employer] (when there was no credible evidence to support such allegations) could “only be seen as an effort to make [the employee] appear ridiculous”.
The Court considered the last two (2) issues, which arose during the trial, and held that:
I am mindful that in Marchen v. Dams Ford Lincoln Sales Ltd., 2010 BCCA 29 (CanLII), 2010 BCCA 29 at paras. 66-69, 315 D.L.R. (4th) 728, the Court of Appeal cautioned against conflating the analysis of punitive damages and special costs. Generally, reprehensible conduct of parties leading to and during the course of litigation should be addressed by way of an award of special costs, while punitive damages flow from egregious conduct of the defendant at the time of the breach. In Marchen, the trial judge found nothing unfair or unduly insensitive about the defendant’s conduct at the time the plaintiff’s employment was terminated, but awarded punitive damages because the defendant subsequently asserted a bogus cause for dismissal (downsizing) and continued to assert it at trial, which the judge found amounted to intentionally misleading the Court. In Marchen, the Court of Appeal set aside the award of punitive damages and upheld the award of special costs.
In Kelly, the Court found that it would not award special costs but that “the conduct that occurred at the time of termination and continued throughout the legal proceedings can properly be taken into account in determining an award of punitive damages”. The Court went on and found that “the defendant engaged in conduct that was vindictive, reprehensible and malicious -- conduct that is deserving of the strongest rebuke”.
In terms of the “amount” of punitive damages to be awarded, the Court summarized the approach:
The governing rule in determining the appropriate quantum of punitive damages is proportionality. The overall award, i.e. compensatory damages plus punitive damages plus any other punishment related to the same misconduct, should be rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence and denunciation).
What is “proportionality”? The Alberta Court of Appeal considered the issue in Elgert v. Home Hardware Stores Ltd., 2011 ABCA 112 (CanLII), 2011 ABCA 112 and found that the award of punitive damages must be:
- Proportionate to the blameworthiness of the defendant's conduct -- the more reprehensible the conduct, the higher the rational limits of the potential award. Factors include outrageous conduct for a lengthy period of time without any rational justification, the defendant's awareness of the hardship it knew it was inflicting, whether the misconduct was planned and deliberate, the intent and motive of the defendant, whether the defendant concealed or attempted to cover up its misconduct, whether the defendant profited from its misconduct, and whether the interest violated by the misconduct was known to be deeply personal to the plaintiff.
- Proportionate to the degree of vulnerability of the plaintiff -- the financial or other vulnerability of the plaintiff, and the consequent abuse of power by a defendant, is highly relevant where there is a power imbalance.
- Proportionate to the harm or potential harm directed specifically at the plaintiff.
- Proportionate to the need for deterrence -- a defendant's financial power may become relevant if the defendant chooses to argue financial hardship, or it is directly relevant to the defendant's misconduct, or other circumstances where it may rationally be concluded that a lesser award against a moneyed defendant would fail to achieve deterrence.
- Proportionate, even after taking into account the other penalties, both civil and criminal, which have been or are likely to be inflicted on the defendant for the same misconduct -- compensatory damages also punish and may be all the "punishment" required.
- Proportionate to the advantage wrongfully gained by a defendant from the misconduct.
The Court in Kelly awarded $100,000 in punitive damages.
It is possible that, having regard to the modest award of compensatory damages, the issue of proportionality is what drove the court to make such a significant punitive damages award. This, of course, is not clear, and will never be known.
What the case demonstrates is that, while punitive damages, are and will remain an exceptional remedy, and will not be awarded in every case (or in most cases), they are nonetheless part of the courts remedial arsenal.