Thoughts from a Management Lawyer

Should I Stay or Should I Go? The BCCA Weighs In

While easy to express, the test for determining whether a particular change in the terms of employment amounts to a constructive dismissal is practically complicated.  Furthermore, under what circumstances is an employee required to remain at work under the altered employment terms in mitigation of his or her damages arising from a constructive dismissal?

These issues were very recently considered by the British Columbia Court of Appeal in Piron v. Dominion Masonry Ltd., 2013 BCCA 184 (CanLII).  The trial judgment is found here.

The plaintiff alleged that he had been constructively dismissed when his remuneration was reduced by his employer during the course of the last two projects he was assigned to work on. Dominion argued that Mr. Piron was not constructively dismissed, resigned his employment and, in any event, failed to mitigate his damages by continuing his employment with the Dominion at the level of remuneration offered at the time he left the company.

The Trial judge held in favour of Mr. Piron.  Specifically, the court found that Mr. Piron had been constructively dismissed, that he was entitled to a common law reasonable notice period of 15 months and was awarded damages based on his base wages.   The trial judge refused to award damages in respect of unpaid bonuses in the period leading up to the constructive dismissal and during the notice period.

Dominion appealed and Mr. Piron cross-appealed.

The Court of Appeal reversed the Trial Judgment on the awarding of the bonus issue, but dismissed Dominion’s appeal.

In doing so, the Court reviewed the law of constructive dismissal and the applicable test found in the Supreme Court of Canada judgment of Farber v. Royal Trust Co. [1997] 1 S.C.R. 846:

[I]t has been established in a number of Canadian common law decisions that where an employer unilaterally makes a fundamental or substantial change to an employee’s contract of employment – a change that violates the contract’s terms – the employer is committing a fundamental breach of the contract that results in its termination and entitles the employee to consider himself or herself constructively dismissed.

The Court of Appeal distilled this as follows:

As I see the matter, a unilateral fundamental or substantial change to an employment contract is a fundamental breach which is tantamount, when viewed objectively, to the employer evincing an intention not to be bound by the contract.

The Court agreed with the Trial judge in concluding that, in the circumstances, Mr. Piron had been constructively dismissed.

On the issue of mitigation, and specifically remaining with the employer in the altered position, the Court considered the Supreme Court of Canada judgment in Evans v. Teamsters Local Union No. 31[2008] 1 S.C.R. 661:

Where the employer offers the employee a chance to mitigate damages by returning to work for him or her, the central issue is whether a reasonable person would accept such an opportunity.  In 1989, the Ontario Court of Appeal held that a reasonable person should be expected to do so  “[w]here the salary offered is the same, where the working conditions are not substantially different or the work demeaning, and where the personal relationships involved are not acrimonious” (Mifsud v. MacMillan Bathurst Inc. 1989 CanLII 260 (ON CA), (1989), 70 O.R. (2d) 701, at p. 710).  In Cox, the British Columbia Court of Appeal held that other relevant factors include the history and nature of the employment, whether or not the employee has commenced litigation, and whether the offer of re-employment was made while the employee was still working for the employer or only after he or she had already left (paras. 12-18).  In my view, the foregoing elements all underline the importance of a multi-factored and contextual analysis.  The critical element is that an employee “not [be] obliged to mitigate by working in an atmosphere of hostility, embarrassment or humiliation” (Farquhar, at p. 94), and it is that factor which must be at the forefront of the inquiry into what is reasonable.  Thus, although an objective standard must be used to evaluate whether a reasonable person in the employee’s position would have accepted the employer’s offer (Reibl v. Hughes, 1980 CanLII 23 (SCC), [1980] 2 S.C.R. 880), it is extremely important that the non-tangible elements of the situation — including work atmosphere, stigma and loss of dignity, as well as nature and conditions of employment, the tangible elements — be included in the evaluation.

Although the Court of Appeal found Dominion’s arguments “attractive”, it was bound by appeal principles and specifically, that it would only overturn a trial judgment where the judge made an extricable legal error (also expressed as a “palpable and overriding error”).

On that point, the Court of Appeal relied upon the following:

1. The judge found Dominion to be unresponsive to Mr. Piron’s concerns.
2. He found it more instructive to consider the company’s actions at the time of the constructive dismissal than after the matter had been put in the hands of counsel.
3. His conclusion that the constructive dismissal involved a loss of status within the company by returning Mr. Piron to a position he had occupied many years earlier shortly after he joined the company.
4. The trial judge commented adversely on some aspects of the evidence given by the Company's witnesses.

The Court of Appeal refused to interfere with the trial judgment.

In terms of the bonus, the Court of Appeal found that the trial judge erred in failing to award unpaid bonuses prior to the constructive dismissal and through the 15 month notice period.  The Court awarded $20,000 in respect of unpaid bonuses and increase the damages for the notice period by $12,500.

 

Wilful misconduct, disobedience or wilful neglect of duty under the ESA

The Employment Standards Act, 2000 provides that an employee who is terminated for wilful misconduct, disobedience or wilful neglect of duty is not entitled to be paid statutory termination pay and, if applicable, severance pay.

The Ontario Labour Relations Board in Hallmark Housekeeping Services Inc. 2013 CanLII 14638 (ON LRB) decided on March 18, 2013 considers what an employer must establish to prove that the employee engaged in conduct that met the statutory test.

In this case an Employment Standards Officer issued an Order to Pay in the amount of $1,166.88 against the employer.  The employer applied to review this decision.  The employer attended at the hearing and the former employer did not and the hearing proceeded in his absence.

The Board reviewed a number of disciplinary notices issued to the employee for a number of performance related issues arising, in part, out of customer complaints.  Ultimately, in the course of a meeting to confront the employee about a variety of inconsistencies in the tracking and reporting documents, the employee “became hostile, confrontational and told King and Melo that they were violating several labour laws.”  His employment was terminated on March 19, 2010.  

The employer argued that the employee had been terminated for wilful misconduct, disobedience or wilful neglect and therefore was not entitled to receive termination pay under the ESA.  According to the Board:

To deny an employee termination pay the employer must establish on the balance of probabilities that the employee engaged in behaviour that constitutes wilful misconduct, disobedience or wilful neglect of duty that was not trivial and not condoned by the employer.

In VME Equipment of Canada Ltd. (Re), [1992] O.E.S.A.D. No. 230, the Referee stated:

[…] There are two general categories of serious misconduct.  There will be single acts: insubordination, theft and dishonesty, and physical violence against other employees, for instance, which may, standing on their own, meet that standard of seriousness.  As well, there will be less serious repetitive forms of misconduct, which if handled properly by the employer, will also meet this standard of seriousness.  The employer, in this scenario, must have explained to the employee after each occurrence that the conduct in question was not acceptable and that if continued would result in termination and there must be, subsequent to these warnings, a culminating incident.

In addition to proving that the misconduct is serious, the employer must demonstrate, and this is the aspect of the standard which distinguishes it from 'just cause', that the conduct complained of is 'wilful'. Careless, thoughtless, heedless, or inadvertent conduct, no matter how serious, does not meet the standard. Rather, the employer must show that the misconduct was intentional or deliberate.  The employer must show that the employee purposefully engaged in conduct that he or she knew to be serious misconduct.  It is, to put it colloquially, being bad on purpose.

The Board found that, given the un-contradicted evidence occasioned by the employees’ failure to attend at the hearing, it had to accept the employer’s evidence.  Based on that evidence, the Board concluded that the employee “engaged in a pattern of wilful misconduct despite the clear warnings to cease such behaviour.”  The Board revoked the order to pay.

This case provides a recent, albeit brief, review of the wilful misconduct exception under the ESA.  You might also be interested in Just Cause... Yes ... But ... , Oosterbosch v. FAG Aerospace Inc., 2011 ONSC 1538 (CanLII) and the more extensive discussion in Wal-Mart Canada Corp. v. Gray, 2002 CanLII 31452 (ON LRB).

Constructive Dismissal Pendulum Continues to Move the Way of the Employer

Constructive dismissal cases remain “high risk” for employees as the most recent case on the issue, Meyers v. Chevron Canada Limited, 2013 BCSC 420 (CanLII), demonstrates.

The employee (plaintiff) must establish, as a threshold matter, that he or she was constructively dismissed.  The leading case on constructive dismissal is Farber v. Royal Trust Co. [1997] 1 S.C.R. 846 where the Supreme Court of Canada observed:

Where an employer decides unilaterally to make substantial changes to the essential terms of an employee’s contract of employment and the employee does not agree to the changes and leaves his or her job, the employee has not resigned, but has been dismissed. Since the employer has not formally dismissed the employee, this is referred to as constructive dismissal”. By unilaterally seeking to make substantial changes to the essential terms of the employment contract, the employer is ceasing to meet its obligations and is therefore terminating the contract. The employee can then treat the contract as resiliated for breach and can leave. In such circumstances, the employee is entitled to compensation in lieu of notice and, where appropriate, damages.

To reach the conclusion that an employee has been constructively dismissed, the court must therefore determine whether the changes imposed by the employer substantially altered the essential terms of the employee’s contract of employment.

 The British Columbia Supreme Court elaborated on the factors to be considered:

In a claim for constructive dismissal, the court must determine whether the employer’s direction to the employee amounts to repudiation of the contract of employment: Longman v. Federal Business Development Bank, [1982] B.C.J. No. 1521 at 131 (S.C.). The terms of the employment contract and the nature of the breach must be considered in order to determine whether there has been a fundamental breach of the contract of employment: Hart v. Bogardus Wilson (1984) Ltd. 1987 CanLII 2785 (BC CA), (1987), 13 B.C.L.R. (2d) 269 (C.A.). In order to establish that he has been constructively dismissed, the employee has the onus of establishing that the changes proposed were a breach of the contract of employment and not permitted by the contract: Evans v. Listel Canada Ltd., 2007 BCSC 199 (CanLII), 2007 BCSC 199 at para. 63.

Whether a breach of a term, either implied or express, constitutes repudiation depends on the nature and seriousness of the breach, the intention of the parties and the surrounding circumstances: Longman at p. 131; Robertson v. West Fraser Timber Co., 2009 BCSC 602 (CanLII), 2009 BCSC 602. The test for determining whether the breach is a fundamental breach that goes to the root of the contract is an objective one: Cayen v. Woodwards Stores Ltd. 1993 CanLII 1416 (BC CA), (1993), 75 B.C.L.R. (2d) 110 at para. 23.

Finally, the Court summarize the law:

It is clear from the case law that each case turns on its own facts. In every case it must be determined whether there has been a breach of a term of the employment, either implied or express, and, if there has been a breach whether it constitutes repudiation. Whether the breach constitutes repudiation depends on the nature and seriousness of the breach, the intention of the parties and the surrounding circumstances.

In the Meyers case, the judge commented that there was no written contract and that over the course of his employment, the employee “had several job changes, some of which were considered promotions and some which were considered lateral moves” all of which he appears to have agreed to.  

In the context of a restructuring of the operations, the employee was offered a position of Business Analyst.  He had previously held the position with a title of Applications Development Team Lead in the company’s information technology department, which was eliminated.  He viewed the Business Analyst position as a demotion and a constructive dismissal.  He resigned and sued the employer.   In support of his claim, he “points to the facts that he would no longer have any employees directly reporting to him, or employees who he would be responsible for in terms of their performance reviews.”  

The Court disagreed stating:

I am not satisfied that there should be a term implied into Mr. Meyers' employment contract preventing Chevron from varying the subject matter of Mr. Meyers’ management responsibilities. In my view, the evidence does not support the view that the parties contemplated that Mr. Meyers’ role was so rigidly defined. As noted above, Mr. Meyers’ supervisory role had diminished over time. An employer requires some latitude to structure the affairs of its operation, and such an inflexible term would shift the balance too far in favour of the employee.

Even if this were a term of Mr. Meyers’ contract of employment, I am of the view that the breaches he complains do not go to the root of the contract. The cases before me suggest courts will find a fundamental breach where the employer has made a dramatic qualitative change in a position held by the employee for a significant period of time.

In fact, the Court stated that the Business Analyst position “was not a dramatic qualitative change in his duties.”  The Court considered what work would have been performed had the employee accepted the Business Analyst position (i.e. had he accepted the “position he would have significant leadership responsibilities as a project manager, as well as be responsible for the projects budgets.”.) 

Furthermore, the fact that he would have lost some stature and was moved from an office to a cubicle, the Court found that this might have been subjectively humiliating and degrading, it could not be said to be objectively so.  

The court dismissed the claim, and held that the plaintiff had failed to prove that he had been constructively dismissed.  

Take Aways

This is a tough result for the plaintiff.  He resigned his employment and sued for damages arising out of what he viewed as a constructive dismissal.  In the end, the case was dismissed, and the defendant was entitled to its costs at Scale “B”.  

This case, and many others, highlight that in the absence of an express or implied contractual term, job duties will not be rigidly defined such that an employer is precluded from making changes (provided, of course, that these do not trigger the Farber constructive dismissal principles).  Furthermore, humiliating and degrading conduct must be looked at under an objective lens.

Change can certainly be uncomfortable and stressful for most people - but that will not open the employer up to a constructive dismissal claim, nor will it justify the employee quitting and claiming damages.  The pendulum in the constructive dismissal case law continues to swing in the direction of the employer.

Limiting and Controlling Picketing During a Lawful Strike

The Ontario Superior Court in Sobeys Inc. v. United Food and Commercial Workers Canada, Local 175[2013] O.J. No. 803 provided written reasons in a motion for an interlocutory injunction to restrain picketing activities arising out of a lawful strike.

The United Food and Commercial Workers Canada, Local 175 (the “Union”) represents certain employees working at the Sobey’s warehouse in Milton.  Sobey’s also operates retail grocery stores, a corporate office and warehouses in Whitby, where the employees are represented by the CAW, and Vaughan, which is a non-union facility.

The Court briefly summarized the background facts as follows:

With one relatively minor exception, the picketing has been peaceful, in the sense that there has been no violence. However, the effect of the picketing has been to block entry to and exit from the premises. The blockade has been effective, and has resulted in delays from 90 minutes to up to 8 hours in some cases. In essence, those warehouses became almost non-operational.

Many of the goods sold by the plaintiff are perishable, and significant delays for any lengthy period can be quite serious.

The employer had discussions with the police, both before and after the picketing started ”for assistance in getting people into and out of the plaintiff’s property”.  The Court then, correctly, noted that “as is often the case, the police declined to provide any assistance, and took the position that as long as the picketing was peaceful the police would not interfere.”

In terms of evidence, both the plaintiff (employer) and defendant (Union) filed affidavit material which the Court summarized as follows:

In affidavit material filed by the defendants, it was asserted that the bargaining position of the plaintiff was unconscionable, and amounted to bad faith. It was asserted that a bad faith bargaining complaint would be filed at the Ontario Labour Relations Board. In the affidavit material, it was asserted that the picketing has been lawful and peaceful. Picketing has been orderly, respectful and polite. There has been no damage to property. All picketing activity has occurred on public property.

The defendants’ affidavit material asserted that the picketers are communicating matters arising from the collective bargaining process and, from the union’s perspective, Sobeys’ unfair treatment of its employees. Picketers are communicating the issues to individuals gaining access to and egress from the Milton and Whitby warehouses. It is asserted that picketers communicate their concerns about their working conditions to drivers who are willing to listen.

The employer, at the hearing of the motion, requested an order prohibiting any delay in accessing its premises, with a number of significant exceptions:

The plaintiff was willing to accept delays in entry to and exit from its Milton warehouse, where the strike was ongoing, and at its Whitby and Vaughan warehouses, even though no legal strike was occurring there. Delays were proposed ranging from 15 minutes to one minute (subject to overall maximum delays for vehicles in a line-up) depending on the location, purpose, and time of entry and exit, and no delays for emergency vehicles, fuel trucks and security personnel.

 The Court summarized in a succinct way, some of the legal principles applicable when dealing with picketing:

1. Peaceful picketing is a form of expression, and is constitutionally protected;
2. In the context of a lawful strike, picketing has a considerably broader objective than expression;
3. A strike is not a “tea party”, it is “the culmination of a failed negotiation. After a failed negotiation, emotions are often high. What ensues is an economic struggle.  At the outset, each side believes it has to win the strike.  From the employer’s perspective, it needs to carry on business and demonstrate that the strike is ineffective. From the union’s perspective, it must try to cause as much disruption to the employer’s business as possible. Each side hopes to eventually force concessions that will result in a more favourable agreement.”
4. The employer is perfectly entitled to continue to operate its business during a strike, and to hire replacement workers if it sees fit;
5. If the employer exercises its right to carry on business, and hires replacement workers in order to do so, the union will do what it can to impede this;
6. “A picket line that is merely expressive, without more, will do little to cause disruption to the employer’s business. It is not surprising, therefore, that picketers were attempting to delay people who wished to cross the picket line”;
7. “Peaceful picketing can accomplish the objective of causing delay just as effectively as violent picketing.  All that is required is that people stand in front of vehicles seeking entry or exit.  This is just as effective as putting up a fence.”

The Court made the following observation with respect to delay:

At one time, some courts were unwilling to tolerate any delay. For example, in Canada (Attorney General) v. Gillehan, [1991] O.J. No. 2617 (Gen. Div.), Montgomery J. stated:

It is clear that the purpose and scope of peaceful picketing is limited to an attempt to communicate by persuasion to members of the public. It does not allow any vehicle to be stopped for a moment. It does not allow the interference with any person being stopped or held up.

This perspective still prevails in some quarters: see Telus Communications Inc. v. Telecommunications Workers Union (2005), 48 B.C.L.R. (4th) 161 (B.C.S.C.).

Some courts, on the other hand, were unwilling to grant injunctive relief even in the case of delays of up to one hour, accompanied by violence, threats and intimidation, on the ground that the employer was unable to show financial loss: see Trailmobile Canada Ltd. v. Merrill, [1983] O.J. No. 1123 (H.C.J.).

In my view, both approaches are no longer sustainable.

Some inconvenience is permissible and must be tolerated by the employer.  Mr. Justice Goudge of the Ontario Court of Appeal held in Industrial Hardwood Products (1996) Ltd. v. Industrial Wood and Allied Workers of Canada, Local 2693 et al (2001), 52 O.R. (3d) 694 (C.A.), Goudge J.A. stated, at para. 21:

Absent questions of property damage or personal injury, a robust society can accommodate some inconvenience as a corollary of the right to picket in a labour dispute before the court will conclude that police assistance has failed, and that it has jurisdiction to intervene with injunctive relief.

 Injunctive Relief – The Test

The test for obtaining an interlocutory injunction was reviewed in RJR-MacDonald Inc. v. Canada (Attorney General).  The plaintiff must establish the following:

(a) there is a serious issue to be tried;

(b) the plaintiff will suffer irreparable harm if the injunction is not granted;

(c) the balance of convenience favours the plaintiff.

According to the Court in Sobey’s, where the plaintiff is seeking an injunction in the context of a lawful strike where picketing is at issue, “there are three factors that serve as refinements to these tests”:

1.  since, as a practical matter, the interlocutory motion will finally resolve the matter, the plaintiff must show that it has a strong prima facie case, instead of a serious question to be tried;
2. because the issue involves access to property, the plaintiff will more easily be able to demonstrate irreparable harm;
3. the plaintiff must comply with s. 102(3) of the Courts of Justice Act, and must demonstrate that reasonable efforts to obtain police assistance, protection and action to prevent or remove any alleged danger of damage to property, injury to persons, obstruction of or interference with lawful entry or exit from the premises in question or breach of the peace have been unsuccessful.

The Court observed that it would be quite easy for an employer to show that they made reasonable efforts to obtain police assistance and that these efforts have been unsuccessful since “the police now regard themselves as being neutral.”

In terms of irreparable harm, the court noted that this refers to the “nature” of the harm rather than its “magnitude” and that “the harm suffered is a deprivation of access to property” caused by the picketing.

When access to property is in issue, a tort (nuisance) occurs, and injunctive relief is the normal remedy. Accordingly, where access to property is deprived, irreparable harm should generally be easy to demonstrate.

That said, and this is key in the case, some inconvenience and delay is acceptable in the context of an economic struggle:

However, in the context of a lawful strike, it is not enough to say that the employer has the right to access its property and thus must be granted an injunction to prohibit any delay in accessing the property. To take that approach, as some courts have done, would inadequately take account of the dynamics of a strike.

I reviewed those dynamics earlier. What is on foot is an economic struggle. To permit the employer unfettered access to its property, without any delay, would swing the pendulum too far in one direction. However, to permit delays that are extreme would swing the pendulum too far in the other direction. In my view, while the employer must be permitted access to its property, and to carry on business if it can, it is not entitled to conduct its business with no inconvenience. As noted by Goudge J.A. in Industrial Hardwood, supra,”A robust society can accommodate some inconvenience as a corollary of the right to picket in a labour dispute”. In my view, that reflects the appropriate balance.

An injunction is a discretionary remedy and the Court “must be sensitive to the interests of both parties in formulating an appropriate remedial order”:

In the context of a strike, this simply means that the employer who seeks access to its property may be required, as a condition of securing the assistance of a court of equity, to live with a certain amount of inconvenience.

There will be cases where the nature of the employer’s business, the sheer volume of traffic, or safety considerations will not accommodate any delay.  A case dealing with traffic is Ogden Entertainment Services v. United Steelworkers of America, Local 440, 1998 CanLII 14755 (ON SC). Further, the Court commented, albeit on a matter that was not before it, that “there would be less toleration of delay in the case of pure secondary picketing, that is, in a case where the picketed employer has no relationship with the striking trade union, and little relationship with the struck employer”.

The Court, in this case, granted the injunction but did so in a manner that it saw as striking a balance between the interest of the employer in accessing its property and the right of the union conveying its message and causing some inconvenience to the employers’ operation.  It appears that:

The plaintiff requested an order prohibiting any delay in accessing its premises, with a number of significant exceptions. The plaintiff was willing to accept delays in entry to and exit from its Milton warehouse, where the strike was ongoing, and at its Whitby and Vaughan warehouses, even though no legal strike was occurring there. Delays were proposed ranging from 15 minutes to one minute (subject to overall maximum delays for vehicles in a line-up) depending on the location, purpose, and time of entry and exit, and no delays for emergency vehicles, fuel trucks and security personnel.

 The Court also observed that negotiated picketing protocols are to be encouraged.

 Conclusion

The Court in this most recent picketing case considered earlier cases dealing with delay in accessing or exiting from employer premises as a result of a lawful picket line and found them to be inapplicable in many respects.  Specifically, the Court held that some delay was acceptable in most cases, and that this was part of the dynamic associated with economic conflict resulting from a failed negotiation.  The Court adopted an approach that attempted to strike a balance between the interests of the employer and those of the Union and employees.

 

$100,000 in Punitive Damages Awarded

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.

* * *

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:

1. 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.
2. 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.
3. Proportionate to the harm or potential harm directed specifically at the plaintiff.
4. 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.
5. 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.
6. Proportionate to the advantage wrongfully gained by a defendant from the misconduct.

 The Court in Kelly awarded $100,000 in punitive damages. 

Conclusion

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.

Terminate Before or After the Holidays?

Should you terminate before or after the holidays?  Check out our firm blog to read more.

Should I Stay or Should I Go?

Just wrote a post at my firm's blog called "Should I Stay or Should I Go?" about the difficult decision employees face when experiencing changes in the terms of their employment and whether to quit and sue for constructive dismissal or stay in mitigation of their alleged damages and sue for the difference between their pre-change and post-change terms through the notice period.  Have a read.

Forum Selection Clauses in Contracts

When drafting an employment agreement it is important to include a forum selection clause where the parties agree to the appropriate jurisdiction for hearing any dispute between them.  These provisions, while not critical in every case, can prove tremendously valuable where it is not clear which of two jurisdictions is appropriate for hearing the dispute.

The Supreme Court of Canada in the recent case of Momentous.ca Corp. v. Canadian American Association of Professional Baseball Ltd.considered the issue in a non-employment context.  Shortly after filing a statement of defence, the respondent moved to dismiss the claim on the ground that "Ontario Courts had no jurisdiction because the appellants had  signed agreements providing that disputes would be arbitrated or litigated in North Carolina".

The Court held that  the Ontario Rules of Civil Procedure provide two rules under which a party may challenge whether an Ontario court can or should hear an action:

Rule 17.06 permits a party who has been served with an originating process outside Ontario to move for an order setting aside the service or staying the proceeding on the grounds that service is not authorized by the Rules or that Ontario is not a convenient forum for the hearing of the proceeding.  This rule requires that the motion be brought before the party delivers a defence, notice of intent to defend or notice of appearance.

* * *

Rule 21.01(3)(a) permits a defendant to seek a stay or dismissal of the action on the basis that the court has “no jurisdiction over the subject matter of the action”.  Thus, when another forum ― an arbitration panel, a tribunal or another court ― has the exclusive jurisdiction to deal with the claim, the Ontario Superior Court of Justice will not take jurisdiction, based upon agreement or statute.

An issue arose in this case about whether a moving party could bring a motion under Rule 21.01(3)(a) where it had delivered a statement of defence (the argument being that you attorn to the jurisdiction once you file the statement of defence).  The Court disposed of this by noting:

. . . there is nothing in Rule 21.01(3)(a) that requires it to be brought before delivery of a statement of defence.  Within the framework provided by the Ontario Rules of Civil Procedure, a statement of defence that specifically pleads a foreign forum selection clause does not amount to consent that Ontario assume jurisdiction so as to preclude consideration on the merits of whether to enforce the clause.

The Court then summarized its earlier decision in In Z.I. Pompey Industrie v. ECU-Line N.V by noting "in the absence of specific legislation, the proper test in determining whether to enforce a forum selection clause is  discretionary  in nature.  It provides that unless there is a “strong cause” as to why a domestic court should exercise jurisdiction, order and fairness are better achieved when parties are held to their bargains."

In this case, other than the delivery of a statement of defence, there was no “strong cause” argued for Ontario to displace the forum that the parties agreed should resolve their disputes (North Carolina).  As such, the Court concluded that Ontario Courts had no jurisdiction to decide the case.

From an employment law perspective, including an appropriate forum clause goes a long way in resolving issues about jurisdiction.  Further, care should be taken about the timing of the motion to have the issue determined and whether this should be done before or after the delivery of the defence and, if after, what should be plead in the defence about the contractual foreign forum selection clause.

The Court of Appeal judgment is also worth reading.

 

Characterization of Settlement Monies - Get it Right

In a decision that will likely fly under the radar, the Federal Court of Appeal in Canada (Attorney General) v. Warren, 2012 FCA 74 (CanLII) considered the “treatment” of monies paid to an employee in settlement of a grievance.

This was an application for judicial review of the decision of an Umpire under the Employment Insurance Act upholding the decision of a Board of Referees which concluded that the sum of $12,000, received by Ms. Warren, constituted “compensation for relinquishment of a right to reinstatement”.  The Court allowed the application for judicial review.

Following an incident in the workplace, Warren applied for benefits under the insurance plan and was denied by the employer.  Ms. Warren then applied for and received medical employment insurance benefits from October 25, 2009 until March 6, 2010 and then regular employment insurance benefits.  Ms. Warren’s union filed a grievance following the employer’s denial of the grievance and the grievance was fully and finally settled as follows:

Pursuant to the agreement, the employer was required to pay to the respondent the all-inclusive sum of $12,000, less any statutory deductions, and to provide a neutral letter of reference. The respondent was required to resign her employment, return her employer’s property, withdraw her grievance and release her employer from any liability with respect to any claims that may arise regarding the employment or the cessation of the employment. The respondent subsequently executed a release (containing the customary non-admission of liability clause) on February 2, 2010.

When Ms. Warren notified the Employment Insurance Commission of the settlement, and specifically that she had received $9,600 (net of taxes) from her employer, the Commission deducted the $12,000 (gross) from the benefits she had received and concluded that there was an overpayment to Ms. Warren of $1,536 which had to be remitted.

Unless the payment could be characterized as compensation for relinquishment of the right to reinstatement, it was properly allocated under the provisions of the Employment Insurance Act  and theEmployment Insurance Regulations.  The leading case is Canada v. Plasse and Meechan v. Canada (Attorney General) which the Court

The legal principle to be taken from these authorities was succinctly stated in the decision of this Court in Attorney General of Canada v. Cantin, 2008 FCA 192 (CanLII), 2008 FCA 192 (Cantin). There, the Court stated that, in federal law, the right to reinstatement is an employee’s right to resume his or her position following a wrongful dismissal.  In such circumstances, compensation to relinquish the right to reinstatement following a wrongful dismissal does not constitute earnings within the meaning of the Act and the Regulations (Cantin, para. 33). However, wrongful dismissal is a prerequisite to a right to reinstatement.

Ms. Warren had not been terminated and, as such, the payment received by Ms. Warren did not constitute compensation for relinquishment of a right to be reinstated.

How money is characterized for tax and employment insurance purposes is an important consideration in many settlements.  But simply calling something “compensation to relinquish the right to reinstatement” doesn’t make it so.  Understanding how these words have been interpreted is critical to ensuring that the settlement achieves the desired ends (closure and finality) while withstanding scrutiny and challenge.

 

After Acquired Just Cause - Timing is Important

Employers will sometimes discover things after an employee is terminated that gives them cause for concern.  Whether this post-termination misconduct amounts to “just cause” is a complex issue.  The issue was recently considered in Gillespie v. 1200333 Alberta Ltd. (which was an appeal of this judgment) where the employee was terminated, without cause, and removed certain documents that “identified PCN patients by name and contained their address, Alberta Health Care number, and other identification numbers. This was confidential information that the Appellant was not entitled to remove from the clinic, including after termination of her employment, pursuant to Non‑disclosure Agreements signed by the Appellant on February 1, 2007 and April 25, 2007”.

At the time of the termination, the employer was not aware of the removal of this information.  In fact, the employer only discovered the removal of this information “several months later”.  The question was whether this post‑dismissal discovery was cause for dismissal.

The Trial Judge found that the “post‑termination conduct was sufficient to ground termination for cause”.

The Court discussed the circumstances in which post-discharge evidence can be relied upon:

The case law with regard to the admissibility of subsequent event evidence indicates that there are two circumstances in which evidence of post‑termination conduct can be relied upon to establish grounds for dismissal: first, when the post‑termination conduct sheds light on the reasonableness of the dismissal for cause at the time it was implemented (Cie minière Québec Cartier v. Quebec,1995 CanLII 113 (SCC), [1995] 2 S.C.R. 1095 at para. 13); and second, when the post‑termination conduct reveals an undesirable aspect of the employee’s character, such as deceitfulness, that would itself justify his or her dismissal (Lake Ontario Portland Cement Co. Ltd. v. Groner, 1961 CanLII 1 (SCC), [1961] S.C.R. 553 at 564). This second category of cases in which post‑termination conduct can be relied on is perhaps not without controversy: see the discussion in Saskatchewan Assn. of Health Organizations v. C.U.P.E., Local 3967, 203 L.A.C. (4th) 1 (Sask. Arb. Bd.). However, for purposes of this appeal, I will assume that post‑termination conduct can be relied upon in both of these circumstances.

The Court made the following observations:

1. The case law that deals with post‑termination conduct makes it clear that the relevant dividing line in examining conduct is the time of termination of the employment contract (whether immediate or at the conclusion of a period of working notice)
2. Misconduct before termination and misconduct after termination are subject to different analyses in terms of relevance to the issue of grounds for dismissal.
3. No contracting party is entitled to fundamentally repudiate obligations under a contract, as the employer has certainly done in terminating employment, and to afterwards require the other contracting party to continue to comply with his or her contractual obligations.
4. There are other ways to enforce the Non‑disclosure Agreements, that do not involve the illogic and unfairness of permitting an employer to retroactively justify its repudiation of an employment contract by an employee’s post‑repudiation breach.

The Court overturned the Trial judgment finding that post-termination conduct was sufficient to ground just cause in this case.  Specifically, as noted above, the “timing” of the conduct (e.g. after the employee had been terminated) is what seems to have caused the appeal court concern.