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Punitive damages: Court of Appeal of Quebec reduces damages payable by an employer following a constructive dismissal

On July 7, 2014, the majority of the Court of Appeal allowed an appeal from a judgment of the Superior Court that had ordered the employer to pay an amount of $1,086,767 due to a constructive dismissal, to reduce the amount of the damages awarded to $709,488.

The facts

In analyzing the evidence, the Superior Court concluded that the employee, a senior manager, had been constructively dismissed when he was demoted, without cause and concomitantly with his return from sick leave.

Establishing that the employee was entitled to a notice period of 24 months, the Superior Court ordered the employer to pay $786,767 as compensation, including $35,000 as non-pecuniary damages, given the actions of the employer during dismissal. Moreover, the Court concluded that a sum of $300,000 was owed to the employee as punitive damages, due to the intentional interference with his dignity, who refused to offer him an alternative position because of his illness.

The Court of Appeal

Firstly, the Court of Appeal confirms that the notice period of 24 months was reasonable under the circumstances, given the seniority of the employee (12 years), his responsibilities, his age and the inability to find comparable conditions elsewhere.

As for the claim for amounts due under a bonus plan, the court reduces the amount initially awarded, given the fact that the employee would not have acquired a right to claim these amounts, even at the end of the granted notice period.

As for the exercise of vested options, the Court confirms the conclusion of the inferior court to the effect that the employee suffered no damages, except for a loss of opportunity, which is not compensable under Quebec law. With respect to the options to be vested during the notice period, the Court concludes that no compensation is due, as it was an incentive benefit that was dependent on the unilateral will of the employer to encourage or not his employees to remain at his service.

Regarding moral damages, the majority of the Court confirms that the employee had suffered harassment, denigration and humiliation in the months preceding his dismissal and subsequently, giving rise to an additional compensation for moral damages in the order of $35,000, as ordered by the Superior Court.

Finally, with regard to punitive damages, the majority of the Court stresses that the actions of the employer were based on the employee’s illness, which constitutes unlawful and intentional discrimination, prohibited by the Charter of Human Rights and Freedoms. However, the Court decides to considerably reduce the amount awarded by the Superior Court, stating it was clearly exaggerated. The Court stresses that despite the high financial capacity of the employer, a condemnation of $25,000 equally achieves the goal of prevention, while maintaining a proportional connection between the severity of the violation and the amount of compensation. Finally, the Court reiterates that in the context of labor relations, an order to pay punitive damages constitutes in itself a deterrent effect.

Kseniya Veretelnik
Stikeman Elliott LLP
A leading Canadian business law firm, Stikeman Elliott LLP has 500 lawyers in five offices across Canada as well as in New York, London and Sydney.

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