The Ontario Superior Court of Justice recently awarded an employee $50,000 in punitive damages in a wrongful dismissal claim because it was “rationally required” to punish the employer for its behaviour toward the employee and to meet “the objectives of retribution, deterrence, and denunciation”.
Just cause or wrongful dismissal?
The employee, Mr. Morison, worked for the employer as a regional manager.
In 2004, the employee was hired (alleged by the employer) as an independent contractor, and in 2006, he became recognized as an employee.
Per the employee, he was a top salesperson, unaware of any issue relating to his employment until October 2012.
On October 22, 2012, the employee was informed that his employment was terminated. He was offered five months’ notice, including one month of working notice, and given a dismissal letter informing him that the employer had just cause to terminate him.
The employee claimed that the employer did not act fairly and that there was no basis to allege just cause. Per the employee, the allegations of cause were made in bad faith to facilitate a more favourable settlement.
The employer disputed the bad faith allegations, arguing that it had a bona fide belief of cause relating to an alleged mismanaged account, failing to properly market a line of products, and difficulties with the employee cooperating with a superior.
Three key issues in this wrongful dismissal analysis
The following issues were raised in the case:
I. Was Mr. Morison at all times an ’employee’?
The Court found that Mr. Morison, at all times of his employment, was an employee and not an independent contractor.
The Court reaffirmed the type of enquiry needed to assess whether a person is considered an employee or a contractor (independent or dependent):
 In determining the status of a work relationship…one looks at the total relationship of the parties, assessing whether the worker was engaged to perform the services as a person in business on his own account. The employer’s level of control over the worker is a factor, as are the degree of financial risk taken by the worker and the worker’s opportunity for profit.
In considering all the evidence presented, it was clear to the Court that the employee’s activities were part of the business of the employer and that the relationship between the parties were, from the beginning, one of employment.
II. How much notice was the employee entitled to?
The Court found that the employee was entitled to 12 months’ notice.
In coming to its decision, the Court considered the employee’s length of service (8 years) and age (58 years old), and made reference to the character of the employment (manager role) and the availability of similar employment, considering the employee’s experience, training and qualifications.
III. Was the employee entitled to aggravated and/or punitive damages?
Aggravated damages for alleged breaches of the duty of good faith – Aggravated damages are compensatory. As defined by Waddams (The Law of Damages (1983)), and as reaffirmed in the matter Fidler v. Sun Life Assurance Co. of Canada, “aggravated damages” describ[e] an award that aims at compensation, but takes full account of the intangible injuries, such as distress and humiliation, that may have been caused by the defendant’s insulting behaviour. See paragraph 51.
The Court found that the employer did not act fairly or in good faith when it came to the dismissal of the employee because the employer:
- was not candid, reasonably honest, nor forthright with the employee.
- attacked the reputation of the employee by making misrepresentations regarding the reasons for his dismissal for financial gain. The Court noted that such was a “classic example of bad faith”.
However, despite the above, the Court did not award aggravated damages to the employee.
The Court provided the following reasons:
 What is fatal to the plaintiff’s claim for aggravated damages is the insufficient evidence of actual damages resulting from the manner of dismissal. The plaintiff’s evidence on this point was extremely limited and really had more to do with the ordinary pain, distress, and financial stress associated with losing a job, rather than that which might result from the manner of dismissal. Otherwise, the claim was made out.
Punitive damages for alleged high-handed treatment of the employee – Punitive damages are not compensatory, but rather are intended to punish the defendant.
The employee based his claim for punitive damages on the following grounds:
- the manner of dismissal (a quick telephone call followed by a letter that alluded to the possibility of cause);
- the allegations of cause initially pleaded and the lack of a reasonable belief on the part of the employer to support the allegations of cause;
- the lack of any warning and of any investigation;
- the lack of reasons provided by the employer at the time of dismissal;
- the two months’ delay by the employer in providing the employee with his record of employment;
- the failing of the employer to pay any amount owing under the Employment Standards Act, 2000 (ESA), until June 15, 2015;
- the financial impact these delays had on the employee (he had to cash significant amounts of his RRSPs and had to sell his house);
- the employer’s knowledge of the employee’s financial circumstances;
- that the allegations of cause were made for tactical reasons with no reasonable basis supporting such a belief; and
- that the dismissal letter did not comply with the ESA.
Punitive award ‘rationally required’ for employer’s bad faith behaviour
After considering the facts of the case, the Court found that an award of punitive damages was “rationally required to punish the defendant and to meet the objectives of retribution, deterrence, and denunciation. Employers cannot be allowed to behave in such a fashion without a clear message being sent by this Court that this is not acceptable” (paragraph 56).
The Court decided that the “proportionate and reasonable” award of punitive damages was $50,000.
Takeaway for employers
When hiring new workers, employers have various classifications of employees from which to choose (i.e. full-time, part-time, independent/dependent contractor, seasonal, etc.). This case highlights the importance of an employer’s need to think carefully about why and how they are hiring workers. As demonstrated by the above matter, the liability attached to not appropriately characterizing a worker when first hired is significant. That is, an employer’s intention may be to hire an independent contractor, but the way in which the employment relationship is conducted, the worker would instead be classified as an employee.
Also, as an employer, if you assert just cause in an employee’s dismissal, ensure the basis of such claim is legitimate and that you treat the employee fairly. It is clear from the above case that employers who treat their employees unfairly, or do not act in good faith, in the manner of dismissal, will not be well received by the courts and that such behaviour can be costly for employers. It is therefore important for employers to act appropriately and keep detailed records of any employee wrongdoing. Because the courts assess the individual facts of each case, it is difficult to distinctly define what constitutes “cause.”