Howard Levitt: Punitive damages in employment cases take a new spin

When terminating an employee, employers should perform their own forensic analysis of whatever imperfections the employee may argue

Article content

By Howard Levitt

“Employees depend on employment not only for their financial survival but also for a sense of self-worth. Conduct of the employer that negatively impacts on those two essential elements warrants condemnation and punishment” ~ Ontario Superior Court Justice Byrdena MacNeil.

Article content

This quote embodies what we are increasingly finding in Canadian employment law.

Advertisement 2

Article content

Heretofore, dismissed employees visited law firms seeking to understand whether the offered severance was adequate. If not, or if the employee and their lawyer believed the employee would offer a little more just to avoid potential litigation, their lawyers took action, often on contingency. If the amount offered was close to what their legal entitlement was, even if less, the employee would often not sue to avoid the expense and time of litigation for such a limited potential reward.

The paradigm was straightforward. Based on the employee’s age, length of service, position, remuneration and re-employability, was the severance legally sufficient?

Things have changed. Employees now seek legal counsel to engage in a forensic analysis of any crime or misdemeanour the employer might have committed in the course of, preferably recent, employment to determine whether they can either embarrass it into paying more or excite a judge into making a finding that they are entitled to additional damages beyond those for wrongful dismissal alone.

Those additional damages have gone by different names over time — Honda damages, Wallace damages, bad faith damages, punitive damages, aggravated damages, moral damages — but the theme is the same: Has the employee’s sense of self-worth been deleteriously impacted and is the employer’s conduct worthy of punishment?

Article content

Advertisement 3

Article content

I have previously noted the increasing frequency and increased level of damages of such awards. In a recent case containing the judge’s quote above, Chalmers v. Airways Transit Service Ltd., $30,000 was awarded in punitive damages for 10 different transgressions.

They included some matters that one might think are anodyne, such as recalling several other senior managers but not Michael Chalmers after the initial airline COVID-19 layoff, failing to assist him with his job search (how many employers do?) and asking him questions while he was on layoff about its operations and passwords. Although the latter might seem necessary and ordinary, the court determined the questions were asked in order to avoid having to recall him.

But other queries were more egregious, such as asking him to work without pay when laying him off initially, failing to even respond to his inquiries when he asked about the recall and generally not providing him relevant information in a timely manner, thereby harming his ability to make informed decisions concerning his employment and career.

Advertisement 4

Article content

Another group of reasons for the punitive damage awards that have lately become more common relate to a failure to adhere to statutory minimums upon termination. In my experience, employers, believing the parties might be close to a settlement, do not make immediate statutory payments, quite innocently, assuming the employees will be paid along with the full severance shortly.

Often, when negotiations break down, the employer simply forgets to make the payment, but does not recall that it never did. Not paying when the Employment Standards Act (ESA) mandates it can be a significant mistake. In this particular case, reasons for awarding punitive damages included not paying Chalmers’ outstanding vacation pay promptly, not paying his statutory entitlement under the ESA for a considerable period and not making contributions to his registered retirement savings plan as required.

Another basis for the punitive damage award in this case was failure to provide him a letter of reference. This happens frequently. Often, employees’ counsel requests this in a long, sometimes accusatory, letter with various, often outrageous, demands. The request for a reference is simply missed by the employer while dealing with the more emotionally inspiring and financial items.

Advertisement 5

Article content

The employee, at trial, later argues the employer made their re-employment more difficult by not providing the requested letter and the court may seize upon that in providing additional damages. The employer, for its part, would have happily provided a letter if only it had put its mind to it. After all, it is in its interest for a dismissed employee to be quickly re-employed.

There were other grounds for the punitive damage award in this case that seemed simply malicious. Chalmers made efforts to return his employer’s property, but the employer pleaded in its statement of defence that he failed to return them and threatened “recovery’ of damages as result. That type of unforced error on the employer’s part was destined to end badly and counsel should have ensured there was a basis for it before filing that defence.

The point is that employers today, when terminating an employee, should perform with counsel their own forensic determination to analyze and ascertain whatever imperfections the employee may argue and defang those arguments before they are made. If they cannot be, perhaps the termination is best left to a more appropriate time.

Advertisement 6

Article content

Recommended from Editorial

But it is now imprudent if the decision-making matrix before terminating an employee ignores this analysis.

Howard Levitt is senior partner of Levitt Sheikh, employment and labour lawyers with offices in Toronto and Hamilton. He practices employment law in eight provinces. He is the author of six books including the Law of Dismissal in Canada.

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add to your bookmarks and sign up for our newsletters here.

Article content