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Employers Need “Reasonable Basis” to Allege Just Cause

Employers be warned – engaging in high-handed, bullying behaviour when dismissing an employee may be a costly strategy.

The Supreme Court of Canada held in Honda v Keays, which drastically diluted and modified the availability of “Wallace Damages” for bad faith in the manner of termination.  Since then, to receive damages for misconduct in the manner of termination an employee must prove that the employer’s conduct caused them provable, compensable harm (that meets certain other criteria). This can be difficult to prove.

However, the courts retained jurisdiction to award punitive damages to punish employers and denounce reprehensible behaviour. In its recent decision Morison v Ergo-Industrial Seating Systems Inc.the Ontario Superior Court of Justice did just that.

The plaintiff, Mr. Morison, was 58 years old when he was dismissed. He was a regional manager and had been employed for just over eight years. The Court found that he was wrongfully dismissed and was entitled to 12 months’ reasonable notice at common law.

This result is perhaps not surprising, as the Court found that the plaintiff had expertise and experience in a very limited market with few opportunities, and that good employment opportunities would be hard to come by.

Mr. Morison also claimed damages relating to the employer’s behaviour in dismissing him.

The Court noted that, generally speaking, the only damages available for wrongful dismissal are those flowing from the failure to give proper notice. Damages aren’t usually available to the employee for the loss of his or her job, or for any pain or suffering caused by being terminated. This is because at the time an employment relationship begins, both parties know that an employer may dismiss an employee at any time so long as it gives sufficient notice or payment in lieu. It isn’t foreseeable that the employer will have to pay for any psychological upset the employee experiences when this happens.

“Reasonable Basis”

The Court found that the employer never reasonably believed that it had just cause to terminate the employee; rather, it attacked his reputation for financial gain and to improve its bargaining position.

The employer alleged that the employees’ performance had been poor, and that he had failed to meet sales targets and had mismanaged of one of his accounts. By contrast, the evidence demonstrated that Mr. Morison generally met and even exceeded his sales targets, and that the employer was responsible for the issues with the account in question. Further, the employer had never even investigated the alleged mishandling of the account, and had never warned Mr. Morison about his allegedly poor performance.

The Court found that typically employees who are terminated for cause are not permitted to remain at work.  In this case, the employer waited more than one month to terminate the plaintiff after it made the decision to do so. It also gave him one month of paid working notice in order to coincide with his replacement’s employee’s start date.

The employer maintained its allegation of cause for eight months before it finally paid the employee his statutory minimum entitlements. In the meantime, Mr. Morison had to sell his house and cash in his RRSPs.

Aggravated Damages

The Court found that the employer engaged in bad faith conduct in the manner in which it dismissed the employee. However, the law is clear that aggravated damages for such bad faith are to be compensatory – not to punish the employer. The employee in this case couldn’t prove any damages resulting from the bad faith behaviour. All of his evidence related to psychological upset from the fact of being fired, which in itself isn’t compensable.

Punitive Damages

The Court ordered the employer to pay $50,000 in punitive damages. Punitive damages don’t exist to compensate the employee; rather, they are reserved for the most egregious cases of harsh and reprehensible conduct.  Their purpose is to punish the employer and to denounce misconduct.

Punitive damages have to be proportionate to the harm caused, and must take into account the degree of misconduct, the relative vulnerability of the plaintiff, and any advantage or profit gained by defendant. The Court found that the employee was in a very vulnerable financial position, and that the employer was aware and took advantage of his situation.

The Takeaway

The Court acknowledged that an employer may allege just cause, and later abandon that claim at any time. The Court held that it wouldn’t be appropriate to penalize an employer for changing its mind if it initially had a reasonable basis to believe it had just cause to terminate an employee. As such, it is important to investigate and document any evidence of employee misconduct, and to act accordingly. Employers that allege cause capriciously or in bad faith risk an award of punitive damages and aggravated damages if compensable harm is provable.

This blog was first published on First Reference Talks.

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