In recent court decisions, courts in Ontario have awarded punitive damages to employees for an employer’s bad behaviour during wrongful dismissal claims.
What are Punitive Damages in Employment Law Cases?
In employment disputes, such as wrongful dismissal or constructive dismissal cases, punitive damages refers to a court’s decision to award an employee additional financial compensation simply to punish an employer’s bad behaviour. Generally, a court would award punitive damages as an appropriate remedy where an employee can prove:
- the employer’s conduct was “malicious, oppressive, and high handed” and was a “marked departure from the ordinary standards of decent behaviour”;
- the employer committed an actionable wrong independent of the wrongful dismissal claim; and
- demonstrate that the punitive damages award meets the objectives of “retribution, deterrence, and denunciation”.
Basically, punitive damages are intended to punish employers for engaging in extremely harsh or improper conduct that deserve condemnation and deterrence. In wrongful dismissal disputes, some of the cases that courts have found justify punitive damages include:
- terminating an employee as retaliation for complaining about workplace harassment or discrimination
- conducting unfair and biased workplace investigations to justify termination
- alleging just cause for dismissal under false pretenses as a way to avoid providing an employee with a severance package
- making a counterclaim against an employee to strategically intimidate them during a lawsuit or discourage them from pursuing their legal rights and entitlements
Boyer v. Callidus Capital Corporation
In Boyer v. Callidus Capital Corporation, 2023 ONCA 233, an employee sued his employer for wrongful dismissal after providing the employer with 18 months’ notice of his intention to retire at the end of 2016, primarily due to his health condition and concerns over the direction the company was taking. However, over the next year, he claimed to have experienced verbal abuse and criticism, including threats. In fact, all of his files had been transferred from him. Eventually, he left the company four months earlier than planned.
As part of his claim for wrongful dismissal, he sought a fair severance package, vacation pay, stock options and the value of his lost employee health benefits plan. In response, the employer issued a counterclaim for $150 million alleging that the wrongfully dismissed employee had breached his fiduciary obligations by failing to provide honest and transparent reporting to the company concerning three borrowers.
In the Court of Appeal’s view, when the overall context was scrutinized, what was “really going on” with the counterclaim was an attempt to silence a former employee seeking recovery in his wrongful dismissal claim and to create a chilling effect for other employees who want to bring claims or raising issues relating to toxic work environments. What this decision makes clear is that while a counterclaim against an employee suing for wrongful dismissal may be made in appropriate circumstances, the courts will not allow employers to use them as tools in a tactical attempt to silence the employee from pursuing their legal rights (in this case, to silence this employee and other employees regarding the allegedly “toxic work environment” at the company).
Giacomodonato v. PearTree Securities Inc.
In Giacomodonato v. PearTree Securities Inc., 2023 ONSC 5628, the court ordered an employer to pay the costs of the proceeding in the amount of $830,761 on a partial indemnity basis to discourage “frivolous and strategic claims.” Specifically, it focused on the employer’s counterclaim, including its claim for punitive damages, which the court viewed as “obviously meritless” and warned employers that owe money (severance packages) to employees they “should be discouraged from engaging in tactical litigation designed to discourage employees from pursuing their rights and entitlements.”
The court emphasized the following factors:
[The employer] invited this litigation. [The employer] conducted this litigation in an unforgiving, scorched earth, and bare-knuckle manner. It missed no opportunity to malign [the employee]. [The employer’s] decision to pursue a counterclaim and punitive damages of so little merit leaves me to infer that those claims were advanced only for tactical reasons and in an attempt to dissuade [the employee] from pursuing the money [the employer] owed to him. [The employer’s] attempt to now claim that this action “was an unexceptional employment action” is entirely inconsistent with its own approach to this litigation. In my view, and in light of the choices it made in the conduct of this litigation, it should have reasonably expected to face a costs order of this magnitude. [Emphasis added]
Ruston v. Keddco MFG. (2011) Ltd.
In Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125, an employer was responsible for paying an employee $100,000 in punitive damages and a further $25,000 in aggravated damages, in addition to 19 months’ damages for wrongful dismissal.
After his employment was terminated alleging cause by a new company that had acquired his previous employer, Mr. Ruston sought details as to the reasons for his termination. After claiming that he did not know the alleged conduct against him the company alleged just cause for dismissal, and that he would be hiring an employment lawyer, the company told him that, if he did, a counterclaim would be filed against him and that the litigation would be “very expensive.” True to form, when Mr. Ruston filed a wrongful dismissal claim, Keddco filed a counterclaim, seeking damages of $1.7 million for fraud as well as $50,000 in punitive damages.
At trial, the court found that the company failed to prove cause or any of its other allegations against the employee. The court also found that the company’s counterclaim had been a “tactic to intimidate” the employee. As such, the trial judge found that the company breached its obligation of good faith and fair dealing in the manner of his dismissal, awarding him:
- 19 months’ pay in lieu of notice, including bonuses and benefits, totalling $479,000;
- punitive damages in the amount of $100,000;
- aggravated damages in the amount of $25,000; and
- costs on a substantial indemnity basis in the amount of $546,684.73.
With respect to the aggravated and punitive damages award, the Court of Appeal found that the evidence provided support for the court’s conclusion that the company had breached its duty of good faith and fair dealing in the manner of dismissal, especially when it threatened the employee in an effort to deter him from making a claim and then commencing a counterclaim that was intended to (and did) cause him considerable stress.
Additionally, the Court of Appeal rejected the company’s argument that the same underlying conduct could not give rise to both aggravated and punitive damages, stating:
“It does not follow from the fact that this is the same conduct which the trial judge referred to in making the aggravated damages award that an award of punitive damages amounted to either double recovery or double punishment. That is because aggravated damages aim to compensate a plaintiff for heightened damages caused by the breach of the employer’s duty of good faith and fair dealing in the manner of dismissal, while punitive damages seek to punish and denunciate inappropriate or unfair conduct.”
Despite recognizing that the award was “unusually high,” the Court of Appeal upheld the lower court’s finding, noting that since the company had threatened the employee with an expensive counterclaim and then delivered on its promise by engaging in costly and unnecessarily complex litigation, it had to bear the costs of its decisions. As such, it ordered the company to pay the employee a further $35,000 for the costs of the appeal.
Pohl v. Hudson’s Bay Company
Recently, the Ontario Superior Court was asked to award bad faith/moral and punitive damages in the case of Pohl v. Hudson’s Bay Company, 2022 ONSC 5230, which involved an employee with 28 years of service who was fired by HBC during a nation-wide business restructuring in light of the COVID pandemic.
The employee brought a claim for wrongful dismissal, where he was successful in obtaining a severance package of 24 months of salary in lieu of reasonable, particularly due to his older age and many years of service. However, the employee also sought and obtained additional compensation in the form of aggravated/moral and punitive damages due to the manner of his termination, due to the following behaviour by the employer:
- the employee was “escorted” out of the door despite there being no misconduct being alleged against him. Justice Centa considered this action unduly insensitive.
- it attempted to offer the employee a demotion that would disentitle him from claiming common law notice was viewed by the Justice as misleading.
- it failed to issue an ROE properly and failed to pay his outstanding wages in a lump sum following his refusal to sign the severance package which the court viewed as an intentional violation of the Employment Standards Act, 2000.
- it filed two ROEs issued by HBC contained errors or inaccuracies, including incorrect dates.
As such, after taking all of the above conduct together, the court found that HBC did breach its duty of good faith and fair dealing as an employer, w $45,000.00 as payment for moral damages as a result.
Additionally, the court also awarded the wrongfully dismissed employee punitive damages of $10,000, largely due to its failure to comply with the ESA termination pay and severance pay obligation, as well as its failure to issue a correct ROE.
Take-Away Lessons
The courts have increasingly vocalized their position that an employer’s meritless counterclaims are not a tactic to better position the employer in wrongful dismissal litigation. Rather, for employers who proceed with counterclaims with a lack of evidence to support their allegations and thus unnecessarily complicate the litigation may see significant adverse costs awards against them.
Call Employment Lawyer Toronto Today
If you are an employee who believes you were wrongfully dismissed from your employment with or without a fair severance package, call today to discuss your options. As an employment law firm in Toronto, Bune Law has reviewed and negotiated improvements to many severance packages. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.