Ontario, Canada Court Awards Employee $25,000 in Moral/Aggravated Damages Because Employer Breached Duty of Good Faith and Fair Dealing

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In Russell v. The Brick Warehouse LP, 2021 ONSC 4822 (The Brick Warehouse), on a motion for summary judgment in a wrongful dismissal action, the court awarded $25,000 in moral/aggravated damages because the employer breached the duty of good faith and fair dealing at the time of and following the employee’s dismissal.  

Background

On July 21, 2020, a 57-year-old employee who had worked for the company for over 36 years was terminated without cause due to economic issues caused by COVID-19. The employee was in a senior supervisory position with 20 employees reporting to him. The employee’s compensation included a base salary of $74,859 and group benefits, a Registered Retirement Savings Plan (RRSP) and a Deferred Profit Sharing Plan (DPSP).

The termination letter

The termination letter included a without prejudice offer.  The deadline to accept the offer was three days and it was conditioned on the employee’s executing a Release of claims against the employer.

The termination letter did not comply with the minimum statutory entitlements of the Employment Standards Act, 2000 (ESA) because:

  • It did not reflect an extension of a majority of the employee’s employment-related benefits during the statutory notice period; and
  • It provided vacation pay would be accrued to the date of termination, while under the ESA, vacation pay continues to accrue over the statutory notice period (in this case, eight weeks beyond termination).

In addition, the termination letter did not advise the employee that if he declined the offer, he would be immediately provided with his statutory ESA entitlements.

The counter-proposal

In a counter-proposal, the employee asked for funds be paid into his RRSP without withholdings, vacation entitlement to be accrued over the statutory notice period, and a positive reference letter.

Payment miscalculations and failure to deposit funds in employee’s RRSP

On July 31, 2020, the employer inadvertently miscalculated and paid double the statutory notice and severance entitlements, plus unpaid wages and vacation pay accrued to the date of termination.  In the meantime, the employee retained legal counsel.  The employer asked the lawyer to hold the overpayment in trust pending further discussion, but the lawyer refused.  Accordingly, on October 6, 2020, the employer asked the employee to return the overpayment, but the employee returned all the funds.  The employee served his statement of claim.

On November 12, 2020, the employer wrote to the employee’s lawyer and enclosed a cheque that was in an amount lower than it should have been due to an error.  The cheque was returned because it was not directed to the employee’s RRSP.  The employer delivered a statement of defence.

On December 22, 2020, the employer issued a cheque for the difference between the payment that had been made and the amount of the statutory entitlements; however, it was also returned because it was not directed to the RRSP. 

The ESA termination pay and severance pay were not directed to the RRSP until after the litigation commenced, and no letter of reference was provided.   

Employee’s post-termination circumstances

Post-termination, the employee had no income and was under the impression that he had no benefits.  His wife went back to work full time.  The employee used his savings to make ends meet, and received medical treatment and medication for stress-related issues. 

Position of the parties

Both parties agreed the employee was entitled to reasonable notice at common law, but they disagreed on the notice period.

The employee argued that he was entitled to 30 months’ reasonable notice as there were extraordinary circumstances that warranted notice beyond the usual “cap” of 24 months, and the COVID-19 pandemic provided a reason to extend the reasonable notice period even further.  In addition, the employee argued that he was entitled to $50,000 in aggravated and moral damages for breach of the duty of good faith. 

The employer argued that 18 months was appropriate and that there was no basis for aggravated and moral or punitive damages because any mistakes were inadvertent.    

Decision

Common law reasonable notice

Applying the factors set out in Bardal v. Globe & Mail Ltd., 1960 CarswellOnt 144 (Ont. H.C.) to determine common law reasonable notice (i.e., length of employment, character of the employment, age, and availability of similar employment having regard to the experience, training and qualifications of the employee), the court held that the appropriate notice period was 24 months, without consideration for extraordinary circumstances. 

In arriving at this conclusion, the court noted that the employee was 57 years old and toward the end of his working career, had a long tenure (over 36 years), was in a senior supervisory position, and it would be challenging for him to find alternative employment, in part, due to COVID-19.  The court found it compelling that the employee was a full-time, life-long employee since he was 21 years old.   

Extraordinary circumstances

The employee argued that the following constituted extraordinary circumstances: his age; years of service; life-time service to the employer; “limited” high school education; COVID-19; lack of a reference letter and relocation counselling; and employer’s post-termination conduct.

The court found that, except for the employer’s post-termination conduct, these circumstances were already factored into the 24-month notice period.  It declined to extend the notice period based on extraordinary circumstances, preferring to address the employer’s termination and post-termination conduct under a moral/aggravated damages analysis. 

Moral or aggravated damages  

The court noted that the case law provides that moral damages can be warranted when the employer engages in a breach of the duty of good faith and fair dealing at the time of dismissal or thereafter, provided it:

  • Is related to the dismissal (e.g., by being untruthful, misleading or unduly insensitive, and a failure to be candid, reasonable, honest and forthright with the employee); and
  • Causes mental distress (beyond the usual distress and hurt feelings associated with being dismissed) that was in the contemplation of the parties. 

The court awarded the employee $25,000 in moral damages for the following reasons:

  • A lack of transparency and fair dealing by the employer:
    • By failing to advise in the termination letter that if the employee declined the offer, then he would be immediately provided with his statutory ESA entitlements;
    • By failing to advise that benefits would be extended consistent with statutory notice regardless of whether he accepted the employer’s offer;
  • The offer failed to meet all of the statutory entitlements, including vacation pay accrued over the statutory notice period; and
  • The employee suffered mental distress beyond the usual hurt feelings and distress of being dismissed, which was reasonably foreseeable by the employer, arising from its lack of transparency and fair dealing in the manner of terminating his employment. 

The court noted the employer used a template termination letter modified for each termination.  The court inferred that either none of the termination letters indicated that if the employee rejected the employer’s offer they would receive the minimum statutory entitlements, or that the template did reflect this but the employer omitted it from the employee’s termination letter.  In the court’s view, this factor supported moral or aggravated damages.  In addition, the court indicated the employer’s poor treatment of the employee was especially disappointing because he was “a long-term loyal employee of over 36 years.”

The court decided:

  • The employer was not being honest and forthright by failing to advise in the termination letter that if the employee declined the offer, he would be immediately provided with his statutory ESA entitlements. 
  • Although the employer’s failure to immediately transfer the correct amount of severance and termination pay into the employee’s RRSP was largely due to inadvertent missteps post-termination, it reasonably caused distress beyond the normal hurt feelings that accompany termination without cause. 

Mitigation

The employer asked for a contingency discount of 10% to reflect the chance that the employee would find alternative employment during the notice period.  The court imposed a constructive trust on the earnings the employee might earn during the balance of the notice period (calculated from the date of the hearing of the motion), in favour of the employer, noting, “…we appear to be coming out of the COVID-19 pandemic, and [the employee] at age 58 has some transferable skills.”  

Award

In addition to damages for 24 months’ reasonable notice and $25,000 in moral/aggravated damages, the employee also received damages for the loss of his benefits.

Bottom Line for Employers

Employers will be encouraged by the fact that the court in The Brick Warehouse did not consider the COVID-19 pandemic to be an extraordinary circumstance that merited extending the reasonable notice period beyond 24 months.  Instead, in setting the reasonable notice period at 24 months, the court took into account that it would be challenging for the employee to find alternative employment, in part, due to COVID-19.

Furthermore, The Brick Warehouse is a cautionary tale for employers about the importance of their conduct at the time of dismissal and thereafter.  At such times, to avoid significant liability for moral or aggravated damages, employers are encouraged to avoid engaging in a breach of the duty of good faith and fair dealing or to cause the employee to reasonably experience mental distress beyond the usual hurt feelings and distress of being dismissed.  Such conduct includes being untruthful, misleading or unduly insensitive, or failing to be candid, honest and forthright in matters relating to dismissal.  Courts may be particularly inclined to award moral or aggravated damages when an employer’s conduct impacts a long-term, loyal employee. 

Instead, employers should deal fairly and transparently with employees.  Such conduct would include, among other things, being honest and straightforward in termination letters about statutory entitlements and entitlement to benefits should the employee decline the employer’s offer; and not failing to offer employees all of their statutory ESA entitlements.  Employers are encouraged to seek the review of experienced employment counsel to ensure that their termination letters are drafted accordingly. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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