[co-author: Claire Lingley - Articling Student]
How Recent Decisions Signal a Potentially Expanded Approach to Aggravated and Punitive Damages
Two recent decisions: Moffatt v Prospera Credit Union [Moffat], from the British Columbia Supreme Court, and Russell v The Brick Warehouse LP [Russell], from the Ontario Superior Court, highlight what appears to be a developing trend in wrongful dismissal cases in Canada—courts are increasingly scrutinizing employers’ post-termination conduct and making awards of aggravated and/or punitive damages.
In both cases, the courts awarded enhanced damages, in addition to compensatory damages for wrongful dismissal, as a result of post-termination conduct by the employers arising principally from deficiencies in the termination letters provided to departing employees. These decisions may be perceived as lowering the threshold for awarding aggravated and/or punitive damages in wrongful dismissal cases across the country.
This potentially expanded approach to aggravated and punitive damages underscores the need for employers to ensure they comply with minimum employment standards, clearly identify the conditional elements of a termination offer and treat departing employees with respect, dignity and transparency.
British Columbia: The Moffatt Decision and Punitive Damages
Ms. Moffatt was terminated, without cause, after about 22-months of employment as a result of a company-wide reorganization. On termination, the employer presented Ms. Moffatt with a termination letter purporting to set out her entitlements on the cessation of her employment in accordance with the Employment Standards Act (British Columbia) and her Employment Agreement.
The termination letter erroneously stated that Ms. Moffatt was only entitled to two weeks of notice (or pay in lieu) and a lump sum for benefits over that period. The termination letter also required her to sign the letter and a full and final release, and warned that she was prohibited from soliciting the company’s clients, employees or contractors for a period of 12 months (the Employment Agreement only provided a prohibition on solicitation for a period of 6 months).
At trial, the employer sought to rely on the contractual notice provision in the plaintiff’s Employment Agreement, limiting her entitlement on termination to one-months’ notice. The employer also argued that its reference to 2-weeks’ notice and a 12-month non-solicitation provision in the termination letter was an administrative error (due to having prepared over 100 termination packages for reorganized employees).
The court held that the one-month notice provision was inapplicable, and fixed the reasonable notice period at three months after considering the applicable Bardal factors. Along with damages in lieu of reasonable notice, the court awarded Ms. Moffatt punitive damages in an amount equivalent to 2.5-months’ salary as a result of the misleading nature of the termination letter and in an effort to ensure deterrence and denunciation. Notably, the award of punitive damages reflected the amount the court found Ms. Moffatt would have been deprived of had she signed the termination letter.
Despite the employer’s argument that it was not deliberately dishonest or misleading, and that it was willing to correct the administrative errors once raised by the employee’s lawyer, the court emphasized that had Ms. Moffatt not retained a lawyer, she would have unknowingly signed away her entitlement to enhanced notice, doubled the length of her restrictive covenants, and released any claims she may have had against the employer.
Ontario: The Russell Decision and Aggravated Damages
In Russell, the employee was terminated, without cause, after a lengthy period of employment of 36 years. The employer dismissed Mr. Russell, along with several other employees, as part of a restructuring precipitated by the COVID-19 pandemic.
On termination, Mr. Russell was provided with a termination letter that included a without-prejudice offer, which was subject to him signing a full and final release. The termination letter did not advise him that if he declined the offer, he would be immediately provided with his statutory entitlements under the Employment Standards Act, 2000 (Ontario).
In response to the without-prejudice offer in the termination letter, Mr. Russell requested that his entitlements on termination (including his statutory minimum entitlements to severance and notice pay) be deposited directly into his RRSP. He also sought enhanced vacation pay and a positive reference letter.
Through a series of what the court deemed “inadvertent missteps,” the employer failed to immediately transfer the correct amount of statutory minimum severance and termination pay entitlements to Mr. Russell's RRSP until after litigation was commenced. Mr. Russell was without income or (to his knowledge) benefits, for about seven and a half months post-termination.
On reviewing the termination letter, the court found that it was not fully compliant with Mr. Russell's statutory minimum entitlements as it failed to provide for the continuation of certain benefits and vacation pay over the statutory minimum notice period. As well, the court held that the failure to immediately transfer the correct amount of severance and termination pay to Mr. Russell’s RRSP, though due to “inadvertent missteps,” nonetheless caused distress beyond the normal level in a termination.
Most significantly, the court also emphasized that the termination letter failed to advise Mr. Russell that if he declined the without prejudice offer, he would be immediately provided with his statutory minimum entitlements. The court found this omission to be a “serious defect” amounting to a “failure by the [employer] to deal fairly with [the plaintiff].” Ultimately, the court held that the failure to advise Mr. Russell of his unconditional right to the statutory minimum payments amounted to a failure to treat him honestly and in a forthright manner.
On review of the Bardal factors, the court found that Mr. Russell was entitled to a reasonable notice period of 24 months. In addition, the court awarded $25,000 as moral/aggravated damages, based primarily on what it found was the employer’s lack of transparency and fair dealing by failing to advise him that he would receive his statutory entitlements regardless of whether he accepted the without prejudice offer (aggravated damages are primarily intended to remedy or compensate for a plaintiff's emotional or psychological injury caused by an employer's insensitive or inappropriate conduct, whereas in contrast punitive damages are intended to serve principally as a deterrent penalty against a defendant employer). The employer’s failure to meet the minimum statutory entitlements, failing to advise of the continuation of the plaintiff’s benefits, and causing distress (beyond the normal level) as a result of the “inadvertent missteps” also contributed to the award of aggravated damages.
Takeaways
The decisions in Moffat and Russell serve as a further reminder to employers to ensure they comply with all statutory obligations, as well as act in good faith and transparently in the manner of termination. It is critical to carefully plan and implement all terminations, as courts will not provide employers leeway for “administrative errors” and “inadvertent missteps” where the result of such mistakes prejudices an employee’s rights or is perceived to exploit a vulnerable employee.
Awards of aggravated punitive damages, while not entirely uncommon, are still relatively rare in the employment context. The Supreme Court of Canada has set a high bar for when these classes of damages will be available1.
While the courts in Moffatt and Russell acknowledge the high thresholds for awarding aggravated or punitive damages, each court appeared willing to take a more flexible approach to find that those thresholds had been met to send a clear message to employers that their post-termination conduct will be scrutinized. The courts in both cases placed an emphasis on the contents of the termination letters and whether they correctly and comprehensively advised the employees of their rights on termination.
To limit exposure to awards of aggravated and/or punitive damages on termination, employers should ensure they:
- draft termination letters with a view to clearly identifying the conditional elements of an offer on termination;
- ensure the termination letters accurately reflect the employees’ statutory minimum and contractual entitlements;
- comply with the applicable minimum employment standards; and
- ensure they are dealing with employees with respect, dignity and transparency at all times.
If you have any questions about the effect of these decisions and how you can implement best practices to limit exposure to aggravated and punitive damages claims, please contact the Bennett Jones Employment Services group to discuss.
1Honda Canada Inc. v Keays, 2008 SCC 39, the court held that aggravated damages are available where an employer engaged in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive” (para 57). Whereas punitive damages are generally restricted to exceptional circumstances where the employer has engaged in advertent wrongs that are “so malicious or outrageous that they are deserving of punishment on their own” (para 62). To warrant punitive damages, the employer’s conduct must be “harsh, vindictive, reprehensible and malicious, as well as extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment”( at para 62, quoting Vorvis v Insurance Corporation of British Columbia, 1989 CanLII 93 (SCC)).
