Terminations are inevitable. Whether your company is re-organizing, downsizing, or an employee is simply no longer a good fit, there are many reasons why an employer may need to terminate employees.
However, a recent uptick in punitive damage awards coming from courts in British Columbia and Ontario provides a renewed caution to employers regarding their conduct when terminating an employee.
In a wrongful dismissal lawsuit, a terminated employee generally seeks damages representing pay in lieu of notice. However, in extreme situations a court may also award punitive damages, which is a separate category of damages designed to punish a defendant because of its malicious, high-handed, arbitrary, oppressive, deliberate, or egregious conduct.
Over the last two years in particular, punitive damages appear to have been awarded more frequently, sending a clear message to employers: terminate your employee in good faith and with respect—or be prepared to pay additional damages.
For example, in Chu v China Southern Airlines (2023 BCSC 21), instead of terminating an employee without cause, the employer built up a case for several years in an attempt to terminate the employee for cause, thereby avoiding its obligation to provide notice. During the employee’s first seven years of employment, he had a clean disciplinary record and a positive working relationship with his supervisor. However, when the employer replaced the employee’s supervisor, the new supervisor “embarked on a campaign to manufacture cause for dismissal”, which included:
- demoting the employee twice in one year from a managerial position to a customer service position;
- reducing the employee’s pay by 25%;
- unfairly disciplining and threatening to terminate the employee;
- unfairly criticizing the employee’s work and manufacturing shortcomings; and
- failing to issue the employee’s Record of Employment upon termination.
The court found that the purpose of the above-mentioned conduct was to establish a disciplinary record to support a for cause termination. Further, this conduct was found to have been carried out in a “humiliating and embarrassing” manner. For example, the employee was yelled at and reprimands were given in public.
In addition, the employer’s punitive behaviour continued after the employee was terminated and during litigation in which it failed to produce documents, made unsupportable allegations, and was consistently uncooperative.
Accordingly, the court said the employer’s conduct was clearly “harsh, vindictive, reprehensible and malicious” and “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment”. Accordingly, the court awarded $100,000 for punitive damages, in addition to $58,800 for pay in lieu of notice.
Similarly, in Pohl v Hudson’s Bay Company (2022 ONSC 5230), an Ontario decision, the employer terminated a 28-year employee. The employee sued for wrongful dismissal and sought compensation for moral and punitive damages.
The court agreed with the employee and awarded an additional $55,000 as moral and punitive damages because of the manner in which the employer terminated the employee.
- following the termination meeting, the employee was walked out the door, which the court said was unduly insensitive and unnecessary;
- the employer made an insincere offer of re-employment, which was intended to extinguish the employee’s right to common law notice because the employer argued the employee failed to mitigate his losses;
- the employer failed to pay the employee his statutory minimum payments within the timelines set out in the Ontario Employment Standards Act, 2000 (the “ESA”); and
- the employer failed to issue the employee’s Record of Employment (”ROE”) within five days of termination, which delayed his ability to find new employment.
Accordingly, the employer’s insensitive conduct following termination and its failure to comply with the mandatory timelines of providing payments under the ESA and issuing the employee’s ROE cost the employer an additional $55,000.
Chu v China Southern Airlines and Pohl v Hudson’s Bay Company highlight that engaging in malicious or high-handed conduct leading up to and subsequent to an employee’s termination can be costly for employers. Treating employees fairly and in good faith in the manner of termination is not just “the right thing to do”, but it is also an effective strategy for reducing risk of additional liability. These cases demonstrate that employers can reduce the risk of a punitive damage award by taking fairly simple steps such as:
- not artificially manufacturing cases “for cause” when no cause exists;
- being sensitive following the termination meeting (g. not intentionally humiliating an employee or walking an employee out with security if it is not necessary);
- not making unsubstantiated allegations of poor work performance;
- complying with mandatory statutory requirements following termination such as paying out statutory termination pay, if applicable, and issuing an ROE;
If you have any questions regarding this article or your business is contemplating terminations or layoffs, please contact Daniel Heath or your Harris lawyer.