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Damage awards of $60,000 for bad faith dismissal and $25,000 for sexual harassment did not amount to double recovery, Court of Appeal rules

April 20, 2017

The Ontario Court of Appeal upheld an award of moral damages to a former employee who was dismissed in a manner tainted by bad faith, as well as an award of damages under the Ontario Human Rights Code for sexual harassment she had endured during her employment. The Court held that there was no reason to interfere with the trial judge's determination that the employer had been dishonest and insensitive in the process leading up to the employee's dismissal and in the termination itself, in breach of its obligation of good faith in the manner of dismissal of an employee, thereby warranting $60,000 in moral damages. It also endorsed the trial judge's decision to award the employee $25,000 in damages under the Code to compensate for the injury to her dignity resulting from the sexual harassment and the employer's cursory investigation of her complaint days before it fired her.

Although acknowledging that much the same conduct grounded both wrongful dismissal damages and human rights damages, the Court rejected the employer's argument that the moral damages award should be reduced to avoid double recovery. In its view, the two types of damages were aimed at vindicating different legal interests. Moral damages – also referred to as "Wallace" damages – are intended to compensate for the employer's bad faith conduct in the manner of dismissal, whereas damages awarded pursuant to s.46.1 of the Human Rights Code for "injury to dignity, feelings and self-respect" in relation to Code-based violations aim to compensate the employee for "the loss of the right to be free from discrimination and the experience of victimization."

The Facts:

When she was abruptly terminated without cause days after being assured her job was safe and in the wake of filing a sexual harassment complaint, a supervisor filed an action for wrongful dismissal.

MD had worked as a plant supervisor and health and safety coordinator at Zochem Inc., one of the largest producers of zinc oxide in North America, since 2002. She was the only woman who worked in the plant. In order to do her job, MD had to rely on the plant maintenance manager, Rogers, who, over the course of MD's career, made repeated sexual comments and gestures towards her, including: staring at her breasts and pretending to take a picture of them; telling an independent contractor who had done work for the plant and dated MD that he had an "anaconda" in his pants and MD should date him; referring to her breasts as "girls" and telling her they looked "good"; referring to private parts as their "little friends"; making a reference to "bunny ears," a sexual position of a woman having her feet up behind her ears; telling her she needed to get "laid," or needed "a little pounding"; asking if she was "getting any"; telling her how another employee had "the best body;" and describing a forklift attachment as a device that he was going to put MD's feet in to pull over her head so he could "get at her."

Sometime in the summer of 2011, the company began preparations to be sold. As part of the restructuring, several key employees were considered for dismissal, including MD, who was unaware of these developments. At a July 14, 2011 production meeting, during which MD raised legitimate safety concerns, Rogers and another co-worker, who were aware of MD's imminent dismissal, ignored her concerns and instead demeaned and belittled her in front of their co-workers, causing MD to leave the meeting in tears. She then filed a sexual harassment complaint with Stephanie Wrench, Zochem's assistant general manager, who, after a brief investigation in which she interviewed Rogers without giving MD an opportunity to respond, dismissed the complaint. Also during this time, Wrench, in response to concerns raised by MD, reassured her that her job was not in jeopardy, despite her knowledge to the contrary and her direct involvement in planning MD's dimssal. After the July 14 meeting, MD was unable to return to work and provided a doctor's note supporting a six-month absence. However, Wrench denied her claim for short-term disability benefits.

On July 19, 2011, Wrench asked MD to accompany her to the office and told her on the way, "We don't need you here anymore, and wish you all the best on your further endeavours," then handed her over to a third-party human resources consultant to do the actual firing. At some point during this meeting, the consultant told MD that it was irresponsible of her to continue with her sexual harassment claim against Rogers because his reputation was on the line. After this meeting, MD's car was brought to her using keys that had been taken from her purse without her permission.

MD filed an action for wrongful dismissal. After her dismissal, MD was forced to sell her home and move in with her mother. She was subsequently placed under the care of a psychiatrist through the Centre for Addiction and Mental Health and diagnosed with major depressive disorder with anxiety and placed on anxiety medication. She suffered recurring migraines and nightmares about the sexual harassment she had endured.

In an unreported decision dated May 16, 2015, Ontario Superior Court judge John Bellegham held that MD had been wrongfully dismissed and awarded her damages in lieu of notice based on a 10-month reasonable notice period, totalling $55,849.99; $60,000 in moral damages for Zochem's breach of its implied contractual obligation of good faith in the manner of her dismissal; and $25,000 in damages under s.46.1 of the Ontario Human Rights Code for the sexual harassment.

In awarding moral damages, Bellegham found on the evidence that Wrench had "mangled the termination process" by instructing MD's co-workers to "dig up dirt" on her performance that might provide grounds for dismissal, although cause was ultimately not asserted, and by assuring MD that her job was safe just a few days before she was fired when the decision to fire her had already been made. Characterizing Wrench's dealings with MD as "completely disingenuous," Bellegham also found that Wrench's response to MD's sexual harassment complaint was insensitive and brusque, as was the termination itself on July 19, 2011. In regard to the consultant's remark relating to MD's sexual harassment claim in particular, Bellegham stated: "This was like rubbing salt into a wound for [MD]. She was being asked to sign off any rights she may have had arising out of her years of harassment, and at the same time, if she chose to do so, add to her pain by doing something to reinstate the reputation of her harasser." The judge pointed to further "defects" in the termination process, including pressuring MD to sign a full release without giving her an explanation or sufficient time to consider it. He described the process as a "model of ineptitude," stating:

The record of employment was not provided. The pension entitlement was at least a year late. ESA severance was referred to in the termination letter, but not provided until later. Although MD's pay was usually simply deposited to her account, the deposit was cancelled, and Lang was instructed to get a signed release in exchange for the cheques, rather than simply having the money deposited in the account. When it was deposited, the ESA severance was missing for a couple of weeks. There was never any lucid explanation to MD about how her various financial claims were being calculated, and Zochem's rationale for their calculations. Wrench was focused entirely on getting MD terminated, and getting a release from her….

Zochem appealed the trial judge's award of moral damages.

The Arguments:

While not contesting the trial judge's factual findings, Zochem argued that the judge erred in law in awarding $60,000 in moral damages by considering pre- and post-termination conduct that was irrelevant to the manner of termination or its obligation of good faith, including: the July 14, 2011 meeting and the sexual harassment investigation, both of which occurred after the decision to dismiss MD had been made; the company's failure to provide some form of progressive discipline before terminating her employment, which was without cause; the denial of short term disability benefits; and aspects of the termination meeting that it claimed were standard business practice. It also submitted that the trial judge erred by awarding overlapping and duplicative damage awards, contending that the $25,000 in Code damages should be deducted from the award of moral damages because the same conduct underlay both awards.

MD's arguments are not set out in the decision.

The Decision:

A three-member panel of the Ontario Court of Appeal unanimously dismissed Zochem's appeal, ruling that there was no reason to interfere in the award of moral damages.

Writing for the Court, Justice Karen Weiler observed that the concept of what is "now known as moral damages" was first established in Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC). In that case, the Supreme Court of Canada recognized an obligation of good faith in the manner of dismissal of an employee, and held that damages are available where an employer engages in conduct that is "unfair or in bad faith by being, for example, untruthful, misleading or unduly insensitive." Moreover, Weiler noted, this concept was developed further in Keays v. Honda Canada Inc., 2008 SCC 39 (CanLII), where, she stated, "the [Supreme] Court essentially did away with the distinction between aggravated damages and moral damages and held that these damages should be recognized through a fixed monetary award rather than through an extension of the notice period."

[Editors' Note: In Keays v. Honda, the Supreme Court held that "[d]amages resulting from the manner of dismissal" are available "if they result from the circumstances described in Wallace, namely where the employer engages in conduct during the course of dismissal that is 'unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.'" Adding that "[i]n Wallace, the [Supreme] Court held employers 'to an obligation of good faith and fair dealing in the manner of dismissal' … and created the expectation that, in the course of dismissal, employers would be 'candid, reasonable, honest and forthright with their employees,'" the Supreme Court in Keays further asserted that "there is no reason to retain the distinction between 'true aggravated damages' resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination. … The amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages." The Supreme Court in Keays gave as examples of conduct in dismissal resulting in compensable damages the following: "attacking the employee's reputation by declarations made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right, permanent status for instance."]

Weiler further noted that the factors relevant to an award of moral damages "are not limited to the examples in Honda … and Wallace." Finally, citing Gismondi v. Toronto (City), 2003 CanLII 52143 (ON CA), leave to appeal to S.C.C. refused, she observed that "[p]re and post termination conduct may be considered in an award for moral damages, so long as it is 'a component of the manner of dismissal'."

Turning to the factors considered by the trial judge in awarding moral damages, Weiler held that, although the trial judge considered certain factors that were irrelevant to the manner of dismissal, including that the dismissal was partially because the company was getting ready to be sold and other "business considerations [that] could not form the basis of a moral damages award," the factors relied on by the judge that were relevant to the manner of dismissal justified the award. In this regard, Weiler reasoned:

The question of moral damages is a fact specific exercise. ... [I]n this case, there is evidence of untruthful, misleading or unduly insensitive conduct. In the context of this case, the trial judge found ... that Wrench held out to [MD] a promise that she would be given a chance to "improve" and also told her that her job was not in jeopardy even though the decision to terminate her had already been made. In these circumstances, it was open to the trial judge to consider [Zochem's] conduct in this regard.

...

[T]he trial judge's consideration of Zochem's misrepresentation, that [MD]'s job was secure and that she would be given a chance to improve, coupled with Zochem's sudden termination of [MD] and the further representation that her services were no longer needed, were not improper considerations in the context of this case.

Moreover, Weiler ruled that the July 14, 2011 meeting and subsequent sexual harassment investigation were "proper considerations," considering them to be "a component of the manner of dismissal."

Weiler also noted that denial of short term disability without adequate evidence can be considered a breach of an employer's good faith obligation and endorsed the trial judge's finding that Zochem's denial was an additional breach of its obligation of good faith and "perpetuated its tunnel vision approach to getting rid of [MD]." She also held that it was open to the trial judge to find that the numerous defects in the termination meeting amounted to bad faith. In her words:

[W]hile some conduct during a dismissal meeting viewed in isolation would not constitute bad faith, the same conduct when part of a course of conduct on the part of an employer that inflicts mental distress on an employee may legitimately inform the result. Zochem is attempting to parse too narrowly what is and is not a component of the manner of dismissal and to have this court look at various aspects of its conduct in isolation instead of considering it in context and as a whole.

[T]the trial judge's conclusion … that Zochem's letter of termination, coupled with the circumstances surrounding the termination process itself, echoed the "hard line" tone taken by Wrench throughout her dealings with [MD], is amply supported.

Finally, Weiler rejected Zochem's submission that the moral damages award and Code damages amounted to double recovery. Although accepting that there was some overlap between the conduct underlying both heads of damages, Weiler observed that it was not identical. Thus, for example, the consultant's comment that MD was being irresponsible in pursuing a sexual harassment claim reflected on her reputation for veracity and was a consideration in an award of damages for bad faith in the manner of dismissal but was not a consideration in a claim for sexual harassment. In any event, Weiler emphasized that there was no authority for deducting Code damages from moral damages given their different purposes. In her view:

[W]hen damages vindicate the same interests in law, the courts take care to avoid double-recovery. Moral damages are awarded as a result of the manner of dismissal, where the employer engages in conduct during the course of dismissal that is unfair or is in bad faith, that caused mental distress….

In contrast, Code damages are remedial, not punitive in nature, and compensate for the intrinsic value of the infringement of rights under the Code. Such damages are compensation for loss of the right to be free from discrimination and the experience of victimization.... Where, as here, the awards in question vindicate different interests in law, there will be no overlap in the damages awarded although the same conduct is considered.

In the result, commenting that "[w]hile some of the factors the trial judge considered could not form part of a claim for moral damages, based on the relevant factors he did consider, the amount awarded [was] justified and in harmony with recent jurisprudence," Justice Weiler dismissed the appeal, and upheld the award of moral damages, observing that "the $60,000 awarded by the trial judge ... [was] not so inordinately high as to warrant appellate intervention." In addition, MD was awarded costs of $40,000 on a substantial indemnity scale "on the basis that Zochem's conduct in pursuing this appeal was a continuation of its oppressive conduct towards [her]."

Comment:

As noted in the instant case, the Supreme Court of Canada in Wallace recognized that damages are available where an employer engages in conduct in the manner of dismissal of an employee that is "unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive." Compensation for such conduct was initially awarded by extending the notice period but, in Honda Canada Inc. v. Keays, 2008 SCC 39 (CanLII), the Supreme Court put an end to the Wallace approach and held that such damages should be recognized through a separate monetary award. Further, as also noted by Justice Weiler in the instant case, the Supreme Court in Keays also clarified that "there is no reason to retain the distinction between 'true aggravated damages' resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination." In the Supreme Court's view, "[d]amages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley [v. Baxendale] principle" [i.e., damages are recoverable for a contractual breach if the damages are "such as may fairly and reasonably be considered either arising naturally … from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties]. In this regard, the Supreme Court noted, "[t]he amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. … [I]f the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages."

In observing that "the $60,000 awarded by the trial judge for moral damages is not so inordinately high as to warrant appellate intervention having regard to the conduct and the corresponding awards of damages in the jurisprudence," the Court of Appeal in the instant case cited three decisions: Boucher v. Wal-Mart Canada Corp., 2014 ONCA 419 (CanLII), reviewed in Lancaster's Wrongful Dismissal and Employment Law, October 20, 2014, eAlert No. 380, in which the Court of Appeal upheld an award of $200,000 for aggravated damages after Wal-Mart repeatedly failed to address an employee's complaints regarding a series of incidents in which she was harassed and berated by her manager; Pate Estate v. Galway-Cavendish and Harvey (Township), 2013 ONCA 669 (CanLII), reviewed in Lancaster's Wrongful Dismissal and Employment Law, March 27, 2014, eAlert No. 359, in which the Court of Appeal confirmed an award of $75,000 in aggravated damages to a building inspector who was wrongfully dismissed and then charged with theft and fraud based on his former employer's false allegations; and Strudwick v. Applied Consumer & Clinical Evaluations Inc., 2016 ONCA 520 (CanLII), reported in Lancaster's Wrongful Dismissal and Employment Law, February 2, 2017, eAlert No. 430, in which the Court of Appeal doubled the damages awarded to a deaf employee who was subjected to years of harassment and abuse before being fired for spurious reasons, ruling that the trial judge erred on the low side in his assessment with respect to numerous heads of damages, including damages for breaching the Ontario Human Rights Code, damages for the tort of intentional infliction of mental distress, aggravated damages, and punitive damages, and increased the original award of $113,782.79 to $246,049.92. It should be noted that in the Boucher and Pate cases, the Ontario Court of Appeal refers to these "Wallace-type" damages for bad faith in the manner of dismissal as "aggravated damages" and in the Strudwick case, the Court uses both the terms "aggravated damages" and "moral damages" in referring to damages for bad faith conduct in the manner of dismissal.

With respect to damages awarded for human rights violations in a wrongful dismissal claim, the Ontario Human Rights Code was amended in 2008 by the addition of s.46.1 to allow courts to award damages for violation of the Code in wrongful dismissal cases. However, only a handful of decisions to date have included such amounts, and Strudwick was the first decision in which they were awarded by the Court of Appeal. The first case in which the Ontario Superior Court awarded damages under s.46.1 of the Code was Wilson v. Solis Mexican Foods Incorporated, 2013 ONSC 5799 (CanLII), reviewed in Lancaster's Wrongful Dismissal and Employment Law, May 14, 2014, eAlert No. 364. In that case, Ontario Superior Court judge Duncan Grace awarded an employee who was dismissed with only two weeks' pay in lieu of notice the sum of three months' pay in lieu of reasonable notice and general damages under s.46.1 of the Code in the amount of $20,000 in recognition of "the importance of the right that was infringed, the impact of the defendant's conduct on the plaintiff and the particular circumstances of the case." The employee had requested time off and accommodation due to an ongoing back ailment but was fired on the pretext that his position had been eliminated.

Given the small number of wrongful dismissal cases in which human rights damages have been awarded, the interplay between awards for aggravated damages and human rights damages has not been the subject of much discussion. However, the appeal court in the case under review clarified that the two types of damages serve different purposes and are not to be offset against each other, even where the underlying conduct supporting the awards is the same. In this regard, the appellate court rejected the employer's attempt to rely on the Supreme Court of Canada's identification of "the pitfall of double-compensation or double-punishment" in Honda Canada Inc. v. Keays, 2008 SCC 39 (CanLII), reviewed in Lancaster's Labour Law, September 24, 2008, eAlert No. 222, involving the possible overlapping of punitive and moral damages. Instead, Justice Weiler held that the ruling in Honda stood for the proposition that courts must avoid double recovery "when damages vindicate the same interests in law." In determining the interest at stake with respect to Code damages, Weiler relied on the Ontario Divisional Court's decision in Lane v. ADGA Group Consultants Inc., 2008 CanLII 39605 (ON SCDC), reported in Lancaster's Human Rights and Workplace Privacy, November 7, 2008, eAlert No. 110. In this case, the Court upheld the Ontario Human Rights Tribunal's ruling that an employee had been the victim of disability-based discrimination when management based its decision to dismiss him on false stereotypes of people with bipolar disorder, describing damages awarded under the Code as "general damages to compensate for the intrinsic value of the infringement of rights under the Code; it is compensation for the loss of the right to be free from discrimination and the experience of victimization." Noting that this view of Code damages was also cited with approval in Strudwick, and that Code damages were not deducted from the other wrongful dismissal damages in that case, Justice Weiler held that the trial judge did not err in awarding separate amounts for Code damages and moral damages in the instant case. She also noted that the Court in Boucher had come to a similar conclusion, albeit in addressing a possible overlap between the $100,000 in tort damages for intentional infliction of mental suffering awarded and the aggravated damages awarded against Wal-Mart because the intentional infliction of mental suffering grounded both actions, stating that the "tort award against [the supervisor] and the aggravated damages award against Wal-Mart vindicate different interests in law."

For other decisions awarding both wrongful dismissal and human rights damages, see: Partridge v. Botony Dental Corporation, 2015 ONSC 343 (CanLII), reported in Lancaster's Wrongful Dismissal and Employment Law, March 23, 2016, eAlert No. 418, in which Ontario Superior Court judge Susan Healey held that an employee was wrongfully dismissed when, on her return from maternity leave, her hours of work were reduced and then rescheduled to interfere with her childcare obligations, and she was eventually dismissed. She was awarded 12 months' pay in lieu of reasonable notice and $20,000 for injury to dignity, feelings, and self-respect due to the employer's failure to accommodate her childcare obligations; Bray v. Canadian College of Massage and Hydrotherapy, 2015 CanLII 3452 (ON SCSM), reported in Lancaster's Wrongful Dismissal and Employment Law, March 23, 2016, eAlert No. 418, in which an Ontario Small Claims Court judge assessed damages in the amount of $17,700 in lieu of reasonable notice, $20,000 for injury to dignity, feelings, and self-respect under the Code, and $5,000 in punitive damages, for a total of $42,700 to an employee whose hours and wages were reduced by a third when she returned from maternity leave, and who was laid off a few months later, ruling that the employee's sex and family status were factors in her discriminatory treatment, and that the employer's actions amounted to bad faith conduct; and Silvera v. Olympia Jewellery Corporation, 2015 ONSC 3760 (CanLII), reported in Lancaster's Wrongful Dismissal and Employment Law, February 10, 2016, eAlert No. 412, in which Ontario Superior Court judge Benjamin Glustein awarded over $312,000 in damages to a retail store employee who was repeatedly sexually assaulted and harassed by her supervisor, only to have her employment wrongfully terminated when she was absent due to complications from dental surgery. Ruling that the single mother's dismissal was without cause and conducted in a demeaning manner, the Court ordered the employer to pay damages of $90,344.63 for wrongful termination, comprising $7,475.50 less applicable statutory deductions for a three-month notice period; aggravated damages of $15,000; punitive damages of $10,000; and $57,869.13 for lost income. Also ruling that the employee was subjected to sexual and racial harassment and sexual assault by her manager, the judge found the employer and the manager jointly and severally liable for damages of $206,711.93 with respect to this conduct, including $90,000 for general and aggravated damages; $10,000 for punitive damages; $30,000 for breach of the Ontario Human Rights Code; $42,750 for costs of future therapy care; and $33,924.75 for future lost income.

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