In Ruston v Keddco Mfg. (2011) Ltd., the Ontario Court of Appeal considered the consequences of failing to prove an allegation of just cause for terminating an employee. In upholding the trial judge’s decision, the Court affirmed that employers may have to pay a terminated employee additional damages if they falsely or incorrectly allege cause for dismissal.
The employee was 54 years old at dismissal and occupied the highest position as President of the company. He received quick promotions from his initial position as a sales representative in 2004. The employee had a grade 12 education and had been unsuccessful in securing new employment. The employer claimed that it had just cause for dismissing the employee, stating that he was being terminated for committing fraud. No explanation or example was provided. The employer also advised the employee that if he hired a lawyer, it would be very expensive and the employer would counterclaim.
The employer did not dispute the trial judge’s finding that there was no actual cause for dismissing the employee. However, it did appeal the trial judge’s determination of the length of the reasonable notice period and the trial judge’s decision to award the employee both aggravated/moral damages and punitive damages.
The Court of Appeal upheld the trial judge’s award of 19 months’ notice. More notably, it agreed with the trial judge’s awards of aggravated/moral damages and punitive damages.
An employer’s obligation of good faith and fair dealing in the manner of dismissal is well established, as is the relevance of an employers’ pre- and post- termination conduct to the analysis of whether such obligation has been breached. When an employer breaches the duty, the employee is compensated for the resulting mental stress in the form of aggravated or moral damages.
In this case, the Court of Appeal agreed with the trial judge that the employer had breached its duty of good faith and fair dealing by lying about the reasons for terminating the employee for cause, by threatening that a lawsuit would be very costly, by only dropping the false allegations and personal attacks against the employee when the trial judge brought the lack of evidence to the employer’s attention and for making false allegations of financial fraud. Further, the termination, allegations of
cause and the counterclaim were found to be “devastating” and “very stressful” for the employee.
The Court of Appeal also agreed with the trial judge’s decision that punitive damages were appropriate in this case. Punitive damages serve to punish a defendant’s behaviour – in this case, the employer’s – and to deter similar conduct. The test is whether the misconduct is “so malicious, oppressive and high- handed that it offends the court’s sense of decency”. In this case, the employer’s conduct met that standard.
This case shows that false allegations of cause and unfounded counter-claims can render a typical wrongful dismissal suit significantly more costly for an employer. Employers should not try to avoid compensating an employee in lieu of notice by making up allegations, and employees should know that they may be entitled to compensation for such unfair and harmful conduct by employers.