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Are you Entitled to “Extraordinary” Damages?
Employment Law

Are you Entitled to “Extraordinary” Damages?

One of the most salient considerations in actions for wrongful dismissal is whether the plaintiff claims extraordinary damages against his or her former employer. In a wrongful dismissal claim, “ordinary damages” are typically defined as the amount of pay in lieu of reasonable notice that an employee was presumptively owed at common law, but for which the employer never paid them upon termination. These damages are almost always claimed in such matters as they essentially form the main “cause of action.” They arise from the contractual breach of the implied term of reasonable notice that employers are bound by at common law. Extraordinary damages are either aggravated damages (also called “moral” or “bad faith” damages), or punitive damages. They are awarded sparingly and arise from additional wrongs committed in the manner of dismissal. Though often confused, these heads of damages have significant differences.

Bad Faith, Aggravated or Moral Damages

“Bad faith” or “aggravated” or “moral” damages (most accurately referred to as “aggravated damages”) are a type of extraordinary damages (I’m unsure about this edit?) that compensate an employee for mental distress or other intangible injuries arising from the employer’s breach of its duty of good faith and fair dealing in the manner of dismissal.

In Wallace v. United Grain Growers Ltd., the Supreme Court of Canada rejected an implied duty of good faith and fair dealing throughout the length of the employment relationship. However, the Court held that an employer’s duty of good faith existed only upon termination. Accordingly, employees were awarded additional damages for their employer’s behaviour in the manner of dismissal as “another factor” in determining the employee’s reasonable notice period. This was standard practice until the Supreme Court’s landmark decision in Honda Canada Inc. v. Keays, where the Court ended the Wallace approach of artificially extending the notice period for bad faith conduct in the manner of termination. Instead, the Court reasoned that these damages were to be awarded in keeping with the infamous Hadley v. Baxendale principle: damages are recoverable for a contractual breach if they are “supposed to have been in the contemplation of both parties.” Consequently, damages caused by the manner of termination are now remedied by aggravated damages as apart from the reasonable notice period damages and exist as their own separate head of damages.

Punitive Damages

Punitive damages are awarded sparingly and have been described as the exception, not the rule. They require a separate actionable wrong and are intended to be punishment for wrongdoing. Importantly, the same conduct may give rise to aggravated and/or punitive damages. To obtain an order for punitive damages, the plaintiff must establish that the defendant’s conduct is reprehensible, meaning “malicious, oppressive and high-handed” and a “marked departure from the ordinary standards of decent behavior.” The Plaintiff must prove that the defendant committed an actionable wrong independent of the underlying wrongful dismissal claim and that the punitive damages claimed are required to punish the defendant and meet the objectives of deterrence and denunciation.

Examples of employment scenarios where punitive damages have been ordered against the employer include conducting a performance appraisal in bad faith to disentitle the employee to bonuses[1] and dismissing the employee, rather than conducting an investigation into the allegations of harassment that had been raised by the employee.[2]

One of the most important employment law cases of 2019 reinforced this state of affairs. In Ruston v. Keddco MFG. (2011) Ltd.,[3] the employer threatened the dismissed employee with retaliatory legal action when he disclosed that he would be seeking legal advice. Thereafter, the employer pursued an aggressive litigation strategy against the employee, which included a counterclaim for $1.7 million for unjust enrichment, among other things. The Court of Appeal for Ontario affirmed the trial judge’s award of aggravated damages in favour of the employee, reasoning:

[The trial judge] noted correctly that employers have an obligation of good faith and fair dealing in the manner of dismissal and also that an employers’ pre and post termination conduct may be relevant to the moral damage analysis if such conduct is a component of the manner of dismissal: see Reasons for Judgment at para. 145. She was alive to the essentially compensatory nature of aggravated damages.[4]

The Court also upheld the $100,000 punitive damages awarded in favour of the plaintiff, and emphasized that the two heads of damages are not mutually exclusive and can arise from the same set of facts:

It does not follow from the fact that this is the same conduct which the trial judge referred to in making the aggravated damages award that an award of punitive damages amounted to either double recovery or double punishment. That is because aggravated damages aim to compensate a plaintiff for heightened damages caused by the breach of the employer’s duty of good faith and fair dealing in the manner of dismissal, while punitive damages seek to punish and denunciate inappropriate or unfair conduct.[5]

Extraordinary damages are an important consideration in any wrongful dismissal claim. Going forward, look for courts to award these types of damages, especially in view of the power imbalance between employees and employers and the egregious conduct that some employers can be tempted to undertake during, and following, the dismissal of an employee.

 

[1] Marlowe v. Ashland Canada Inc., 2001 CarswellBC 1467 (B.C. S.C.)

[2] Horner v. 897469 Ontario Inc., 2018 CarswellOnt 372 (Ont. S.C.J.)

[3]  2019 ONCA 125 (CanLII)

[4] Ibid at para. 13

[5] Ibid at para. 18

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