False allegations when dismissing employees lead to large damage awards

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Ordinarily, a wrongfully dismissed employee will be awarded damages for breach of the employment contract amounting to what the court considers to be reasonable notice. In calculating these damages, courts have observed an informal “upper limit” of 24 months’ notice.

Increasingly, however, Canada’s courts have made awards taking into account a factor unique to employment contracts: the manner of the employee’s termination. Specifically, where the employee has been dismissed in a way that leads to mental distress or increased difficulty in securing alternate employment, some courts have awarded damages well in excess of what normally constitutes reasonable notice.

Over the past few months, Courts of Appeal in three provinces have rendered decisions in which the manner of termination has led to substantially increased damages for the employees.

In Hughes v. Gemini Food Corp. (February 7, 1997), the Ontario Court of Appeal upheld an award of general damages of $778,590 plus $75,000 in aggravated damages for what the trial judge called “a form of public humiliation” inflicted on the plaintiff.

Hughes was president and C.E.O. of a large potato distribution company which was owned by the Prince Edward Island government. He was terminated for alleged conflict of interest and inattentiveness to his duties as president. The termination letter, which the employer admitted at trial contained significant amounts of inaccurate information, was tabled in the P.E.I. Legislature.

The court ruled that this was an appropriate case for aggravated damages, which are meant to compensate for intangible injuries such as distress and humiliation. The employer had knowingly provided false reasons for the firing to the Premier’s office, the court stated, and it should have expected those falsehoods would be made public.

In Donovan v. New Brunswick Publishing Co. (December 18, 1996), the New Brunswick Court of Appeal increased the plaintiff’s damages won at trial from 18 to 28 months’ notice. Donovan had been terminated following 36 years of service on the grounds that he had been insolent to a customer and had placed himself in a conflict of interest. The trial judge had found that the instance of insolence did not justify dismissal, and that there was no evidence of Donovan’s being involved in a conflict. While the Court of Appeal made no mention of it, some observers believe that it took the unusual step of increasing the trial judge’s award because of the false allegation of conflict levelled against Donovan.

Some four months after the 24 month limit for notice was first surpassed in New Brunswick, the British Columbia Court of Appeal upheld an award of 33 months in Deildal v. Tod Mountain Development Ltd. (April 10, 1997). Deildal was dismissed and subsequently informed that his termination was due to his having embezzled $750,000. The allegations of theft were repeated some four months later at a shareholders’ meeting. In addition to awarding 15 months’ reasonable notice, the trial judge awarded $50,000 for slander, and $25,000 for aggravated damages.

Two judges of the appeal court upheld the trial judge’s award, each on different reasoning. Judge Braidwood drew a distinction between the effect the manner of termination had on the plaintiff’s employment prospects, and its effect on his emotional state. The former was compensable by damages for breach of the employment contract, calculated as part of the appropriate notice period – an extended notice period being necessary because allegations of theft result in employees experiencing greater difficulty in finding new work. The latter was compensable by damages for mental distress due to an independently actionable wrong – the false accusation of theft. By contrast, Judge Finch held that both the damages for increased difficulty in finding new employment and those for mental distress were aggravated damages arising from the dismissal which were recoverable even if the conduct which triggered them was not independently actionable.

The disagreement between Judges Finch and Braidwood is rooted in the controversy about whether an award of aggravated damages for mental distress must flow from what the Supreme Court of Canada referred to in Vorvis v. Insurance Corporation of British Columbia as an “independently actionable wrong”, or whether such damages can be awarded for the contract breach itself. The Supreme Court is expected to revisit its decision in Vorvis in a decision to be released later this year. Hopefully, this will clarify some of the confusion surrounding the nature of aggravated damages in wrongful dismissal cases. (For more recent developments, see “Fairly, reasonably and decently”: Employers obliged to deal in good faith with dismissed employees, Supreme Court rules”, on our Publications page.)