Punitive Damages: Overview
The objective of the court in a civil action (such as a wrongful dismissal action) is to compensate the plaintiff for his or her loss. It is normally not to punish the defendant. In a wrongful dismissal action the former employee’s loss will include the compensation lost a result of the dismissal and, in some cases, mental distress as a result of the bad faith manner of dismissal.
Punitive damages are designed to punish a defendant. An award of punitive damages is, therefore, an exception to the general rule that a court will only award monetary damages to compensate a plaintiff for his or her loss.
The courts only award punitive damages in rare circumstances where the defendant’s conduct has been so malicious and high-handed that it offends the court’s sense of decency. An award of punitive damages has three objectives: retribution, deterrence, and denunciation.
Punitive damages will only be awarded in a breach of contract case (such as a wrongful dismissal) if there is an independent actionable wrong. The Supreme Court of Canada has stated that a breach of the duty of good faith and fair dealing implied in an employment contract is an independent actionable wrong that may support an award of punitive damages.1
The type of employer conduct that has repeatedly attracted punitive damage awards in employment law cases often includes one or more of the following types of misconduct:
- the employer used “hardball” tactics in order to gain negotiating leverage over the dismissed employee. Typical hardball tactics include withholding money owed to the employee or fabricates allegations of serious misconduct to support the dismissal;
- the employer conducts a bad faith performance appraisal of the employee that has the effect of diminishing his or her professional reputation;
- the employer terminates an employee for cause alleging serious misconduct (i.e. criminal or quasi-criminal conduct) without conducting a reasonably fair and unbiased investigation;
- the employer conducts the dismissal in a manner designed to disparage the employee in the eyes of his or her colleagues and potential employers; and
- litigation misconduct.
A punitive damage award is not available to an employee whose has suffered discrimination at the hands of his or her employer in breach of the Human Rights Code.2 Although discrimination cases occasional involve acts by an employer that are so malicious that it would normally attract an award of punitive damages, the Supreme Court of Canada held in Honda Canada Inc. v Keays3 that the Code is a comprehensive enforcement scheme the purpose of which is not to punish employers but to compensate employees.
Courts are wary of awarding both punitive damages and damages for bad faith dismissal for the same misconduct. Although damages for bad faith dismissal are awarded to compensate a dismissed employee for mental distress suffered as a result of the manner of dismissal the Supreme Court of Canada has recognized that an award of moral damages also has an element of deterrence. To avoid a double payment, a court, prior to awarding both punitive damages and moral damages, is to consider the totality of the award and ensure that it is rationally related to the objectives for which the punitive damages are awarded (retribution, deterrence, and denunciation).
The most significant recent development in punitive damages awards in the context of employment law is the willingness of judges and juries to award significantly higher damage awards than in the past. Although still far below the multi-million dollar awards occasionally awarded by courts in the United States, there have been several employment law cases in recent years that have awarded the dismissed employees six-figure punitive damage awards in addition to wrongful dismissal damages.
The courts consider employees to be members of a vulnerable group deserving of protection. Therefore a court may increase the amount of a punitive damage award in circumstances where the bad faith manner by which the employer treated a former employee was typical of how the employer treats its other employees. The purpose of the increased punitive damage award would be so that the award would act as a deterrent.
A punitive damage award, unlike a wrongful dismissal award, is not taxable.