Punitive Damages in Canadian Employment Law
The purpose of a punitive damage award is to punish the defendant. It is an exception to the general principle that the purpose of a civil action is to compensate the plaintiff for his or her loss, not to punish the defendant.
The Supreme Court of Canada in Whiten v Pilot Insurance Co.1 reiterated that the three objectives of punitive damages are “retribution, deterrence, and denunciation”. It defined punitive damages as follows at paragraph 36:
Punitive damages are awarded against a defendant in exceptional cases for “malicious, oppressive and high-handed” misconduct that “offends the court’s sense of decency”: Hill v. Church of Scientology of Toronto,  2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour. Because their objective is to punish the defendant rather than compensate a plaintiff (whose just compensation will already have been assessed), punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment).
Before dealing with the question of punitive damages, it will be well to make clear the distinction between punitive and aggravated damages, for in the argument before us and in some of the materials filed there appeared some confusion as to the distinction. Punitive damages, as the name would indicate, are designed to punish. In this, they constitute an exception to the general common law rule that damages are designed to compensate the injured, not to punish the wrongdoer. Aggravated damages will frequently cover conduct which could also be the subject of punitive damages, but the role of aggravated damages remains compensatory…
Aggravated damages are awarded to compensate for aggravated damage. As explained by Waddams, they take account of intangible injuries and by definition will generally augment damages assessed under the general rules relating to the assessment of damages. Aggravated damages are compensatory in nature and may only be awarded for that purpose. Punitive damages, on the other hand, are punitive in nature and may only be employed in circumstances where the conduct giving the cause for complaint is of such nature that it merits punishment.
In Vorvis the Supreme Court of Canada held that punitive damages may be awarded in cases involving a breach of contract if the defendant’s conduct amounts to an independent actionable wrong. Vorvis was interpreted by many as requiring the plaintiff to prove that the defendant also committed a tort or, as an example, breached a fiduciary obligation in addition to a breach of contract.
In Whiten, the Court clarified Vorvis stating that the requirement of an independent actionable wrong can be met be either an independent tort, a breach of fiduciary duty or, significantly, a breach of a separate contractual duty such as the duty of good faith and fair dealing.3 The fact that a punitive damage award may be awarded for a breach of the duty of good faith and fair dealing increased the likelihood that punitive damages would be awarded in appropriate wrongful dismissal actions. This is because serious employer misconduct may not necessary fit neatly into the elements required to prove one of the various torts.
In Honda Canada Inc. v Keays4, an employment law decision, the Supreme Court of Canada reviewed the availability of punitive damage awards and reiterated, at para. 63, that punitive damage should only be awarded in “rare circumstances” and are restricted to “advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.” The Court reiterated at paragraph 62 that a breach of the contractual duty of good faith can qualify as an independent actionable wrong necessary for an award of punitive damages. The Court further clarified when an award of punitive damages will be appropriate. Justice Bastarache discussed the circumstances that will justify an award of punitive damages writing at paragraph 68:
This Court has stated that punitive damages should “receive the most careful consideration and the discretion to award them should be most cautiously exercised” (Vorvis, at pp. 1104-5). Courts should only resort to punitive damages in exceptional cases (Whiten, at para. 69). The independent actionable wrong requirement is but one of many factors that merit careful consideration by the courts in allocating punitive damages. Another important thing to be considered is that conduct meriting punitive damages awards must be “harsh, vindictive, reprehensible and malicious”, as well as “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment” (Vorvis, at p. 1108).
- Proportionate to the Blameworthiness of the Defendant’s Conduct – the more reprehensible the conduct, the higher the rational limits to the potential award. Factors include outrageous conduct for a lengthy period of time without any rational justification, the defendant’s awareness of the hardship it knew it was inflicting, whether the misconduct was planned and deliberate, the intent and motive of the defendant, whether the defendant concealed or attempted to cover up its misconduct, whether the defendant profited from its misconduct, and whether the interest violated by the misconduct was known to be deeply personal to the plaintiff.
- Proportionate to the Degree of Vulnerability of the Plaintiff – the financial or other vulnerability of the plaintiff, and the consequent abuse of power by a defendant, is highly relevant where there is a power imbalance.
- Proportionate to the Harm or Potential Harm Directed Specifically at the Plaintiff.
- Proportionate to the Need for Deterrence – a defendant’s financial power may become relevant if the defendant chooses to argue financial hardship, or it is directly relevant to the defendant’s misconduct, or other circumstances where it may rationally be concluded that a lesser award against a moneyed defendant would fail to achieve deterrence.
- Proportionate, Even After Taking Into Account the Other Penalties, Both Civil and Criminal, Which Have Been or Are Likely to Be Inflicted on the Defendant for the Same Misconduct – compensatory damages also punish and may be all the “punishment” required.
- Proportionate to the Advantage Wrongfully Gained by a Defendant from the Misconduct.
A court will consider whether the damages to be awarded to compensate the plaintiffs’ loss are rationally related to the objective of a punitive damage award (retribution, deterrence, and denunciation) prior to awarding punitive damages. In Honda Justice Bastarache wrote at paragraph 69 that certain types of compensatory damages designed to reimburse the plaintiff (such as an award of moral damages) already carry an element of deterrence. Therefore, a court will be wary of awarding both aggravated and punitive damages in circumstances where the award of aggravated damages will accomplish the goals of an award of punitive damages.
In a wrongful dismissal action a breach by the employer of its contractual duty of good faith and fair dealing can be classified as an actionable wrong that may entitle the dismissed employee to an award of punitive damages. Examples of the type of conduct by employers that has repeatedly attracted a punitive damage award often includes one or more of the following:
- 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 and alleging just cause when the employer knows that cause does not exist;
- the employer conducts a bad faith performance appraisal of the employee that has the effect of diminishing his or her professional reputation;
- the employer fabricates allegations of serious misconduct to support the dismissal and maintains these allegations either up to or during the trial;
- 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; and
- the employer conducts the dismissal in a manner designed to disparage the employee in the eyes of his or her colleagues or potential employers.
In Ontario misconduct during the course of litigation can also result in an award of punitive damages. For example, in Huber v. Way Justice Flynn justified his decision to order the employer to pay $25,000 in punitive damages at para. 43 to 51 as follows:
The fourth claim of the Plaintiff involves punitive, aggravated and exemplary damages in the amount of $45,000, based upon Way’s behaviour and the manner in which he treated Huber. Instead of providing Huber with notice of termination, he asked Huber to transition all of his knowledge and information to an outside agent. Huber did that. Then, once that had been done, instead of providing him notice, Way requested that Huber provide all of his computer log-in password information and contact information, which Huber also did. Then, Way terminated Huber’s employment without notice or payment in lieu thereof, with neither cause nor any complaint.
When Huber made requests for payment, Way professed to rely upon documents that did not exist to deny his request. When Huber provided documentation substantiating his claim, Way threatened to take away his house and car and disbar Huber’s lawyer. Disturbingly, when Huber indicated he would pursue litigation, Way showed up at his home at night and traumatized Huber’s wife. He made groundless allegations of theft against Huber. He maliciously reported that Huber had stolen documents and attempted to have him arrested. He then started a $400,000 Counterclaim alleging that Huber had committed criminal acts.
Way admitted that when he asserted his Counterclaim, he had no evidence to support it and he admitted at trial that he still had no evidence to support it, yet he never withdrew those allegations.
Way’s conduct is deserving of censure. This court cannot condone conduct intended to threaten and intimidate the wronged Plaintiff from seeking recourse through the courts.
What is outrageous here is that Way claims it was Huber’s inappropriate behaviour with respect to the documents when in fact, one of the documents that Huber relies on, the June 23, 2009 pro forma budget, was prepared by Way and shows inside agents’ commissions of $245,000, where the only inside agent at the time was Huber.
That document was only produced by Huber. It wasn’t in Way’s Affidavit of Documents or even in his Supplementary Affidavit, which was given to the Plaintiff’s counsel on the eve of trial. I agree with Huber that the Way buried that document and thereby breached the rules.
The Defendant’s conduct must certainly be censured here. While it was an attempt to intimidate this Plaintiff, it is fair to say that this Plaintiff was not going to be moved off his game plan.
Way made serious allegations in the Counterclaim that included wrongful removal of documents, hacking into Way’s computer, giving documents to Way’s competitors, conversion, the involvement of police, sharing information with Gordon Schembri and it is remarkable that Way’s counsel never questioned him in respect of any of those allegations or regarding any loss or damage he suffered as alleged in his Counterclaim. That was because it was a fiction. And these egregious allegations were made without a shred of evidence to support them.
The claim for punitive damages doesn’t deal exactly with the manner of termination, but it does deal with immediately post-termination conduct and the egregious attempts by Way to intimidate the Plaintiff into withdrawing his claim.
Way pressed the Counterclaim right to the very end, without any evidence to support it.