Bad Faith Employer Practices May Increase a Punitive Damage Award

A court may impose a significantly higher punitive damage award if it is found that the employer followed a policy or practice of attempting to exploit vulnerable employees. The most likely type of employer policy that might justify an increased punitive damage award an employer engaged in a systemic practice of terminating employees for cause in circumstances when it new that it did not have just cause in order to avoid its obligation to provide proper notice or pay in lieu of notice of dismissal.

The legal basis for claiming punitive damages based on a systemic practice is found in Whiten v Pilot Insurance Co.1 In Whiten the Supreme Court of Canada upheld a $1,000,000.00 punitive damage award against the insurance company Pilot’s denial of the claim was designed to force the plaintiff to make an unfair settlement for less than the plaintiff was entitled to.  Pilot had gone as far as accusing the plaintiff of arson even though it knew the allegation was not true.  Binnie J., writing for the majority, made the following obiter comment at paragraph 120 as it relates to the award of punitive damages:

Deterrence is an important justification for punitive damages. It would play an even greater role in this case if there had been evidence that what happened on this file were typical of Pilot’s conduct towards policyholders.

The availability of an increased punitive damage award in a wrongful dismissal action because of a bad faith employer policy was recognized in Hodson v. Canadian Imperial Bank of Commerce.2  The Divisional Court considered an appeal of an order striking paragraphs in the plaintiff’s statement of claim that alleged that the Bank had an ongoing corporate strategy of terminating employees for cause to avoid having to provide unwanted employees with a severance package.  The plaintiff alleged in the statement of claim that the Bank displayed the same tactics and approach in his dismissal as in earlier dismissal, which had resulted in court awards of punitive damages against the bank.  In allowing the appeal, Zelinki J., writing for the court at paragraph 2, framed the dispute as follows:

The issue before us arises because the Plaintiffs also contend that the Defendant’s conduct is part of an ongoing corporate strategy for getting rid of unwanted employees without giving proper notice of termination, as already disclosed in prior court proceedings. This, if proven, could result in higher punitive damages for reasons set out in Whiten. If the alleged corporate strategy is proved, the fact that the Defendant may have “profited” from such conduct may give rise to substantially higher punitive damages than would otherwise be the case.

In Covelli v. Sears Canada Inc.3 Sears Canada was accused by several former employees of having a corporate policy of using unfounded allegations of cause to avoid its obligation to provide reasonable notice of dismissal to long service employees.  Several dismissed employees asked the court to award increased punitive damage awards as a result of Sears’ alleged policy.  Sears’ motions to have the allegations of a bad faith systemic policy struck from the employee’s statement of claims were dismissed.  

Most recently in the 2015 decision Bansal v Maxsys Staffing and Consulting Inc.4 the plaintiff, a dismissed recruitment agency account manager working as a dependent contractor, pled the following in support of his claim for punitive damages as a result of systemic wrongdoing:

  • material facts related to Maxsys’ misconduct in its dealings with its employees at the point at in time when the employment relationship ended;
  • material facts relevant to Maxsys’ attempt to interfere with its former employees attempts to find new employment in their chosen field; and
  • material facts relevant to Maxsys’ misconduct during the course of litigation with its former employees.

Master Short dismissed Maxsys’ motion to have the allegations struck from the statement of claim.  In awarding the plaintiff’s costs on a substantial indemnity basis Master Short wrote: “I am not satisfied that this motion needed to be brought, nor that it ought to have been brought.”

In a later unreported decision Master Short ordered Maxsys to produce the following documentation as part of its disclosure obligations:

  • termination letters sent to employees in Canada in 2013 and 2014;
  • copies of pleadings in which Maxsys initiated lawsuits against its former employees and their new employers; 
  • all complaints to the Ontario Ministry of Labour in 2014; and
  • letters sent either by Maxsys or its legal counsel to former employees regarding their post-termination obligations or raising the possibility of legal action.

There has not been a wrongful dismissal action that alleged a bad faith systemic policy that has made it to trial.  The decisions above (with the exception of Bansal v Maxsys Staffing and Consulting Inc.) appear to have settled prior to trial.


  1. Whiten v Pilot Insurance Co., 2002 SCC 18;
  2.  Hodson v. Canadian Imperial Bank of Commerce, 16 CCEL (3d) 110;
  3. Covelli v. Sears Canada Inc., 2011 ONSC 1850;
  4. Bansal v. Maxsys Staffing and Consulting Ince., 2015 ONSC 1016;