Employer Ordered to Pay $100,000 in Punitive Damages for Fabricating Allegations of Cause

Alleging cause as a tactic to avoid providing an employee with proper notice of dismissal can be tempting for the unscrupulous. This bad faith tactic is not, however, without risk. An Ontario judge recently punished an employer by ordering it to pay $100,000.00 in punitive damages to its former employee in addition to damages for wrongful dismissal. In the words of the trial judge, the employer “got mean and cheap”.  The employer “put together a process to justify their [decision to terminate the employee for cause] after the fact” which included unfounded allegations and “puffing up complaints”. The unfounded allegations included conflict of interest and using derogatory and profane language.

In Gordon v Altus, 2015 ONSC 5663 Gordon sold his company to Altus Group Ltd. for several million dollars. Gordon also agreed to work for Altus after the sale of his business. The parties entered into a 3 year fixed term employment contract that provided Gordon with a payout provisions if Altus terminated the contract early without cause. Significantly, some of the sale proceeds of Gordon’s company were linked to its performance after the closing with an adjustment to be made in the purchase & sale price by February 2010.

As February 2010 approached, and a possible readjustment to the purchase price, the relationship between Gordon and Altus deteriorated. Gordon invoked an arbitration clause in the purchase agreement to have his dispute with Altus over the purchase price of the company settled at arbitration

Altus responded by alleging that Gordon was not “was not producing effectively and was a very unpleasant person to the point that continued working relationships could not be maintained.” Altus’ allegations against Gordon included claims that he “talked of senior personnel in the company in very derogatory terms and that he swore considerably to the point that it made working with him unbearable.” Altus also alleged that Gordon did not disclose lending money to a company with which Altus was doing business thereby making Gordon guilty of a conflict of interest to the harm of Altus. The company also took the position that Alan Gordon continued to employ a female employee even though she had been charged with fraud and that he misled Altus about the fraud charges.

The judge found that Altus’ allegations against Gordon were either fabricated or highly embellished. The woman who had been convicted of fraud had only worked for the company for 3 weeks before resigning for health reasons. Other employees also swore in the office but did not face disciplinary action and Gordon had disclosed lending money to the other company.

When deciding to award $100,000.00 in punitive damages the trial judge wrote at paragraph 39:

The conduct of the Defendant corporation is outrageous because Altus got mean and cheap in trying to get rid of an employee as they approached arbitration for the determination of any adjustment in the asset purchase agreement price. They had a contracted process in place and chose to park it with an unfounded allegation to fire him. Altus paid Alan Gordon no money. Further, Altus expected Alan Gordon to act within the contract terms in not competing with Altus. In effect, he got nothing and was expected not to work within a competitive field to that of Altus. That appears to me to amount to Altus wanting to have its cake and to eat it. Now, there is no free lunch in this world and Altus cannot expect to have one.

The judge did not explicitly state his legal basis for awarding Gordon punitive damages but appears to be relying on the fact that Altus breached its duty of good faith and fair dealing. In Honda Canada Inc. v. Keays, 2008 SCC 39 the Supreme Court of Canada 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.

Altus Group Ltd. now faces the prospect of not only paying a $100,000.00 punitive damage award, wrongful dismissal damages and Gordon’s legal costs but also dealing with the reputational damage of having been publicly punished for having engaged in a highly unethical business practice. The decision in Gordon v Altus is another example of the noticeable trend in recent years for courts to award significant punitive damage awards in situations where an employer has acted in a malicious manner in the way in which in deals with its former employees.