Employer’s Systemic Wrongdoing = Risk of Greater Punitive Damage Award

A small minority of employers play hardball with their employees. Tactics can include threatening and bullying existing employees; fabricating allegations of cause to avoid having to provide reasonable notice of dismissal; misleading employees about their post-termination obligations; and employing bad faith litigation tactics against those few employees who challenge their actions. These employers often rely on their superior financial position to intimidate most, if not all, of the effected employees.

Employers who follow this strategy do so at their own risk. The law is now clear that a former employee can base a claim for an increased punitive damage award on their employer’s systemic bad faith policies or practices in the manner in which it treats its employees. The litigation process will not only be focused on the events that directly impacted the plaintiff but also on how the employer treated other employees. The resulting punitive damage award may be substantial.

A claim for an increased punitive damage award based on systemic wrongdoing may strike some lawyers as dubious on the basis that a plaintiff should not be able to claim damages for the harm done to others.  However, in Whiten v. Pilot Insurance Co., 2002 SCC 18, an insurance decision, the Supreme Court of Canada held in obiter, at para. 120, that an increased punitive damages may be awarded as a deterrent in situations the defendant has had a practice using it superior bargaining power to exploit vulnerable individuals.  Justice Binnie wrote:

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.

Following Whiten, there have been several decisions that have allowed claims which plead systemic wrongdoing in the employment context. In cases such as Hodson v. Canadian Imperial Bank of Commerce (2001), 16 CCEL (3d) 110 and Covelli v. Sears Canada Inc. 2011 ONSC 6984 the Divisional Court refused to strike paragraphs of the statement of claim that alleged that the employers had an ongoing practice of summarily dismissing unwanted employees in order to avoid having to pay severance.

Most recently in Bansal v Maxsys Staffing and Consulting Inc., 2015 ONSC 1016 the plaintiff, a dismissed 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.”

All of the decisions discussed above involved motions to strike at the pleadings stage.  To date, an allegation that an employer has engaged in systemic wrongdoing in support of a claim for punitive damages does not appear to have been decided at trial.

The ability of a former employee to claim an increased punitive damage award as a result of their employer’s systemic wrongdoing can be an effective litigation tool when dealing with an unscrupulous employer.  When used appropriately it can be a powerful negotiation tool because it increases the cost that will be incurred by the employer if it refuses reasonable settlement offers.  Not only does it increase the litigation cost incurred by the employer, it also presents the employer with the prospect of a humiliating loss at trial that may significantly damage its public reputation.