Employers be warned: punitive damages continue to climb

The worrying trend of large punitive damages handed out increasingly often looks set to continue, warns one employment lawyer.

Employers be warned: punitive damages continue to climb
Employers across Canada will have undoubtedly noticed the worrying trend of punitive damages not only rising but being handed out more regularly – a recent Ontario Superior Court case is a prime example of the very issue.

The case

In 2008, Alan Gordon sold his company to Altus Group – the transaction was valued at several million dollars but was open to adjustment depending on future performance.

At the time, both he and his wife Ann were hired by Altus but as the date for the price adjustment approached, Gordon expressed his belief that he was entitled to additional compensation in respect of the sale of business and the dispute was referred to arbitration under the terms of the sale.

However, at the same time, Altus began to allege various types of misconduct carried out by Gordon and he was eventually fired, along with his wife. Anne Gordon was paid notice in accordance with her contract and no litigation ensued.

The same, however, cannot be said for Alan Gordon, who was dismissed for cause and was awarded no notice as a result.

Altus outlined Gordon’s misconducted as the following:
  1. He was insubordinate and swore in the workplace;
  2. He was involved in a conflict of interest with respect to some aspect of his business dealings
  3. He had hired an employee whose non-work related fraud conviction was said to have jeopardized the company's interests.
All three were rejected.

(Continued...) #pb#

“The judge instead found that the termination was motivated by the [Gordon’s] demands for additional compensation from the earlier sale, and [Altus’] desire not to pay out the significant notice period that was provided for in the contract of employment,” revealed employment lawyer Frank Portman.

“The judge characterized the case for cause as being an after-the-fact attempt at justifying its actions,” he explained.

The claim

While the compensation granted to Gordon was not unusual – his contract provided a notice period far in excess of his basic entitlements under the ESA – the former employee also claimed punitive damages.

“Punitive damages can be awarded where there is a ‘separate actionable wrong’ apart from the simple fact of dismissal,” Stringer LLP lawyer Portman.
“However,” he continued, “the exact meaning of a ‘separate actionable wrong’ is not well defined, and appears to be subject to a great deal of interpretation.”

This ambiguity can pose a serious risk to employers, warns Portman.

“In this particular case, the ‘separate actionable wrong’ appears to be related to the fact that [Gordon] was dismissed while there was an ongoing dispute and upcoming arbitration related to the evaluation of the sale price of his company,” he suggests.

Award

The judge handed down an incredible amount of $100,000 in punitive damages, in addition to the $68,000 Gordon received in lieu of notice. 

(Continued...) #pb#

“This is at the high end of punitive damages,” says Portman. “While we have seen higher damages awards in cases where there is a significant and ongoing act of bad faith by the employer, such as where the employer has instigated a malicious criminal prosecution, this is near the high end of the range for bad faith terminations.”

According to Portman, there are a number of concerns employers should have with this recent decision.

“First, the size of the award is very high, and is quite close to the amount of notice awarded,” he says. “In a case like this, where the parties implemented a termination clause which was later upheld by the court, an award such as this significantly increases the liability that an employer can face.

The second, and perhaps more pressing concern, highlights the dangers of ambiguity.
“There is very little judicial explanation upon which the court's finding of the necessary separate actionable wrong rests,” he says.

“In effect, the court suggested that the employee was dismissed because of his claims for additional compensation under the sale of business.

“However, while such a reason may not constitute just cause in law, it does not appear to create an independent actionable wrong, nor justify an additional award of damages.

“As a result, there is a very real danger that this decision could be used by creative employee side counsel to suggest that the courts should be more receptive to employee claims for punitive damages, even in cases where the existence of a separate actionable wrong is less than clear.”

Employer warning

“Employers need to be aware of the increasing awareness of courts of punitive and aggravated damages in employment law claims,” warns Portman.

“These awards go above and beyond common law notice, and are not assessed on the same factors that govern common law notice awards,” he continues.

“While employers do not need any reminders to follow good practices of good faith and communication in the dismissal process, employers should ensure that they have documented the important parts of the decision to terminate and the dismissal itself, regardless of if they intend to rely on just cause for the dismissal. Such records can be invaluable in defending against employee claims for punitive and aggravated damages.”

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