Alberta Court of Appeal overturns huge damage award

$2.2-million wrongful dismissal judgment reduced to $600,000
By Andrew Treash
|hrreporter.com|Last Updated: 09/15/2010

Employers can breathe a little easier after a $2.2-million judgment against Merrill Lynch for wrongful dismissal was reduced to $600,000 on appeal. In its decision in Merrill Lynch Canada Inc. v. Soost, the Alberta Court of Appeal has provided some protection for employers that want to terminate an employee but do not know whether or not just cause exists and are fearful of being hit for bad faith damages.

The plaintiff in this case was an investment adviser at Merrill Lynch. He was dismissed without notice after three years’ employment and sued for wrongful dismissal. At trial, Merrill Lynch offered several reasons why it thought it had just cause. But even though the plaintiff had violated some of his employer’s rules, his conduct was not so severe as to give Merrill Lynch cause to dismiss him without notice or pay in lieu of notice, found the trial judge.

The plaintiff was awarded not only $600,000 for one year’s pay in lieu of notice but an extra $1.6 million for the way he was terminated. In his position as an investment advisor, being terminated for cause and without notice was so devastating to the plaintiff’s book of business that one year’s earnings was insufficient to compensate him, found the judge.

The Alberta Court of Appeal overturned the award of the extra $1.6 million. In so doing, it restated one of the basic principles of employment law: An employer has the right to dismiss an employee who is hired for an indefinite period at any time as long as adequate notice, or pay in lieu of notice, is provided. There might be sound reasons for the dismissal, such as an economic downturn, but the reasons can also be “whimsical” or “inexplicable.” The dismissal itself it not wrongful.

The circumstances under which a dismissed employee is entitled to damages above and beyond pay in lieu of notice were addressed in the much discussed Supreme Court of Canada decision of Honda Canada Inc. v. Keays from 2008. There, in order to get these damages, the employer must have displayed bad faith in the manner of dismissal and the employee must have suffered an actual loss as a result, said the Supreme Court.

The Alberta Court of Appeal described it this way: “When dismissing an employee, an employer has a duty not to use methods which are unduly unfair or insensitive... the unfairness or insensitivity must be in the methods used, not in the mere fact of dismissal.” The court described these extra damages as “Honda damages.”

So what happens if an employer guesses wrong, and what was thought to be just cause actually falls short? Justice Côté of the Alberta Court of Appeal explained why Honda damages are unavailable where an honest belief in just cause exists, especially with “arguable grounds.”

“What if courts imposed heavy and almost automatic penalties on any defendant who alleged cause in good faith, but then failed to convince a judge or jury that it was bad enough? That would be most unfair to employers. It would deter alleging cause, so that employers with cause would instead have to give pay in lieu of notice (to avoid a second set of damages). This would be the slacker’s charter. It would significantly increase the expenses of hiring staff, and hence increase prices charged to innocent customers. I wish to stress that policy consideration.”

The court gave some examples of circumstances that might give rise to Honda damages: “A boss who tells all the fellow employees, or the employee’s spouse and children, that the dismissed employee is stupid or incompetent... dismissing the employee within a day or two of a daughter’s wedding, or of the death of a parent.... insincerely alleging to others embarrassing or demeaning (but unfounded) reasons for the dismissal (whether or not they would be just cause if true), when the employer does not honestly believe those grounds exist.”

This very high level of disregard for a worker, “something akin to intent, malice or blatant disregard for the employee,” said the court, was not present in this case. In fact, even the trial judge said Merrill Lynch had good faith belief in its right to terminate the employee for cause.

The Court of Appeal also rejected the argument the harm to the plaintiff’s reputation for being wrongfully dismissed without notice could give rise to Honda damages. “A dismissed employee gets no damages for any prejudicial effect (even on reputation) of the dismissal itself.”

If the dismissal is wrongful, then the employee gets pay in lieu of notice as a remedy.

Employers (at least those in Alberta) should be able to find some comfort in this decision. While the concept of “near cause” is not part of Canadian law, an employer who believes in good faith and arguable grounds that just cause exists will at least be protected from Honda damages.

Andrew Treash is an HR and compliance writer for Consult Carswell. He can be reached at andrew.treash@thomsonreuters.com or visit www.consultcarswell.com for more information.

Add Comment

  • *
  • *
  • *
  • *