Company’s failure to give sales manager a warning before dismissal while trying to avoid paying notice entitlement was bad-faith conduct
An Ontario employer must pay a fired sales manager a year’s worth of reasonable notice and $50,000 in punitive damages for falsely claiming cause for dismissal and acting unfairly in the way it terminated his employment, the Ontario Superior Court of Justice has ruled.
Tom Morison, 62, was the regional manager for Eastern Ontario and Western Quebec as well as the manager for federal government sales for Ergo-Industrial Seating Systems, an office chair manufacturer based in Mississauga, Ont. He was hired in August 2004 as an independent sales contractor and then hired as a full-time employee on Dec. 1, 2006. A review by the Canada Revenue Agency a couple of years later determined Morison had employee status as of Jan. 1, 2006.
Morison’s duties included developing sales in his territory with the private and health sector, along with the federal government. It was a narrow market requiring specific knowledge of the demand and proposal process, making his position a long-term one.
Sales manager blindsided by dismissal
Morison claimed to be a top salesperson for Ergo-Industrial and wasn’t aware of any issues with his performance. However, on Oct. 22, 2012, the company’s owner and president informed him that his employment was being terminated. The company offered five months’ notice, including one month of working notice.
Ergo-Industrial claimed Morison had mismanaged a demo chair account, failed to properly market its health care line of products, and didn’t co-operate positively with his immediate supervisor, giving it just cause for dismissal.
Morison filed a claim for wrongful dismissal, also claiming aggravated and punitive damages for Ergo-Industrial’s bad faith in the manner of dismissal from its failure to give him a warning before dismissing him and falsely claiming just cause.
The court found that while Ergo-Industrial alleged just cause for dismissal, there was no basis for it. The evidence showed Morison consistently met and exceeded his sales targets and he was in fact one of the company’s top performers. The company’s claim that he failed to market its health care line was also baseless, as it couldn’t provide an argument to counter Morison’s evidence that he did market to the private and healthcare sectors. Though Morison’s immediate supervisor felt Morison “lacked energy” in this area, it wasn’t enough to say he didn't market at all and use it as a basis for dismissal, said the court.
As for the demo chair account, the court found it may have been mismanaged, but Morison made efforts to address the company’s concerns and the responsibility for it was shared between Morison, management, and other employees — also not sufficient to provide just cause.
The court determined that alleging cause was a negotiating strategy for Ergo-Industrial with the intention of limiting Morison’s claim for reasonable notice.
The court found that when Morison was initially hired in 2004, the contractor agreement made it clear it was an exclusive arrangement and Ergo-Industrial had significant control over the products and how they were sold. It also provided company stationery, business cards, training, and policies for Morison to follow, and Morison’s only expectation of profit was his commission. This meant Morison was actually an employee at that time, making his service time more than eight years instead of less than seven, said the court.
The court considered Morison’s age, length of service, expertise, character of his employment, and the low availability of similar employment and determined Morison was entitled to 12 months of reasonable notice.
In calculating Morison’s monthly income, the court used his base salary of $115,000 from 2012 and his 2012 adjusted commission of $83,191.39. Though Ergo-Industrial argued that Morison’s commission should be averaged from the previous three years, the evidence showed Morison’s commissions increased significantly since 2010 and continued to show an upward trend. Therefore, averaging 2010, 2011 and 2012 would be undervaluing Morison’s commission. Since Morison’s commission increased by 9.4 per cent from 2011 to 2012, the court decided to increase his 2012 adjusted commission by half that rate — 4.7 per cent — to arrive at a fair amount of commission for the notice period. This resulted in an amount of $87,101.39 for commissions and a total 12-month notice entitlement of $211,551.35. Less the one month working notice offered, Morison’s notice entitlement was $193,922.08.
Company’s handling of termination deserved punitive damages
The court found the company’s bad-faith conduct in alleging cause for dismissal that didn’t exist warranted punitive damages but not aggravated damages. The company’s conduct may have caused anguish and stress for Morison, there was no evidence it was any more than what could normally result from being dismissed and caused its own mental stress-related damages. As a result, no aggravated damages were necessary.
However, Ergo-Industrial’s conduct in dismissing Morison — the lack of any warning or dismissal, falsely alleging cause, delaying his statutory pay and record of employment, and failing to give a proper reason for dismissal — was “malicious, oppressive and high-handed” that didn’t meet “ordinary standards of decent behaviour.” This necessitated punishment against the company to send a message that such behaviour is not acceptable, said the court in awarding $50,000 in punitive damages.
Ergo-Industrial also argued that Morison didn’t make reasonable efforts to mitigate his damages, as he didn’t apply for very many jobs, took the first job he was offered at a lower income without trying to negotiate better terms, didn’t look outside the industry, and didn’t used a job-hunting firm. However, the court found it wasn’t unreasonable for Morison to look within the industry first and accept an opportunity given the limitations of the job market, especially for a similar position. The court also noted Morison was under financial pressure and needed to find employment quickly.
Ergo-Industrial was ordered to pay Morison $98,939.32 — his 11-month notice entitlement minus his mitigation earnings and statutory amounts already paid — plus $50,000 in punitive damages.
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