Be cautious when disclosing employee information to regulatory bodies
Ontario case a cautious tale for employers in regulated industries
Jan 29, 2019
The recent Ontario Court of Appeal case, Hampton Securities Limited v. Dean, is a cautionary tale for employers in regulated industries when disclosing information or making statements to a regulator about a former or departing employee. Google Street View
By Stuart Rudner and Anique Dublin
The recent Ontario Court of Appeal case, Hampton Securities Limited v. Dean, is a cautionary tale for employers in regulated industries when disclosing information or making statements to a regulator about a former or departing employee.
Hampton Securities is a registered investment firm that employs proprietary traders who buy and sell securities on behalf of Hampton. On March 6, 2008, Christina Dean joined Hampton as one of its proprietary traders.
During a meeting on April 2, 2009, with Hampton’s CEO, Dean was advised she could not engage in any further trading until she increased her reserve account by $50,000. The following day, she resigned. On the same day, Hampton also purported to terminate her employment.
Shortly thereafter, Hampton filed a notice of termination (NOT) on the National Research Database maintained by its regulators, Investment Industry Regulatory Organization of Canada (IIROC). In that filing, Hampton stated that Dean's employment was terminated for cause because she failed to follow trading policies and engaged in unauthorized trading. Hampton also commenced an action against Dean, claiming that she owed monies arising out of losses she incurred as a trader. Dean counterclaimed for constructive dismissal and defamation.
At trial, the judge ruled that Dean did not owe any money to Hampton, that she was constructively dismissed and was entitled to six months’ notice ($60,336), damages for defamation ($25,000), punitive damages ($25,000) and costs on a full indemnity basis ($248,144).
Hampton appealed the findings and the costs award.
The trial judge held that Dean’s failure to increase her reserve account within less than 24 hours did not amount to just cause for dismissal. The trial judge held that if Hampton wanted to have the right to impose such dire consequences upon Dean, it should have clearly set it out in the employment agreement.
The trial judge concluded that Hampton’s actions amounted to “a unilateral and fundamental change to a term or condition” of the employment contract and Dean was therefore entitled to treat the contract as terminated.
The Court of Appeal agreed with the trial judge’s conclusions.
Hampton’s primary defence against the defamation claim was that qualified privilege applied. Qualified privilege arises “where the maker of a statement has an interest in making the statement and those to whom the statement is made have an interest in receiving it.” In some circumstances, it can provide the maker with a total defence against a defamation claim.
In this case, Hampton had an interest in making the statement in order to comply with its reporting requirements under IIROC, and the IIROC had an interest in receiving the information in order to regulate registered individuals.
However, this defence is limited and extends only to statements that are “reasonably appropriate to the circumstances” and made “honestly and in good faith.” The trial judge concluded Hampton’s statement was untrue and made in bad faith because Dean’s employment was terminated not for unauthorized trading, but for not increasing her reserve account to $50,000.
The trial judge also concluded Hampton exceeded the legitimate purpose for reporting to its regulator. The purpose of reporting was to alert the regulator to any potential risk that Dean (or an employee) may pose. Hampton could not have legitimately felt that Dean posed any risk of unauthorized conduct because it was willing to accept the conduct, provided she increased her reserve account.
The trial judge held that Hampton’s statement on the NOT was very serious and had a devastating impact on Dean’s reputation. It took her over eight years to find employment in the security industry and when she did, it was as an administrative assistant. During this time, Hampton refused to retract its statement.
The Court of Appeal ruled that the trial judge was correct in finding that the defence of qualified privilege did not apply. The Court held that providing misleading information to IIROC exceeded the scope of the duty to report.
The trial judge held that Dean was entitled to punitive damages because Hampton’s conduct was “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment.”
The Court of Appeal agreed that the award of punitive damages was appropriate given the conduct of Hampton, including the independently actionable breach of the duty of good faith in Dean’s employment contract. The Court of Appeal also concluded that the award for damages was necessary to sanction Hampton for its “marked departure from the ordinary standards of decent behaviour.”
The costs order was upheld on appeal. The Court of Appeal held that “Hampton took a hardline, no-compromise position” in the litigation and those tactics have costs implications.
When disclosing information about a former or departing employee, an employer should ensure that the information is truthful and provided in good faith. That is true even when there is a duty to report or disclose. Otherwise, employers expose themselves to massive damages and costs.
Anique Dublin is a law clerk and billing clerk at Rudner Law in Toronto.
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Stuart Rudner is the founder of Rudner Law (RudnerLaw.ca
), a firm specializing in Employment Law and Mediation. He can be reached at firstname.lastname@example.org
, (416) 864-8500 or (905) 209-6999, and you can follow on Twitter @RudnerLaw.