$57,000 in punitive damages for $57,000 in delayed payments

The issue of bad faith damages in Canadian employment law was once again in the spotlight after the recent court decision Carroll v. Oracle Canada ULC.

The case saw a senior sales executive awarded $624,000 — including $520,000 for commissions owed and $57,000 in punitive damages.

It highlights the significant risks employers face when statutory entitlements are withheld or when termination is handled in a manner deemed unfair or high-handed by the courts.

It seems like with every passing year, the courts are becoming more employee-friendly and recognizing the more vulnerable position that employees face at the time of termination — even high-earning and “sophisticated employees” like the individual in this case, says Jeff Rochwerg, associate at Turnpenney Milnes in Toronto.

“So, it's incumbent on employers to make sure that they are getting advice about terminations, what might be a risky termination, and ensuring that they are complying with all of their legal obligations with respect to payments owing to the employee within specific timelines — and not withholding owed amounts as a negotiating tactic.”

Carroll v. Oracle Canada case: cautionary tale

Steven Carroll began working at Oracle in November 2019 and was terminated without cause on June 30, 2023, as part of a corporate restructuring.

His compensation included a base salary of $180,000 and substantial commissions. In 2021 and 2022, his annual T4 income exceeded $700,000, and he had earned over $579,000 in commissions in the first half of 2023 alone.

Despite his short tenure, the Ontario Superior Court of Justice found in August that Carroll was entitled to 12 months’ reasonable notice, citing his age, high earnings and specialized role as key factors. The court awarded him substantial damages, including base salary, commissions, benefits and RRSP contributions, after accounting for mitigation and statutory deductions.

However, the court’s most notable finding was Oracle’s breach of the duty of good faith, awarding punitive damages of $57,000 due to Oracle’s failure to pay commissions owed under the Employment Standards Act during the statutory notice period. The payment was delayed by eight months and only remitted after litigation had commenced.

The court further criticized Oracle for maintaining that Carroll was only entitled to statutory notice under an employment agreement that had already been declared unenforceable in prior litigation.

“In my view, failing to pay statutory entitlements when due without explanation and maintaining an untenable position that no common law notice is required without explanation when a court has already ruled that the contract in question requires common law notice both constitute breaches of the duty of good faith in contractual performance and warrant punitive damages,” said the court.

The punitive damages award was equal to the amount of the commissions improperly withheld, with the court citing the need to be “proportional and remain rationally connected to the underlying goals of retribution, denunciation and deterrence.”

Power imbalance and employer obligations

While some employers operate without full guidance on the elements of bad faith conduct and “inadvertently trip up,” that doesn't seem to be what happened in the Oracle decision, says Ryan Savage, partner at Taylor McCaffrey in Winnipeg.

“It’s a big employer, and so presumably has well-informed HR departments, and either in-house counsel or access to external legal counsel — so, the courts picked up on that,” he says, citing the company’s refusal to pay out commissions.

“I'm not sure what happened there, in terms of whether that was just a misunderstanding or improper guidance that they were getting, but, certainly, that's the kind of conduct that the court’s not going to appreciate.”

Canadian courts recognize the inherent power imbalance between employers and employees, particularly at the time of termination. As the court explained:

“When an employer seeks to take advantage of that power imbalance after termination when an employee is in one of the most financially vulnerable positions he or she is likely to be in, courts are justified in awarding aggravated damages to act as a disincentive to other employers from engaging in similar conduct in the future."

Even though Carroll was a very high earner, the courts recognize the unequal bargaining power between employers and employees, says Rochwerg.

“Courts see employees at their most vulnerable following termination, so any amounts which are due and payable without requiring a release signed, courts have indicated that they're going to sanction employers where that's not provided.”

Timely payments required

The court in Carroll v. Oracle Canada was clear that failing to pay statutory entitlements when due, without explanation, and maintaining an untenable position regarding notice requirements, constitutes a breach of the duty of good faith.

It’s part of a larger trend, says Rochwerg.

“What we are seeing more and more is courts are sanctioning employers with moral, aggravated or punitive damages when they withhold an employee’s earned wages as part of a negotiating strategy or even through a mistake. There was the Pohl v. Hudson Bay case from [2022 where] the employer failed to provide the ROE within five business days as required. And .... they didn't pay the employees earned wages within the required time period as a lump sum. The court cited those two factors as justifying a $10,000 punitive damages award.”

He sees the Carroll decision as part of an ongoing trend.

“The courts are confirming that where an employer — either intentionally or inadvertently — withholds an employee's earned wages, that is conduct that they're going to sanction. And the more advertent it is and the more intentional it is, the larger damages awards we're seeing.”

Rochwerg says that employers should ensure all statutory minimums and accrued pay are provided promptly, citing as examples Morison v. Ergo-Industrial Seating Systems and Ruston v. Keddco Mfg.

“So the ESA requires that following termination... on a without cause basis, or even a cause basis, anything other than willful misconduct, when statutory minimums are owing, the employer still needs to provide the employee their accrued an outstanding pay and vacation pay up to and including the date of termination, and then any minimum statutory termination and severance pay entitlements, and the deadline for that is the later of seven days following the termination date, or the employers next payroll period following that.”

Statutory entitlements and risks of withholding pay

Any breach of minimum statutory entitlement is not going to end well for the employer, says Savage.

“I see this often where, for example, an employer terminates without cause and makes an offer of settlement that fails to distinguish between statutory entitlements and common law entitlements.”

So, the first thing to look at is the employment contract to assess whether there's a binding deal that displaces the implied obligation to give reasonable notice, he says.

“And to be clear, you have to honour that contract. There have been cases where employers have refused to pay out, effectively, what the contract contemplates. And, in some cases, that's been deemed to be bad faith conduct… so much so that it renders the entire contract unenforceable, such that the employer can no longer rely on it, and is then exposed to common law reasonable notice.”

Avoiding hardball tactics

Too many employers fail to realize that statutory entitlements are not up for negotiation, says Savage, so they can’t require an employee to sign a release, for example, to receive notice and pay in lieu that’s inclusive of the statutory pay.

“That is squarely a breach of employment standards and can get employers into trouble, getting into the bad faith damages and punitive damages, those types of things. And even if it's not intentional, it can still be deemed to be bad faith conduct.”

In this case, the court had a problem with the employer taking an untenable position with respect to an enforceability of a clause that had previously been struck down in another case, says Rochwerg.

“Also, where there's any evidence or suggestion that the employer knows that statutory minimums are owing and isn't providing them, I think courts are going to infer that that's going to be done to put pressure on the employee to potentially accept something less than their legal entitlements.”

Admit to mistakes to avoid bad faith

Savage also emphasizes the need for prompt correction of errors:

“If you screw up, just own it. If there was a payroll error — you delayed, you forgot to pay out statutory notice… all good, just fix it; fix it right away. Don't make that conditional on anything.”

Similarly, if an employer alleges just cause but realizes, after speaking to counsel, the claim is not entirely credible, it should switch to a not-for-cause termination, he says.

“You shouldn't be doubling down. And that's where these employers get into trouble — they double down on their initial positions, even though there's no support for them, even though they're not credible.

“And they show up at court. And, after litigating and putting the plaintiff through the hard exercise of going through all of these issues and having to navigate all the way to a trial, the employer is realizing they have no case, and the judge realizes pretty quickly there is no case here, and that's not going to end well for the employer.”

Mental distress: moral and aggravated damages

Courts may also award moral or aggravated damages when the manner of dismissal causes mental distress beyond normal hurt feelings.

Unlike punitive damages, these awards are compensatory, says Savage.

“That's not notice pay, it’s not wages in the sense of covering an obligation to give notice that wasn't provided. Rather, it's damages reflecting the bad faith conduct that caused some additional injury to the employee.”

That could entail untruthful, misleading and insensitive conduct, or situations where the parties “reasonably contemplate that the dismissal might cause distress beyond normal hurt feelings,” says Rochwerg.

He cites the well-known 2014 case of Boucher v. Wal-Mart Canada where the employer failed to take the employee’s complaint seriously or to enforce workplace policies, and threatened the employee with retaliation – essentially leading to their resignation.

Rochwerg adds that medical evidence is not always required for damages: “Medical evidence isn't required as a precondition for those being awarded. It's sufficient for the employee to produce affidavit evidence that additional distress was caused, and there's also no independent actionable wrong.

“So, some areas where moral and aggravated damages have been awarded is if the employee’s reputation was attacked by declarations made at the time of dismissal, if the dismissal was meant to deprive the employee of a right or benefit, or if the employer misrepresented the reasons for the decision.”

To avoid bad faith damages, both lawyers stress the importance of legal counsel and careful compliance with statutory obligations.