Court confirms physical incapability to mitigate damages doesn't require medical evidence

A recent Ontario Court of Appeal decision is serving as a reminder about how employer actions during terminations might affect an employee’s mental health.

The court upheld a Superior Court judge’s 2022 decision awarding the employee, Drago Krmpotic, $50,000 for aggravated/moral damages due to the manner in which he was terminated, which the justice described in his decision as “'the antithesis of an employer’s duty' to be candid, reasonable, honest and forthright.”

Krmpotic was 56 at the time of his termination, and had been working with the employer, Thunder Bay Electronics Limited (TBEL) and Hill Street Financial Services for 30 years when he underwent back surgery in 2016 to address various injuries sustained over the course of his career.

Only hours after Krmpotic returned from his medical leave on June 13, 2016, TBEL terminated his employment without notice or cause.

Injury due to mental distress from wrongful dismissal falls on a spectrum

When determining whether employers have acted in bad faith in wrongful dismissal and aggravated damages decisions, the courts have been deciding in favour of employees for some years now, says Laura Buck, labour, employment and human rights lawyer of Hicks Morley in Waterloo.

So it is wise for employers to carefully consider the context and specific circumstances of terminations before proceeding.

“These types of cases, they're fact specific, they're decided on a case-by-case basis,” she says.

“So, entitlement to aggravated damages is not a ‘one size fits all’, and courts will look at the specific circumstances, and what happened in the manner of termination, when they're assessing whether an employee is entitled to those types of damages.”

In the Superior Court trial, it was decided that Krmpotic had suffered mental distress due to the way that TBEL had conducted the termination, to the extent that he was entitled compensation.

That decision hinged on where Krmpotic fell along what the judge called a “spectrum” of mental distress.

‘Mental distress a broad concept’: court

“Mental distress is a broad concept,” wrote the appeals panel.

“There is a spectrum along which a person can suffer mental distress as a result of the manner of dismissal. At one end is the person who suffers the normal distress and hurt feelings resulting from dismissal, which are not compensable in damages. At the other end of the spectrum is the person who suffers from a diagnosable psychological condition as a result of the manner of dismissal. In between those two end points, there is a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury.”

Although Krmpotic had not provided medical evidence of diagnosable psychological injury, he was awarded damages based on a two-part test: “whether (1) the appellants’ conduct, during the course of termination amounted to a breach of their duty of honest performance; and (2), if so, whether Mr. Krmpotic suffered harm – beyond the normal distress and hurt feelings arising from dismissal - as a result of that breach.”

This spectrum, Buck says, means that in the absence of a diagnosable medical condition, judges may consider the facts of each specific case, and may also consider evidence from various sources to determine whether an employee suffered harm beyond normal distress and hurt feelings associated with the termination of employment.

In this case, the Court of Appeal held that there was no error when the trial judge accepted evidence of the employee’s family and medical records, when determining whether he had suffered mental distress, such that he was entitled to aggravated damages.

“There's this spectrum along which people will suffer to varying degrees or react to varying degrees,” says Buck. “So the court may accept evidence of the employee, evidence of the employee's family, and medical records, for example, in determining where an employee falls on that spectrum and whether or not they're entitled to aggravated damages.”

Mitigation hindered by physical condition proven without medical records

The employers paid Krmpotic 16 months’ of pay after his termination. Roughly 16 months after the termination, he attempted to mitigate by taking a new role but was not able to meet the physical demands of the work and was let go.

The second employer (who was Krmpotic’s son) confirmed that Krmpotic’s employment there depended on his being able to meet the physical requirements.

“The reason why this case is significant is that we're getting a clearer sense from the court about the type of evidence that a court can accept when an employee is establishing or attempting to establish entitlement to [aggravated] damages,” says Buck.

On the appeal, the employers argued that physical incapability to mitigate damages can be proven only by medical evidence. The trial judge had disagreed, and the appeal panel upheld that decision, based on the facts that at the time Krmpotic “was (1) 59 years old, (2) recovering from back surgery, and (3) ‘significantly limited in his ability to perform the physical labour which his occupation demands on a daily basis.’”

The judge also allowed evidence in the form of statements from Krmpotic’s wife and son, as well as historical medical records. He was awarded 24 months’ notice by the trial judge.

Context, common sense when terminating employees

“Courts in Ontario are increasingly scrutinizing the termination conduct of employers and wrongful dismissal cases,” Buck says. “Through this decision, the court has determined that judges may consider different forms of mental distress that don’t quite rise to the level of a diagnosed psychological condition when assessing an employee’s entitlement to aggravated damages.”

During the termination meeting, the employer told Krmpotic that his termination was due to financial circumstances. The trial judge easily discounted this claim as TBEL did not provide any evidence to support that claim.

For this reason, the employer was found to have breached their duty of good faith by not being “candid or forthright,” the courts said.

“The judge did find that while the employer was not directly untruthful with the employee during the termination meeting, because they had misrepresented the reason for the termination, this meant that they were neither candid or forthright,” says Buck. “So there's no express definition provided, but that gives a sense of the type of conduct that a court might consider when they're making this analysis.”

While there is no specific definition of what an employer needs to do to be candid, Buck says, this decision gives a strong indication, and it’s likely that it will be followed in lower court decisions in other jurisdictions.

“It will, or could be, looked at as a precedent case for judges who are deciding cases with similar facts, and it will be binding in lower courts [in Ontario],” says Buck.

“Any province’s Court of Appeal decisions are instructive to other courts of appeal and other lower-level courts, and other provincial jurisdictions throughout the country … it's not binding in the same sense that it would be on lower-level courts in Ontario, but it can be instructive to courts.”