Recent Ontario case highlights perils of alleging just cause for dismissal without any reasonable basis
By Stuart Rudner
I often say that “just cause is not a lost cause.” In other words, it is possible to dismiss someone for cause in Canada, although the threshold is high. I say this because some employers are convinced that “no one can be fired in Canada” and there is no point in trying.
At the other end of the spectrum, we occasionally see employers that fire for cause for no reason at all, other than an attempt to bully an employee into a poor settlement. Such a strategy is incredibly ill-conceived; alleging just cause for dismissal without any reasonable basis is one of the worst things an employer can do, and will result in additional liability, as a recent Ontario decision confirmed.
This scenario is where the books written by my law partner, Natalie MacDonald, and I, converge (You’re Fired: Just Cause For Dismissal In Canada and Extraordinary Damages In Canadian Employment Law). Where employers choose to allege they had just cause for dismissal without any reasonable basis, particularly when they do so in order to play hardball as part of a negotiation strategy, they expose themselves to extraordinary damages.
The facts in Morison v Ergo-Industrial Seating Systems Inc. are fairly straightforward. As the trial judge found, the defendant had decided the plaintiff was not a good fit, and had in fact found a potential replacement for him. The company was also aware the plaintiff was in a precarious financial situation, and in order to try to minimize its severance costs, it took an aggressive position, alleging just cause without a reasonable basis and refusing to pay anything, including statutory termination payments, in the timeframes required.
As the court found:
“ It is clear that an employer can allege just cause as a ground for dismissal and that abandoning cause at any stage, in the course of the action, does not necessarily mean that such conduct should attract aggravated damages. Provided the employer had a reasonable basis on which it believed it could dismiss an employee for cause, a finding of bad faith will not automatically follow: see Mulvihill v. Ottawa (City), 2008 ONCA 201 (CanLII), 90 O.R. (3d) 285, at paras. 49, 55.”
“… Considering all the evidence on this issue, I conclude that alleging cause was an integral part of the defendant’s negotiation strategy. The defendant was counselled in September 2012 that it would not be able to establish cause. The defendant alluded to a possibility of alleging cause in its dismissal letter. The defendant then alleged cause in its defence and adopted a rather aggressive position while providing no convincing evidence at trial that could support its alleged reasonable belief in cause or that it was reasonably justified in initially adopting a position of just cause.”
“ This is exactly the kind of conduct mentioned in Honda v. Keays as an example of conduct in dismissal that could result in aggravated damages. I find that the defendant did not act fairly or in good faith in the manner of dismissal of Mr. Morison as the defendant was not candid, reasonably honest, nor forthright with Mr. Morison. The defendant, by its allegations made with no reasonable basis in support thereof, attacked the reputation of Mr. Morison by making misrepresentations regarding the reasons for his dismissal for financial gain (i.e. seeking a better outcome in its negotiations with Mr. Morison). This is a classic example of bad faith.”
“ However, the law is clear that any damages resulting from such a conduct are to be compensatory and are to reflect the actual damages sustained.”
The plaintiff, a 58-year-old regional sales manager with eight years of service, was awarded 12 months of pay in lieu of notice, which is at the higher end of the range. The more interesting aspect of the decision, however, concerned extraordinary damages.
To begin with, the court considered whether moral damages (The Damages Formerly Known As Wallace) would be appropriate. Although the court found that the employer had engaged in bad faith conduct, and there was evidence the plaintiff suffered mental distress, the court was not satisfied the mental distress or suffering was distinguishable from the usual consequences of losing one's job. In accordance with the Supreme Court of Canada's decision in Keays v. Honda Inc., in order to warrant an award of moral damages, there must be bad faith conduct and damages that are attributable directly to that conduct.
I pause to note that the court was not deterred by the lack of medical evidence. There has been some debate since the Honda decision as to whether medical evidence is required in order to substantiate damages arising out of the employer’s bad faith. In recent years, several cases have accepted that such evidence is not required, as long as there is credible evidence, which can come from the plaintiff, their spouse, or other witnesses.
As the court wrote:
“ On this point, the evidence in this case is quite different from that in Middleton v. Highlands East (Municipality), 2013 ONSC 763, 8 M.P.L.R. (5th) 114, where the court found, at para. 142, sufficient evidence of mental distress. Here, the evidence of mental distress caused by the manner of dismissal cannot be dissociated from the usual anguish and stress resulting from having one’s employment terminated. I point out that I am not concerned with the lack of a medical report (on which time was spent during closing arguments), but rather with the lack of convincing evidence of mental distress on which I could properly assess damages resulting from the manner of dismissal. By way of example, some of the plaintiff’s evidence on this related to how he was in a fog when he found out by a friend that he would be dismissed and how this was a horrible day, with other parts of his evidence relating to his financial distress. Despite mentioning that the allegations of cause got his back up and caused him some upset, his evidence in that regard was extremely superficial and lacked particulars. The evidence is not at all convincing and is simply not sufficient to warrant any damages in this context, since normal distress and hurt feelings resulting from a dismissal are not compensable.”
Due to the lack of a causal connection between the bad faith conduct and the damages, moral damages were not awarded. The court went on to consider whether punitive damages would be appropriate. Unlike moral damages, which are intended to be compensatory, punitive damages are to be used in order to punish a party for conduct that the court deems worthy of further sanction, where compensatory damages are insufficient. In Honda, the Supreme Court made it clear that "double dipping" is inappropriate. In other words, the same actions should not be used to justify both moral and punitive damages. In this case, since moral damages were not awarded, the court awarded $50,000 in punitive damages. As the court wrote:
“ An excellent summary of the law applicable to punitive damages is provided by our Court of Appeal in Boucher v. Wal-Mart Canada Corp., supra, at paras. 78 – 92. Basically, in an employment or breach of contract setting, three basic requirements need to be established by the plaintiff:
1) That the defendant’s conduct is reprehensible, “malicious, oppressive and high-handed,” and “a marked departure from ordinary standards of decent behaviour.”
2) That a punitive damages award, when added to any compensatory award, is rationally required to punish the defendant and to meet the objectives of retribution, deterrence, and denunciation.
3) That the defendant committed an actionable wrong independent of the underlying claim for damages for breach of contract (in this case, something other than breach of the implied notice provision). A breach of the defendant’s duty of good faith and fair dealings would constitute an independent actionable wrong.”
“… In this case, the defendant committed an actionable wrong independent of the underlying claim for damages for breach of contract: the breach of its duty of good faith, as found above.”
“ I find the facts of this case particularly troubling. Not only did the defendant assert cause when there was no reasonable basis for such an assertion, the defendant delayed in providing the plaintiff his record of employment, and significantly delayed in paying amounts owing under the Employment Standards Act, 2000, until June 15, 2015. This had a significant financial impact on the plaintiff and the employer had knowledge of the plaintiff’s financial circumstances. Moreover, the allegations of cause, made with no reasonable basis, were made for tactical and financial gain considerations.”
“ I had the advantage of listening to the evidence and observing the witnesses and I find such conduct to be reprehensible. It exceeds what might be considered as ill-advised. The allegations of cause, made with no reasonable basis, and the significantly delayed payment of statutory amounts were intentional and financially impacted the plaintiff. These actions of the defendant were designed to financially benefit the defendant and the defendant had knowledge of the plaintiff’s precarious financial position. Such a conduct is “malicious, oppressive and high-handed” and “a marked departure from ordinary standards of decent behaviour”. A similar finding was made in Kelly v. Norsemont Mining Inc., 2013 BCSC 147 (CanLII), at para. 115.”
“ Since I have awarded no amount for aggravated damages, the pitfalls of double-compensation or double-punishment mentioned in Honda v. Keays is avoided if I award punitive damages.”
“ Considering the facts of this case, I find that an award of punitive damages is rationally required to punish the defendant and to meet the objectives of retribution, deterrence, and denunciation. Employers cannot be allowed to behave in such a fashion without a clear message being sent by this Court that this is not acceptable.”
This case is a great example of why employers should never allege they have just cause for dismissal unless they have a good faith, reasonable basis for doing so. If such a basis exists, then they should not be concerned about extraordinary damages. However, when they "manufacture cause" in order to attempt to improve their bargaining position, they will be sanctioned and end up paying more than they would have if they had simply provided appropriate pay in lieu of notice.
- Moral damages will only be awarded when there is bad faith conduct on the part of the employer that is directly linked to damages or suffering on the part of the employee.
- The damages or suffering must be distinguishable from the usual upset or suffering a person experiences when she loses her job.
- Evidence of such damages does not have to be provided by a medical expert, so long as it is credible.
- The same set of facts should not be used to justify both moral and punitive damages.
- Unlike moral damages, punitive damages are not intended to be compensatory, and are based upon the actions of the defendant, regardless of any damages suffered by the plaintiff as a result.
The bottom line: It is almost always going to be less costly and more efficient to offer someone a reasonable severance package than to attempt to rely upon just cause for dismissal where there is no reasonable basis for doing so. Before dismissing someone, particularly for cause, employers should consult with a lawyer who specializes in employment law. And individuals who are dismissed, particularly for allegedly cause, should consult an employment lawyer and assess whether they have a cause of action.