Play nice or pay out

Recent Walmart case shows employers can still be dinged for big damage awards if they treat fired workers poorly

Play nice or pay out

By Jeffrey R. Smith

When it comes time to fire an employee, employers have to make sure they meet all their legal obligations. A common thread throughout employment law, whether legislation or common law, is that there is a power imbalance in the employment relationship — the employer almost always is in a position of power over the employee. And this means that not only do employers have to make sure they provide sufficient notice and compensation when they cut ties with a worker, but they had better behave themselves as well and not make things even worse for the employee.

When employees win wrongful dismissal suits, they are usually awarded damages to compensate them for the notice or pay in lieu of notice to which they are entitled. This is calculated based on several factors such as the employee’s age, the importance of her job, the skill set needed for the job, and the likelihood of finding similar employment. These damages — and the notice period for which they are compensating — are meant to provide a bridge until the employee finds a new, comparable job.

However, sometimes there are circumstances where not just compensatory damages are awarded. Courts can award aggravated or punitive damages in extreme cases where not only did the employer wrongfully dismiss the employee, but also acted maliciously and made matters worse for the dismissed worker. 

The 1997 Supreme Court of Canada decision in Wallace v. United Grain Growers Ltd. set the tone for so-called bad-faith damages, setting the stage for employers who behave badly when firing employees to be on the hook for paying more than just what is owed for a reasonable notice period.

This approach was updated by Canada’s top court in 2008 in Keays v. Honda Canada Inc, which modified how bad-faith damages were awarded but didn’t really change the fact that employers who treat employees poorly in the course of dismissal face additional damages than would normally be awarded for wrongful dismissal.

In late 2012, a case involving a former Walmart employee made headlines when the employee was awarded $1.4 million by a jury for constructive dismissal, including $1 million in punitive damages for “profane and insulting mental abuse” that led to the worker resigning and $200,000 for intentional infliction of mental suffering.” At the time, this was the largest such wrongful dismissal damage award in Canadian history. However, this amount was later reduced to $420,000 – maintaining the $200,000 mental suffering award but reducing the punitive damages to $100,000, among other reductions — still a significant amount for Walmart’s bad behaviour: see Boucher v. Wal-Mart Canada Corp., 2014 CarswellOnt 6646 (Ont. C.A.).

Recently, Walmart has been in the news for bad faith in dismissing an employee again, after a former executive with the retailer won $750,000 in moral and punitive damages on top of more than $400,000 in compensation for the employee’s notice entitlement. The $250,000 in moral damages is one of the highest in Canadian employment law history for a wrongful dismissal case.

Walmart was deemed responsible for paying all that money because of the way the company treated the executive. After she rose quickly up the ladder and reached the position of vice-president, general merchandising, Walmart unceremoniously removed her from the post and held her in limbo for almost a year before firing her. Walmart also stopped paying her 11.5 months after her dismissal, despite the fact she had a termination clause in her contract requiring the company pay her for two years following termination.

The breach of good faith and the negative effect it had on the executive warranted significant punitive damages in the eyes of the Ontario Superior Court of Justice, and the extent of its “deplorable” behaviour — including delay tactics during the trial that increased the former employee’s mental stress — deserved a moral damage award as well: see Galea v. Wal-Mart Canada Corp., 2017 CarswellOnt 19522 (Ont. S.C.J.).

It’s been more than 20 years since the landmark Wallace decision that opened the door to extra damages based on employer’s bad-faith conduct when dismissing employees, and it’s still true now that employers who terminate the employment relationship have not only an obligation to ease the pain with proper notice, but must also respect the employee and the termination process. A failure to do so will exacerbate the pain not only for the employee’s stress, but also the employer’s finances.

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