Playing head games

Mental stress causing more headaches for employers

By Jeffrey R. Smith ([email protected])

You’re probably familiar with the phrase, “mind over matter.” Employers better get familiar with it, because the mind is becoming an important factor in employee claims for things like workers’ compensation and wrongful dismissal.

Mental distress has been the basis of some claims for extra damages in wrongful dismissal suits, where an employer is accused of acting in bad faith in the course of dismissal. In the past, damages for an employer’s bad behaviour in the course of dismissal were known as Wallace damages (an extension of the notice period) and were awarded in amounts often seen as arbitrarily chosen by the courts. However, the Supreme Court of Canada specified in its 2008 decision in Keays v. Honda Canada that there had to be a quantifiable loss suffered by the employee as a result of this kind of behaviour for there to be extra damages awarded.

While this new standard hasn’t always been adhered to by courts, it has changed the landscape of bad-faith damages so they aren’t awarded as often or for as large amounts. However, mental distress caused by the employer’s behaviour is still a legitimate cause for damages, particularly in discrimination cases, and they are now starting to be called “moral” damages.

A recent Ontario decision that awarded moral damages for mental distress could be cause for concern for employers. A long-term employee was awarded $20,000 in moral damages because of the employer’s “mean-spirited” conduct in firing him, in addition to 24 months’ notice. The former employee claimed he suffered from depression and personal problems after the acrimonious dismissal. However, he didn’t provide any medical evidence of the effects of his depression nor anything about any specific loss referred to the amount of $20,000, which would seem to go against the Supreme Court of Canada’s guidelines for bad-faith damages.

When mental distress comes into the picture, there could be a fine line between what part of it may be caused by bad behaviour by the employer or the dismissal itself. Stress can be a normal part of work and a normal part of termination of employment relationships. How can one determine whether or how much of stress is caused by one or the other? The Ontario Superior Court of Justice stated in 2007 that for employers to be liable for employees’ mental stress, their conduct must be “extreme, flagrant or outrageous” that intends to cause harm to the employee.

Mental stress is also becoming more common in workers’ compensation claims but, in many jurisdictions, it must be caused by an unusual event, not normal work stress. The key to success or failure for most claims is whether the evaluators determine what qualifies as an unusual or unexpected event in the course of the employee’s particular job.

Mental stress is becoming a significant factor in cases that can end up getting employees extra money, whether it’s in wrongful dismissal decisions or workers’ compensation claims. However, different people react differently to stressful situations, partly due to their perspective. How does one differentiate between normal work stress and unwarranted mental distress caused by extraordinary circumstances or conduct?

Jeffrey R. Smith is the editor of Canadian Employment Law Today, a publication that looks at workplace law from a business perspective. For more information, visit

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