Canada: Punitive And Aggravated Damages – Exceptional But Necessary Remedies

Ruston v Keddco Mfg. (2011) Ltd., 2018 ONSC 2919

Although traditionally, punitive and aggravated damages were deemed as exceptional remedies, the Courts have turned to these remedies to assist employees where the employer's actions may be deemed as high-handed and spurious.

Facts:

An employee  named J. P. Ruston (Ruston) was promoted to company president at Keddco Manufacturing Limited (Keddco), a manufacturer and distributor  of oil and petrochemical industry products within North America. Sometime thereafter, issues were raised about Keddco's annual underperformance. Despite those concerns, Ruston continued to receive bonuses and no complaints with respect to his performance were discussed.

However, eventually concerns with Ruston's performance started to be raised by Keddco's CEO. Ruston was asked to take time off work, and later he received an alert that his e-mail account was disabled. He also received a request from the CEO to attend a meeting and return the company-issued keys, laptop and cell phone, all of which he complied with. That evening, the CEO sent an email to Ruston further advising him of her concerns and concluding with "I'd like us to work together".

During a meeting the next day, Ruston was told that he was being dismissed for cause because he had committed fraud. Ruston claimed that he did not know what the CEO was referring to and that he would be contacting his lawyer. In response, the CEO indicated that it would be a very expensive process for Ruston. At that point he was dismissed without notice and was provided with a letter of termination; however it did not provide any further details as to the reasons for his dismissal. He only learned of reasons for his termination when he received a Statement of Defence and Counterclaim from Keddco.

At the time of his dismissal Ruston was 54 years old, had a Grade 12 education, and was earning $278,476.08 per year, plus bonuses. Following his dismissal, he was unable to find permanent employment from the time of his dismissal to the time of trial.

As a result, Ruston sued Keddco for wrongful dismissal and claimed punitive and aggravated damages. Keddco counterclaimed alleging unjust enrichment, breach of fiduciary duty and civil fraud.

At Trial:

At trial the CEO stated that upon confronting Ruston about the company's performance she found Ruston to be evasive and untruthful and became concerned about his work performance regarding inventory orders. She stated that after she spoke to other employees about his performance, she believed that Ruston made misrepresentations, manipulated financial statements, inappropriately realized a profit, negligently purchased excess inventory and created a toxic work environment and therefore needed immediate dismissal.

Rule of Law:

The Court emphasized that an employee's dishonesty will be considered as just cause for summary dismissal only where it is fundamentally and directly inconsistent with the employee's obligation to his or her employer. The Court then applied a three-part test to decide if Keddco had just cause to dismiss Ruston, which was comprised of: 1) determining the nature, extent and seriousness of misconduct; 2) considering surrounding circumstances; and 3) determining whether dismissal is warranted in light of 1) and 2).

Next, the Court considered the law with respect to the appropriate notice period owed to an employee who is dismissed without just cause and calculation of damages.

More specifically, the Court summarized the law with respect to punitive damages. It concluded that punitive damages are meant to punish the wrongs inflicted on the claimant and will be awarded in exceptional cases where the misconduct is malicious, oppressive or high-handed. The Court indicated that actions which are meant to threated or intimidate someone fall into this category of misconduct.  

Further, the Court reiterated that aggravated damages may be awarded to compensate the employee where an employer has breached its duty of good faith and fair dealing or has conducted itself in a manner that is untruthful, misleading and insensitive, i.e. causing an employee mental distress beyond the normal distress and hurt feelings that accompany dismissal. Further, the Court emphasized that to show mental distress, medical evidence will not be required.

Court's Findings and Decision:

The Court found Ruston to be a credible witness while the CEO was not. The Court concluded that the allegations of fraud and negligence were not supported by the facts before the Court, and furthermore, Keddco dropped several of its claims against Ruston at or just before trial. For example, the fact that Ruston was offered a bonus that year and continued to work without any issues being raised with him until just prior to the dismissal was inconsistent with the stated reasons for his termination. Further, the alleged inventory issues were largely dealt with prior to his dismissal and the email from the CEO indicated the CEO's open attitude to finding a resolution and continuing to work together. Therefore, any allegations of cause for dismissal were without merit. Considering all the facts, the Court found that Ruston was wrongfully dismissed, that he was threatened and intimidated, and that Keddco used an unsupported after-the-fact justification to fire him.

Award:

As a result, the Court dismissed Keddco's counterclaim and awarded approximately $600,000 in damages to Ruston, which included damages in lieu of 19-month notice period ($233,857.81 for lost base salary plus $194,320 for lost bonus and $51,449.15 for benefits), punitive damages ($100,000), and aggravated damages ($25,000).

Lessons from the Court:

In its analysis, the Ontario Court considers a variety of prior Court decisions that have deliberated on punitive and aggravated damages. Although most of these cases were from Ontario, the principles are similarly applicable to Alberta. For example, recent cases from Alberta such as Beaudoin v Agriculture Financial Services Corporation, 2018 ABQB 627 and Dragos v Hunterwood Technologies Ltd., 2018 ABPC 40, have considered these types of damages in the employment context but did not award them. However, this decision and others indicate that in cases where an employer relies on exaggerated or unjustified claims of employee  misconduct, it remains open to the Court to assess significant damage awards that far exceed the normal damages for without-cause dismissals. It remains important for employers to objectively consider the individual facts of the employee it is assessing, and to consider those facts in the context of the law and the available evidence to support its conclusion on dismissal. As this case demonstrates, employers that fail to do so can not only be subjected to higher damage awards, but also a public discussion about their human resources cultures that can drive away desirable employees.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.