Moral Damages and Punitive Damages: The Costs of Unreasonable Conduct

Workplace Investigation

Ontario employers may, from time to time, encounter claims for moral (sometimes known as aggravated damages) and punitive damages arising from a contentious workplace dispute – often surrounding an acrimonious termination. These sorts of damages are only awarded in extraordinary situations where the court determines that an employee must be compensated for an employer’s bad faith conduct (for moral damages) or that the employer should be punished for their conduct (for punitive damages).

Moral Damages Primer

Moral damages will be awarded in cases where:

  1. the employer breached its duty of good faith and fair dealing during the course of dismissal; and
  2. the employee suffered mental distress or another intangible effect as a result of the employer’s breach.

The obligation of “good faith and fair dealing” is nebulous in a vacuum, but it generally requires employers to be forthright and honest during termination, and to not engage in unfair, untruthful, misleading, or insensitive conduct. Some examples of bad faith conduct can include:

  • Misrepresenting the reason for terminating employment.
  • Making statements that damage the employee’s reputation or ability to be reemployed.
  • “Eliminating” an employee’s position, only to fill it again with a new employee in short order.
  • Discrimination and other forms of negative conduct toward an employee during termination.

Of course, this is not an exhaustive list. In essence, courts understand that termination of employment is a fact of business life, but they do not accept that terminations should be handed in a manner that injures employees or threatens their ability to earn a future living.

Punitive Damages Primer

While moral damages are intended to compensate employees for employer misconduct, punitive damages are intended to punish employers and deter future misconduct. As such, courts will consider whether any payment of moral damages is sufficient to deter and punish the employer before they award punitive damages. Punitive damages are, therefore, generally harder to obtain than moral damages.

The demonstrate that punitive damages are an appropriate remedy, employees must show that:

  1. the employer’s conduct was “malicious, oppressive, and high handed” and was a “marked departure from the ordinary standards of decent behaviour”;
  2. the employer committed an actionable wrong independent of the wrongful dismissal claim; and
  3. demonstrate that the punitive damages award meets the objectives of “retribution, deterrence, and denunciation”.

In essence these damages are geared toward harsh or extreme actions by employers which, when viewed on a reasonable standard, are deserving of condemnation and punishment. Cases justifying punitive damages have greatly varied, some examples include:

  • Terminating an employee after the employee alerted the employer to workplace harassment.
  • Conducting unfair workplace investigations to justify termination.
  • Alleging just cause for termination under false pretenses.
  • Making a counterclaim against an employee to strategically intimidate them during a lawsuit.

Application to a Recent Case

Recently, the Ontario Superior Court was asked to weigh in on moral and punitive damages in the Pohl v. Hudson’s Bay Company 2022 ONSC 5230 case. This case involved an employee with 28 years of service, who was fired by HBC during a nation-wide business restructuring in light of the COVID pandemic.

The employee brought a claim for wrongful dismissal, which was successful, and the employee was awarded 24 months of salary in lieu of reasonable notice for a variety of reasons, not least of which his years of service and age. However, for this post’s purposes, the employee also claimed moral and punitive damages due to the manner of his termination.

In particular, the employer’s decisions to do the following were reviewed by the court:

  • The employee was “escorted” out of the door despite there being no misconduct being alleged against him. Justice Centa considered this action unduly insensitive.
  • HBC’s attempt to offer the employee a demotion that would disentitle him from claiming common law notice was viewed by the Justice as misleading.
  • The Employer failed to issue an ROE properly and failed to pay his outstanding wages in a lump sum following his refusal to sign the severance package which the Justice viewed as an intentional violation of the Employment Standards Act, 2000.
  • The two ROEs issued by HBC contained errors or inaccuracies, including incorrect dates.

The employee felt that HBC was engaging in this conduct for the purpose of obtaining benefits to which it was not entitled. Justice Centa disagreed but did find that HBC’s actions increased the employee’s sense of “exploitation, humiliation, and depression.”

Taking all of the above conduct together, the court found that HBC did breach its duty of good faith and fair dealing. The employee was entitled to $45,000.00 as payment for moral damages as a result.

On the point of punitive damages, with consideration the same activities listed above, Justice Centa focused on the failure to comply with the ESA and issuance of an incorrect ROE. He disagreed with the employee’s claim for $100,000 of punitive damages and, instead, awarded $10,000.00.

Takeaways

Employers in Ontario, and across Canada, should ensure that their terminations are handed carefully, respectfully, and with due regard to the context and circumstances of the termination. Failure to do so could result in significantly higher awards for damages that could generally be avoided.

At Bridge Legal & HR Solutions, we provide expertise for employers of all sizes. Call us today at (647) 794-5442 for all your employment law and workplace investigation needs.

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