In Walker v Hulse, Playfair and McGarry, 2017 ONSC 358, the Ontario Divisional Court set aside an award of aggravated damages stemming from a wrongful dismissal lawsuit brought in the Small Claims Court.
In December 23, 2013, the Plaintiff was suspended with pay while the employer, a local funeral home, conducted an investigation into inappropriate comments and failure to complete assigned tasks. Upon the Plaintiff’s return to work, he was presented with a dismissal letter stating that despite having grounds for termination for cause; the Plaintiff was being terminated without cause. The employer paid the Plaintiff two weeks’ pay in lieu of notice in accordance with the Employment Standards Act (“ESA”).
The Plaintiff sued his former employer for wrongful dismissal, mental distress, aggravated damages, punitive damages and intentional infliction of mental suffering in the amount of $25,000 (the limit in the Small Claims Court). Among his claims, the Plaintiff asserted that, despite his contract limiting entitlement to the minimum standards pursuant to the ESA, he was entitled to reasonable notice of termination at common law. At trial, the Small Claims Court held that the Plaintiff’s termination entitlements were governed by his employment contract which lawfully limited his notice upon termination, to the ESA. The Plaintiff’s claims save and except an award of $5000 in aggravated damages, were dismissed by the Court. The Court’s reasons for the award were the following: “There was no cause for dismissal, but in the termination letter it was threatened; if no release was signed, the plaintiff would be terminated for cause and would receive no severance pay.” As the termination was without cause, the Court found that the termination letter gave rise to aggravated damages.
On appeal to the Divisional Court, the Divisional Court reiterated the Supreme Court of Canada’s view that aggravated damages are appropriate “where the employer engages in conduct during the course of dismissal that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.” In this case, the Divisional Court found that the employer had not done anything that would allow the trial judge to establish a claim for aggravated damages. Relying on the appellate authority which stated that where cause is alleged, but not ultimately proven, aggravated damages are inappropriate unless the employer had no reasonable basis on which to ground a dismissal for cause, the Divisional allowed the employer’s appeal and dismissed the Plaintiff’s claim.
When terminating an employee, employers must remain vigilant to avoid conduct that can be construed as untruthful, misleading or unduly insensitive. This case exemplifies however that employers are entitled to allege cause and then abandon this assertion, so long as there is some reasonable basis for the allegation. In the absence of a reasonable basis to allege cause, employers may well find themselves defending claims for aggravated damages.