Poor conduct tends to result in poor outcomes for those that think they are above the rules, and employment law is no different. Courts have a range of tools at their disposal to penalize parties that engage in egregious conduct.

The case of Humphrey v Mene Inc. before the Court of Appeal for Ontario demonstrates what can happen when an employer behaves badly during the termination process. It also demonstrates the risk to employees if they fail to mitigate damages by turning down suitable alternate employment after being terminated.

Employee terminated after requesting salary increase

In 2016, the plaintiff was hired by Goldmoney Inc. She assisted its co-founder and CEO, Mr. Sebag, to create a new subsidiary, Mene (the defendant). The plaintiff was initially its Vice President Operations, but in 2018, she was promoted to Chief Operating Officer with a salary of $90,000 and stock options.

In 2019, the plaintiff emailed Mr. Sebag to request a salary increase to $165,000. He responded by questioning her dedication to the business but saying he would discuss it with the compensation committee. After following up three weeks later, the plaintiff was contacted by one of the defendant’s vendors, who told her that she had received an email saying that the plaintiff no longer worked there.

That night, the plaintiff received a letter suspending her from work pending an investigation and decision on whether to terminate or demote her. The letter referred to six performance issues. The plaintiff’s lawyer objected to the allegations and requested that the defendant preserve all documents should litigation arise. The defendant subsequently terminated the plaintiff, claiming that it had just cause.

Motion judge finds employee was constructively dismissed

The plaintiff commenced a wrongful dismissal action. After the defendant initially asserted that it had just cause to terminate the plaintiff, the defendant failed to comply with two court deadlines and, the day before the plaintiff’s materials were due, withdrew its just cause defence claiming that it had destroyed the documents that helped support its position in accordance with its document retention policy.

The motion judge decided that the plaintiff was constructively dismissed due to the cumulative impact of the toxic workplace, the imminent demotion and negative communications with the defendant’s clients and staff while she was suspended.

The motion judge applied the Bardal factors and awarded a reasonable notice period of 12 months.

Court of Appeal finds employee unreasonably rejected a suitable comparable position

A terminated employee has a duty to mitigate damages by seeking and accepting reasonably comparable employment. The employer has the onus to prove lack of reasonable efforts to mitigate.

The defendant argued that the plaintiff failed to mitigate her damages by turning down an offer of the position of VP E-Commerce that she received seven months post-termination. The plaintiff said that it was not comparable because it was not a broad-based senior leadership role.

Justice of Appeal van Rensburg, writing on behalf of the Court of Appeal, sided with the defendant on this issue because the plaintiff was offered a senior management position with comparable compensation. Her Honour said:

Comparable employment does not mean identical employment. It means “a comparable position reasonably adapted to [the plaintiff’s] abilities”.

As a result, the Court of Appeal reduced the plaintiff’s damages in lieu of notice to the equivalent of six months’ compensation.

Employer’s bad faith justified aggravated damages

As we have reported previously, Ontario courts have confirmed that there is an obligation of good faith in the manner of dismissal of an employee and that damages are available where an employer engages in conduct that is “unfair or is in bad faith by being…untruthful, misleading or unduly insensitive”.

The motion judge found that the plaintiff was entitled to aggravated damages of $50,000 because the defendant acted in bad faith in the manner of dismissal by being untruthful about the reasons for dismissal and communicating with other employees and clients about her removal from the position before she was informed. The plaintiff suffered compensable and reasonably foreseeable damages for mental distress.

Justice of Appeal van Rensburg agreed that the employer’s conduct amounted to bad faith in the circumstances of the plaintiff’s dismissal, explaining:

The motion judge concluded that the termination for cause was in bad faith – that the various performance issues and misconduct allegations that Mene had raised at the time of Ms. Humphrey’s suspension and removal from the position of COO (which amounted to constructive dismissal, a finding not challenged on appeal) and formal termination were a pretext for terminating her for cause.

Employer’s reprehensible litigation conduct warranted punitive damages

Punitive damages in breach of contract or tort cases are exceptional. They are intended to punish a defendant for reprehensible behaviour that departs markedly from normal standards, and to retributively, deter and denounce the defendant’s actions.

The motion judge found that the plaintiff was entitled to punitive damages of $25,000 because the defendant engaged in “reprehensible” litigation conduct, “consistent with a litigant who sees itself as above the rules”. In particular, the defendant continued to raise irrelevant performance issues, “dredged the waters looking for anything and everything it can say” to make the plaintiff look bad and was either untruthful about the existence of extensive material in support of its termination letter or failed to preserve the documents.

Justice of Appeal van Rensburg agreed that the employer’s litigation conduct warranted an award of punitive damages, finding no error in the motion judge’s factual conclusions and analysis.

Contact Grosman Gale Fletcher Hopkins LLP in Toronto for Guidance on Employee Termination

If you are an employer or an employee going through the termination process, contact the labour and employment lawyers at Grosman Gale Fletcher Hopkins LLP. We have helped workplace parties with their most challenging employment-related matters for more than three decades. We assist employers to manage risk when seeking to terminate employees. We also help employees secure all their entitlements in the event of termination.

We are one of Canada’s most recommended labour and employment law firms. If you need guidance with a workplace-related issue, contact us online or at 416.364.9599.