Moral & Punitive Damages – The Beat Goes On

A recent decision[1] of the Ontario Superior Court has once again raised eyebrows with its significant award of extraordinary damages above and beyond the traditional award of monetary compensation for lost income resulting from the termination of employment.

Sum Due by Contract

In this case, the award of lost income had been set through the  employment contract in question. The employer had agreed that it would be required to pay two years compensation of all forms of income in exchange for the employee’s agreement to abide by a far reaching non-compete agreement which covered mass retailers in all of North America, where there was a non-for-cause termination ( which this was agreed to be).

The employer had failed, however, to honour this commitment. It did pay 11.5 months of basic salary for this period. The claim for the residual financial loss amounted to $915,897, certainly a significant sum. The determination of this claim was, however, not staggering in terms of the legal analysis. The elements of this claim were contractual and predictable. The fact that the company chose to ignore its clear contractual commitment to pay even base salary for the contracted period was significant for the reasons below.

Moral & Punitive Damages

The elements of the award that were most significant were the awards of moral and punitive damages in the sums of $250,000 and $500,000 respectively.

The latter award is even more staggering given that the same defendant, Wal-Mart of Canada, had been the subject of a similar punitive damage award of $1 million at a jury trial, which was substantially reduced to $100,000 by the Court of Appeal.[2] The same decision upheld the jury’s award of $200,000 for moral damages.[3]

Moral Damages

To establish a claim for moral or aggravated damages, there must be proven conduct which shows a breach of the duty of good faith and fair dealing in the manner of dismissal. The conduct must cause mental distress well beyond the degree of hurt which would accompany any normal dismissal.

Interestingly, medical evidence is not required to prove this claim. This is a new path as recently determined by the Supreme Court of Canada. It may well be preferred but it is not required. No such medical evidence was introduced in this case, and the Court found that it was not needed.

Conduct Leading to Moral Damages in This Case

The conduct of the company over a ten-month interval leading to the termination of the plaintiff was seen by the Court, as reflecting a pattern of continued humiliation. The plaintiff had been removed from her position of Vice President, General Merchandising to a “roving vice president of little substance”. During this time, the company did nothing to advance alternative opportunities as it promised it would. In fact, it had unfairly downgraded her performance rating, a move which negatively affected her other international possibilities.

A further trial issue involved a series of documents relevant to this performance review which had not been previously produced, as was required.  These documents showed that the performance rating was arbitrary and further that it placed the plaintiff in a “non currently promotable category”.

The Court found that the company had decided to dismiss the plaintiff 10 months before it announced the reality of this decision to her. In the interim, she valiantly sought alternative international positions but was essentially destined to fail.

In addition, the company offered no explanation as to why it ceased salary payments post-termination after 11.5 months when the contract clearly mandated two year payments.

Damages Awarded

The sum of $250,000 was awarded for moral damages of which $50,000 was allocated for the failure to produce relevant documents during the litigation process. This latter decision is unusual as typically unfair trial tactics are considered in costs submissions.

Punitive Damages

Punitive damages are unusual damage awards and difficult to obtain. It must be shown that the questioned conduct is malicious and intended to injure the plaintiff and “offends the court’s sense of decency”.

There have been significant past awards of punitive damages, notably in a case in which the terminated employee had been unfairly charged criminally. In that case, an initial punitive damage award, for failing to conduct a proper workplace investigation, led to a first award of $25,000. The Court of Appeal then ordered a new trial on this issue. The same Court subsequently determined that the correct punitive damage award should be $450,000.[4]

Punitive Damages in This Case

Here, the trial judge found that the company acted in a mean- spirited way during  the 10 month period  prior to her dismissal by removing the plaintiff from an important position, promising her new career prospects, and acting in a manner to defeat such aspirations which it had given her. A senior person of the company also arbitrarily altered the plaintiff’s performance rating without foundation. The company further unfairly made the plaintiff elect a probationary position as Vice President E-Commerce or a severance was also seen as influential. Its conduct was seen on a parallel to that of the case of the unfairly prosecuted employee.

A distinction was made between these facts and the prior Wal-Mart case in that in this instance the offensive conduct was that of senior company officials. In the prior case, the wrongdoing was that of a more junior level manager. That wrongdoing had been of a passive nature, one of failing to correct, rather than being directly offensive as in the recent decision.

More to Come

The case is far from over. The trial took 28 days. The costs award will be substantial, likely in the range of $300,000 to $500,000. Given Wal-Mart’s prior litigation record, an appeal no doubt will be considered.

Lessons to be Learned

Employers must take heed from the conduct of the company which was unfair and callous. Early intervention from legal counsel could have saved literally millions of dollars, given the awards of extra-ordinary damages, and double sets of costs including Wal-Mart’s own defence costs. Decision of this calibre become part of the public conscious. They impair the potential of the company to hire able and skilled personnel. The ramifications are enormous.

Legal Advice is a Cornerstone

Whether you are an employee facing adverse workplace conduct, a small proprietor or a multi-national facing difficult employment decisions, legal advice must be the concrete foundation of your actions. The consequences of the wrong decisions are too important to ignore. Contact the offices of Toronto employment lawyers Grosman Gale Fletcher Hopkins. We regularly advise employees and employers on legal workplace issues. Contact us online or by phone at 416 364 9599 to schedule a consultation.




[1] Galea v Wal-Mart

[2] Boucher v Wal-Mart

[3] There was also a separate award in Boucher of $100,000 against a personal defendant for the intentional infliction of mental shock. A punitive damage award against this defendant of $150,000 was also reduced to $10,000.

[4] Pate Estate v Galway