$20,000 Punitive Damages Award for Bad Faith Dismissal

Madam Justice Linda Loo of the British Columbia Supreme Court has handed down reasons for judgment in Nishina v. Azuma Foods (Canada) Co., Ltd. which are an important interpretation of recent decision of the Supreme Court of Canada.

The Supreme Court of Canada decided in Honda Canada Inc. v. Keays, 2008 SCC 39 (CanLII), 2008 SCC 39. In that decision the SCC had directed a return to the principles laid out in Hadley v. Baxendale (1854), [1843-1860] All E.R. Rep. 461: at the time the contract was made, could the employer have reasonably foreseen that if it dismissed the employee in the manner that it did, that the employee would suffer mental distress? If so, and if the dismissed employee could prove mental distress, the court could award damages not based on an increase in the notice period, but as actual non-pecuniary compensation as a separate head of damages.

Commentators had questioned whether Honda v. Keays meant that non-pecuniary damages could only be awarded when a diagnosed illness in the nature of mental distress could be established, possibly even requiring medical evidence.

Judge Loo noted that the court in Honda v. Keays recognized that Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), remains the leading case on punitive damages.

In Whiten, the Supreme Court of Canada clarified that the independent actionable wrong necessary to ground punitive damages may be established not only by a tort, but also by breach of a separate contractual provision or other obligation. Wallace confirmed an employer’s obligation of good faith in the manner of dismissal; this obligation carried through in Honda v. Keays, though now damages to compensate for bad faith in dismissal are awarded as a separate lump sum rather than as an extension of the period of reasonable notice. Following Honda, bad faith dismissal is capable of grounding a cause of action in damages, not just an additional factor to be considered under another head of damages.

Judge Loo went on to award $20,000 in circumstances where the employer exhibited bad faith conduct leading up to and in the manner of dismissal, in the absence of a diagnosed medical illness.

The decision is well reasoned, founded on the leading cases in the area from the Supreme Court of Canada, and should have important implications for employment law in British Columbia and across Canada.