BC Supreme Court Rejects Just Cause Allegation against Manager with Abrasive Management Style, Awards $50,000 Punitive Damages and $35,000 Aggravated

Mr. Justice Goepel of the BC Supreme Court handed down comprehensive reasons for judgment on January 27, 2012 dismissing a just cause defence by the BC Liquor Distribution Branch in a wrongful dismissal damage claim by a senior manager.

Vernon v. British Columbia (Liquor Distribution Branch), 2012 BCSC 133 (CanLII)

Ms. Vernon had been employed by the BC LDB since age 19, for a period of 30 years, during which she was promoted from entry level positions to the role of Senior Store Manager in the Richmond Branch. She had a "rough and ready" management style, and had over the years functioned effectively in an environment that persons with modern sensibilities would find offensive. Her style involved swearing and directions to employees given in a manner which might be found offensive. A complaint was filed by an employee with particular sensibilities, and the LDB launched an investigation, followed by a summary dismissal.

Flawed Investigation

The court found that the investigation leading to the dismissal was flawed. So seriously flawed, in fact, that an award of both aggravated and punitive damages was granted.

The key aspects of the finding as to a flawed investigation were:

• it was headed by another employee who, by reason of prior involvement with the dismissed employee, even in relation to recent HR disputes between the complainant and the manager, should not have been given the task of investigating
• there was a "rush to judgment" which was apparently motivated by arbitrary deadlines dictated by employer policies as a quasi governmental organization
• the investigator chose to speak mainly to persons critical of the plaintiff, and not to other employees who supported the plaintiff
• the investigator was not a neutral, but self regarded as a prosecutor
• when the investigator talked to others who were supportive of the manager, their comments were not accepted at face value, but rather challenged
• the manager was confronted with a long list of accusations at a threatening meeting, without any sufficient warning of the accusations or even the reason for the meeting
• no sufficient reason was given to warnings, or other discipline short of dismissal, or mandatory remedial courses, as the employer was apparently of the view that it did not have those choices, in error
• the employee was left "in limbo" for an unnecessary and unreasonable period of time
• those in charge of the investigation changed over time, with inadequate communication between those handing off responsibility, so that the person who concluded the investigation reported to those making the termination decision an inaccurate conclusion - that the manager denied all accusation against her, and thus was both untruthful, and incapable of training, as she did not accept any responsibility. This was found to be incorrect and an important failure
• those in charge of the investigation failed to "take a step back" and put the allegations in their proper context, where the employee was a long service employee without any prior performance problems, and in fact a most credible work history

Just Cause

Judge Goepel followed well established precedent in his consideration of the question of whether just cause existed for summary dismissal.

He referred to the 2001 decision of the Manitoba Court of Appeal in Boulet, where a useful list of factors was set out for cause cases.

[285] In Boulet v. Federated Co-operatives Ltd. 2001MBQB 174, 157 Man.R. (2d) 256 aff’d 2002 MBCA 114, 170 Man. R. (2d) 9 (“Boulet”), McCawley J. summarized the principles applicable when cause is alleged at para. 3:

1. Each case must be decided on its facts.
2. An employer's displeasure at an employee's performance is not enough to warrant dismissal. There must be some serious misconduct or substantial incompetence.
3. The onus of proving just cause rests with the employer and the standard of proof is beyond a balance of probabilities.
4. The performance of an employee, especially one in a management position, must be gauged against an objective standard.
5. The employer must establish (a) the level of the job performance required, (b) that the standard was communicated to the employee, (c) that suitable instruction and/or supervision was given to enable the employee to meet the standard, (d) the employee was incapable of meeting the standard, and (e) the employee was warned that failure to meet the standard would result in dismissal.
6. Where the employee's performance is grossly deficient and the likelihood of discharge should be obvious to the employee, warnings and reasonable notice are not required.
7. While the standard of incompetence to warrant discharge for cause is severe, the threshold of incompetence necessary to warrant dismissal for cause is significantly lower where dismissal is preceded by many warnings indicating unsatisfactory performance.
8. In considering whether an employer has provided adequate warning to an employee, where the dismissal is for repeated instances of inadequate work performance, the employer must show (a) it has established a reasonable objective standard of performance, (b) the employee has failed to meet those standards, (c) the employee has had warnings that he or she has failed to meet those standards and the employee's position will be in jeopardy if he or she continues to fail to meet them; and (d) the employee has been given reasonable time to correct the situation.
9. An employer who has condoned an inadequate level of performance by his employee may not later rely on any condoned behavior as a ground for dismissal.
10. Condoned behavior is relevant if the employee fails to respond after appropriate warnings. Condonation is always subject to the implied condition that the employee will be of good behavior and will attempt to improve.

Aggravated Damages

The court awarded $35,000 in aggravated damages, recognizing that this head is only appropriate by way of compensation for losses experienced by the plaintiff, flowing from some sort of wrongful behavior on the part of the employer at the time of or in the manner of dismissal.

[369] Aggravated damages in wrongful dismissal cases are compensatory in nature. It is an implied term of an employment contract that an employer will act in good faith in the manner of dismissal: Beggs v. Westport Foods Ltd., 2011 BCCA 76 (CanLII), 2011 BCCA 76, 14 B.C.L.R. (5th) 1 at para 48.

[373] The foundation of the claim for aggravated damages is the manner of dismissal. The meeting of April 19, 2010, could not have been handled in a more insensitive manner. Ms. Vernon, a 30-year employee with an unblemished record, was summoned to a meeting where she was told her conduct was shameful and that she was an embarrassment to the LDB. When she asked for additional time to consider her position she was told she only had until noon on Friday because Mr. Branham was not prepared to wait around until 4:00 p.m. on a Friday to learn her decision. Having told Ms. Vernon that she was to be terminated, the LDB then suspended her without pay and left her in limbo from April 19 to May 31 when they finally got around to telling her she was fired.

[377] I find that the LDB’s conduct during the course of dismissal was unfair and unduly insensitive. I accept the evidence of Ms. Vernon and Dr. Phillips that the manner of dismissal caused Ms. Vernon mental distress over and above the normal distress and hurt feelings resulting from the dismissal itself. She is entitled to an award of aggravated damages.

Punitive Damages

The court awarded $50,000 by way of punitive damages - clearly distinguishing this head of damages as an award appropriate for other policy reasons, aside from compensation.

[381] Unlike aggravated damages (which are compensatory in nature), punitive damages are directed towards punishment. The leading authority remains Whiten v. Pilot Insurance Co.,2002 SCC 18 (CanLII), 2002 SCC 18, [2002] 1 S.C.R. 595 at para. 36(“Whiten”)

[382] The three objects of punitive damages are retribution, deterrence and denunciation. The Supreme Court of Canada has directed trial courts to approach punitive damages with caution and restraint and to resort to them only in exceptional circumstances: Whiten at para. 69.

[383] An award of punitive damages is rational only when compensatory damages do not adequately achieve the objectives of retribution, deterrence and denunciation:Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd.,2002 SCC 19 (CanLII), 2002 SCC 19, [2002] 1 S.C.R. 678 at para. 87.

[386] In this case, I have made an award of aggravated damages arising out of the insensitive manner in which Ms. Vernon was terminated. To award punitive damages for the same conduct would lead to double punishment for the same acts.

[387] There is, however, one exception. At the termination meeting of April 19, Ms. Ferrara told Ms. Vernon that if she agreed to resign, the LDB would provide her with a reference letter. While an employer is under no obligation to give a reference letter (Shinn v. TBC Teletheatre B.C., 2001 BCCA 83 (CanLII), 2001 BCCA 83, 85 B.C.L.R. (3d) 75), to offer Ms. Vernon a reference letter, conditional on her resignation, was reprehensible and departed to a marked degree from ordinary standards of decent behaviour. If Ms. Vernon’s conduct was sufficiently serious that the LDB had the right to summarily dismiss her without notice, it would have been improper for the LDB to give her a reference letter. To offer a reference letter as a carrot to resign, is, in my opinion, conduct which is properly the subject matter of retribution, deterrence and denunciation.

Summary and Conclusion

This decision will give employers cause for serious concern when considering the dismissal of long term managers for conduct which has been accepted as useful without complaint.

Employers will be well advised to avoid conduct in the course of investigations which might be seen as impartial, or heavy handed, particularly with long service employees.

The consequences of a finding of conduct meriting a punitive damage award are not just financial, and employers should consider the impact of their actions on employees, or risk unwanted outcomes.

Largest Punitive Damage Award for an Employment Case in Canada

On June 29, 2012 Chris Forguson completed a 3 week jury trial in Prince George.  

The plaintiff, Larry Higginson had been dismissed from the Babine sawmill in Burns Lake in October, 2009.  The Babine sawmill had been acquired in November 2006 by Hampton Lumber Mills Inc. based in Portland, Oregon.  Babine Forest Products Inc. and Hampton Lumber Mills Inc. were joint defendants.  

The defendants alleged cause for dismissal and paid Mr. Higginson no severance after 34 years of faithful service.  In the lawsuit, Mr. Higginson took the position that the cause for dismissal was essentially concocted by the defendants as a way to get rid of him without paying any severance.  Mr. Higginson further alleged that his dismissal was part of a scheme to avoid severance costs for long service employees and that Hampton Lumber Mills was responsible for this scheme and for his dismissal.  

After a 3 week trial, the jury determined that there had been no cause to dismiss Mr. Higginson and awarded $236,000 in compensatory damages for wrongful dismissal.  The jury further awarded $573,000 in punitive damages against the defendants for the conduct which gave rise to Mr. Higginson’s dismissal.  

This is the largest punitive damage award arising from an employment case in Canada.

$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.

Honda v. Keays (Back to the Future)

Recent employment law decisions by Canadian Courts mandate a return to basics when measuring damages for breach of employment contracts.

For many years, after Wallace v. United Grain Growers, Canadian courts struggled with the task of awarding damages to dismissed employees based on what might be regarded as egregious conduct at the time of or in the manner of dismissal. In that case, the Supreme Court of Canada directed that in a suitable case, where the employer's conduct was sufficiently inappropriate, a trial court could award extra damages, but measured by reference to an increased notice period.

In Honda v. Keays, the Supreme Court of Canada has determined that this approach is not to be followed. Instead, applying Hadley v. Baxendale, the SCC has directed that if an employee suffers foreseeable loss or damage by reason of the inappropriate conduct of the employer, damages are to be assessed in the normal way - that is, without reference to any arbitrary notice period increase, and that the "injured" employee should receive full compensation for proven losses.

The implications of this new approach remain to be determined. Trial courts will need to decide what the new approach means, in the context of individual cases.