When deciding whether to settle a case, a lawyer assesses the risks and uncertainties inherent in the litigation process including the quantum of damages that a judge will likely order for each head of damages claimed. I call this litigation risk.  

As I have written before, employees seldom claim only wrongful dismissal damages in an employee termination case. Additional heads of damages include human rights damages, moral damages, punitive damages, and damages for the intentional infliction of mental stress. This results in more litigation risk but despite this increased risk more than 90% of cases still settle.

Every once in a while a case goes to court and the decision increases the litigation risk for all subsequent cases. This is one of those cases. Based on the reported facts in this case, I would never have predicted that Wal-Mart would have been ordered to pay the employee $ 250 000 in moral damages and $ 500 000 in punitive damages.

Until this case is appealed or followed/considered/distinguished by other trial judges, I will need to consider this decision when assessing the chances a judge will order moral damages and punitive damages in my cases. And in the meantime, litigation risk has increased for employers in employee termination cases.

The Facts

In September 2002, Gail Galea started working at Wal-Mart and about 8 years later her employment was terminated without just cause. About 10 months before her employment was terminated, her position was eliminated because of a re-organization. During her last 10 months of employment, Wal-Mart tried to find her another position within the organization and sent her to Harvard for an 8-week executive management program. When Wal-Mart couldn’t find her a suitable position she was terminated without cause. Instead of paying her the two years pay she was owed, Wal-Mart continued her benefits and the equivalent of her salary for 11.5 months.

Trial Decision

The judge concluded that an agreement between Ms Galea and Wal-Mart obliged Wal-Mart to pay her damages equal to the compensation and benefits she would have earned during the two year period after her termination.

As far as paying Ms. Galea damages for variable compensation during the 2 year period after her termination was concerned, Wal-Mart took the position it owed her no monies under a Management Incentive (Bonus) Program, Deferred Profit Sharing Plan, Executive Retirement Plan and a Long Term Incentive Plan. The trial judge disagreed except for damages claimed under the Long Term Incentive Plan.

Ms. Galea claimed moral damages because of the manner of her termination. The trial judge awarded her $200,000 for the treatment she received from Wal-Mart during the last 10 months of her employment including the 2 months she spent at Harvard. “She was made to suffer repeated humiliation, starting with the announcement of her re-assignment from Vice President, General Merchandising to that of a roving vice president of little substance.”

Ms. Galea claimed damages for the way Wal-Mart acted after her termination. The judge awarded her an additional    $50,000 damages for the following behavior. “I consider Wal-Mart’s decision to stop the continued payment of her base salary and the health and dental coverage to her and her family (after 11.5 months) to be unduly insensitive, and to have caused her mental distress. I consider Wal-Mart’s delay in answering its undertakings until the eve of trial, and the torrent of productions made in the course of the trial,… capable of causing Ms. Galea  prolonged anguish about the case.”

Ms. Galea provided no medical evidence that these actions caused her mental distress.

Ms. Galea claimed punitive damages. The trial judge awarded her $ 500 000 punitive damages for the following behaviour: “ All of Wal-Mart’s conduct that justifies an award of punitive damages occurred between January 29, 2010 and November 19, 2010 when Wal-Mart would make representations to Ms. Galea about her career prospects while making decisions that detracted from, or even defeated that purpose. It is not that Wal-Mart set Ms. Galea up to fail; it is that Wal-Mart built her up, only to let her down that much more. That corporate behaviour was not just unduly insensitive, it was mean.”

Lessons to be Learned

1. Wal-Mart’s decision to stop termination payments after 11.5 months instead of continuing the payments for the contractually prescribed 24 months was a reason the judge ordered Wal-Mart to pay Ms. Galea moral damages. Accordingly, in this case, damages flowing from the breach of contract was more than would normally be awarded in a case like this which is the difference between the 11.5 months and the 24 months.
2. If an employer does not want an employee to receive damages for the variable compensation that she would have earned had she received notice of termination then the variable compensation plan must clearly say so. For earlier blogs on this issue, click here. 
   
3. If an employer implements a re-organization and does not immediately offer a new job to a person whose position has been eliminated then the employer should provide a reasonable road map to the displaced employee on how her continued employment will be handled and act consistently with this plan. In this case, the judge stated: “Conduct that can trigger moral damages includes an employer’s conduct that is untruthful, misleading or unduly insensitive, and a failure to be candid, reasonable, honest and forthright with the employee.” He found that Wal-Mart breached this duty as it was trying to find a new position for Ms. Galea. I don’t know if this case will turn out to be an outlier but in the meantime employers should be very careful when dealing with an employee who is between jobs within the organization.

For over 30 years, Doug MacLeod of the MacLeod Law Firm has been advising employers on all aspects of the employment relationship. If you have any questions, you can contact him directly at 416 317-9894 or at [email protected]