Punitive Damages: Rare But Not Unheard Of

Jan 2, 2019

As we have written before, an employer may generally terminate an employee for any good business reason as long as it provides the employee with adequate notice of termination (or pay in lieu of this notice). Failure to provide adequate notice results in a wrongful dismissal. However, if an employer has ‘just cause’ for the termination, then the employer does not generally need to provide the employee with any notice of termination.

In addition to awarding damages for wrongful dismissal, courts have the authority to award “aggravated” or “moral” damages, and “punitive” damages, in certain circumstances (see here for some examples). Although punitive damages are rare, the courts will not shy away from awarding them if the circumstances merit it. A recent case from the Ontario Court of Appeal provides a good example of when these kind of damages may be awarded by the courts.

In Hampton Securities Limited v Dean, Hampton Securities employed Ms. Dean from March 2008 to April 2009 as a securities trader. Under the terms of the employment contract, Ms. Dean bore partial responsibility for losses resulting from her trades. It is industry practice for securities traders to absorb part of the losses they incur in the ordinary course of their duties. However, a dispute arose as to how much responsibility Ms. Dean had to bear for her losses. In the end, Ms. Dean resigned.

Hampton Securities initiated a claim against Ms. Dean for failure to pay her share of the losses resulting from her trades. Hampton Securities also reported Ms. Dean’s termination to the Investment Industry Regulatory Organisation of Canada (“IIROC”), and in its report, stated that Ms. Dean had been terminated for failing to follow established trading policies and engaging in unauthorised trading.

Ms. Dean then brought a counterclaim for constructive dismissal, alleging that Hampton Securities sought to alter the terms of her employment by unilaterally reinterpreting her contract. She also alleged that Hampton Securities’ report to IIROC constituted defamation. The Superior Court of Justice agreed with Ms. Dean regarding her allegation that her employer had sought to rewrite her employment contract without her consent.

Having found that she was constructively dismissed, the court then asked what damages it should award to Ms. Dean. Ms. Dean claimed $25,000 in aggravated damages, $25,000 in damages for defamation and $25,000 in punitive damages. The court found that although Hampton Securities’ conduct in misstating the reasons for Ms. Dean’s termination to IIROC was reprehensible, aggravated damages were not available, particularly due to concern of overlap between Ms. Dean’s defamation claim and her claim for aggravated damages.

With respect to punitive damages, these damages are awarded to sanction conduct that represents a “marked departure from ordinary standards of decent behaviour.” Whereas most damages at law are meant to compensate the injured party, punitive damages, as their name suggest, are meant to demonstrate retribution, deterrence and denunciation. Although punitive damages are the exception rather than the norm, the court found that this was an exceptional case. Hampton Securities’ conduct in filing a notice of termination containing allegations that went to the heart of Ms. Dean’s integrity represented a marked departure from ordinary standards of decent behaviour. Hampton Securities knew the allegations, which were untrue, would be available to all potential employers of Ms. Dean and would be fatal to the prospect of her obtaining future employment in the securities industry. The court found that such conduct which had potentially lifelong implications for an employee warranted condemnation and punishment.

The court found that Ms. Dean was entitled to $25,000 in punitive damages. The court also awarded Ms. Dean with six months’ pay in lieu of notice, which I will address in my next blog.

Conclusion

If an employer engages in malicious conduct during the termination of an employee, this conduct may be sanctioned by a court.

If your employer engages in similar behaviour to the behaviour described in this blog, such as making frivolous allegations that may impact your ability to gain re-employment, you should consult an employment lawyer to find out about your rights.

The material and information in this blog and this website are for general information only. They should not be relied on as legal advice or opinion. The authors make no claims, promises, or guarantees about the accuracy, completeness, or adequacy of any information referred to in this blog or its links. No person should act or refrain from acting in reliance on any information found on this website or blog. Readers should obtain appropriate professional advice from a lawyer duly licensed in the relevant jurisdiction. These materials do not create a lawyer-client relationship between you and any of the authors or the MacLeod Law Firm.

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