Ontario Court Orders Employer to Pay $50,000 in Punitive Damages

In the recent decision of Morison v Ergo-Industrial Seating Systems Inc. the Ontario Superior Court of Justice made an award of $50,000.00 in punitive damages against the defendant employer. This decision is an important reminder to all Ontario employers of the type of conduct which may attract punitive damages.

Morison worked for Ergo-Industrial (the "Employer") as a regional manager responsible for its Eastern Ontario and Western Quebec territory. Morison was first hired in 2004 as an alleged Independent Contractor. The Employer recognized that he became an employee as of 2006. At all times, he was a top salesperson, with a history of good performance and no prior discipline. 

In October 2012, without prior warning, Morison was fired. He was offered five months' notice and also received a termination letter informing him that the company had just cause to dismiss him. Morison was understandably confused and upset by this news. Particularly, as his performance had been consistently good. Therefore, he started a court claim, seeking compensation for increased severance, and additional amounts for aggravated and punitive damages, to reflect the way in which his employment ended. The Employer responded that it had just cause to dismiss Morison and owed him nothing at all.

In his written decision, Justice Roger made the following findings:

Mr. Morison was at all times an Employee not an Independent Contractor

The Employer argued unsuccessfully that Morison was engaged from 2004 to 2006 as an Independent Contractor. Justice Roger rejected this assertion and found that Morison was an employee throughout his tenure with the Employer. In so doing, Justice Roger reiterated the nature of the enquiry required to assess whether a person is an employee or a contractor:

In determining the status of a work relationship...one looks at the total relationship of the parties, assessing whether the worker was engaged to perform the services as a person in business on his own account. The employer's level of control over the worker is a factor, as are the degree of financial risk taken by the worker and the worker's opportunity for profit. (at 8)

From there, Justice Roger noted that Morison's engagement with the Employer bore the classic hallmarks of employment: it was an exclusive arrangement, he had no expectation of profit, and his work was on behalf of the Employer's business. 

The Reasonable Notice Period was 12 Months

Mr. Morison argued, through his lawyer, that the appropriate period of reasonable notice was in the range of 10 to 14 months. The Employer, on the other hand, asserted the correct range was 6 to 8 months. 

Justice Roger agreed with Morison. He determined that in light of Morison's age (58), managerial role, length of service (8 years), and the availability of similar employment, the proper notice period was 12 months. 

Aggravated Damages Could Not be Proven

Aggravated damages are compensatory in nature and require:

1. Bad faith conduct by the employer in the manner of dismissal; and
2. That this bad faith results in actual harm to the former employee.

In this case, Justice Roger was clearly unimpressed with the Employer and determined that it had acted in bad faith, pointing to the following findings of fact:

1. The Employer's allegation of just cause was disingenuous and untenable. Morison was a top performer with no performance issues; and
2. The Employer's decision to allege just cause was an integral part of its negotiation strategy (without any convincing evidence to support this position), despite being counselled prior to termination that it would not be able to establish just cause. 

Ultimately, however, Justice Roger declined to award aggravated damages because Morison was unable to show that he had suffered "actual harm" as a result of his termination. Justice Roger found:

The plaintiff's evidence on this point was extremely limited and really had more to do with the ordinary pain, distress, and financial stress associated with losing a job, rather than that which might result from the manner of dismissal. Otherwise, the claim was made out. (at 31)

Punitive Damages were Warranted

Punitive damages are an uncommon remedy in Ontario employment disputes. Usually, a former employee, if successful at court, will be awarded compensation for wrongful dismissal (i.e. for not receiving fair severance at the time of dismissal). Punitive damages, however, are not compensatory. Their purpose is two fold:

1. To punish and condemn employer misconduct that is objectively considered to be "malicious, oppressive and high-handed" and a "marked departure from ordinary standards of decent behaviour." (see Boucher v. Wal-Mart Corp. at 78-92); and
2. To send a message to other employers that behaviour of this kind is unacceptable and will not be tolerated.

Justice Roger noted that Morison based his claim for punitive damages on the following grounds:

• the manner of dismissal (a quick telephone call followed by a letter that alluded to the possibility of cause);
• the allegations of cause initially pleaded and the lack of a reasonable belief on the part of the defendant to support the allegations of cause;
• the lack of any warning and of any investigation;
• the lack of reasons provided by the Employer at the time of dismissal;
• the two months’ delay by the Employer in providing Morison with his record of employment;
• the failing of the Employer to pay any amount owing under the Employment Standards Act, until June 15, 2015; 
• the financial impact these delays had on Morison;
• the Employer’s knowledge of Morison’s financial circumstances;
• that the allegations of cause were made for tactical reasons with no reasonable basis supporting such a belief; and
• that the dismissal letter did not comply with the Employment Standards Act, 2000. (at 47)

Justice Roger accepted that the employer's conduct warranted an award of punitive damages, and awarded $50,000.00. In so doing, he stated "I find that an award of punitive damages is rationally required to punish the defendant and to meet the objectives of retribution, deterrence, and denunciation. Employers cannot be allowed to behave in such a fashion without a clear message being sent by this Court that this is not acceptable." (at 56)

Lessons for Ontario Employees and Employers

There are two lessons for employees coming out of this decision:

1. Just because you are called an "Independent Contractor", you may not be one. If you work exclusively for a company, under their control and have little opportunity for profit, or risk of loss, you are likely an employee and will be entitled to the same protections and entitlements as any other employee in Ontario.
2. If you are wrongfully dismissed, you may be entitled to more than simply compensation in the form of additional severance. Be sure to discuss the circumstances surrounding your termination with your lawyer. If you have been treated harshly, you may be entitled to additional compensation in the form of aggravated or punitive damages.

 There are two lessons for employers coming out of this decision:

1. Think critically about how you hire and fire workers. If you intend to create an independent contractor relationship, speak with a lawyer and set it up properly. The potential liability from improperly characterizing a worker as a contractor, when they are more accurately an employee, can be significant.
2. Treat your employees fairly throughout the employment relationship, up to and including termination. Asserting just cause will be appropriate in some circumstances, however, ensure that you have a legitimate basis to do so. The courts have sent a clear message that evidence of high-handed treatment of employees will not be tolerated, and the cost of failing to take note of this can be great.

Vey Willetts LLP is an Ottawa-based employment and labour law firm that provides timely and cost-effective legal advice to help employees and employers resolve workplace issues in the National Capital Region and across Ontario. To speak with an employment lawyer, contact us at: 613-238-4430 or info@vwlawyers.ca