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IBM Executive Awarded $300,000 in Punitive Damages and $35,000 in Moral Damages After Constructive Dismissal
(the abbreviated version of this article originally appeared in the The Employment Bulletin, June 2012)
In Chalifour v. IBM Canada ltée, 2011 QCCS 5777, 213 A.C.W.S. (3d) 113, the Superior Court of Quebec recently ordered IBM to pay one of the highest extraordinary damage awards since the 2008 decision in Keays v. Honda Canada Inc. (2008), 294 D.L.R. (4th) 577, [2008] 2 S.C.R. 362. Former IBM executive, Dennis Chalifour, was awarded $300,000 in punitive damages and $35,000 in moral damages as a result of the constructive dismissal he suffered amidst his battle with bladder cancer.
This case serves as a stark reminder that when bad faith rears its head in the manner of dismissal or an employer acts in a callous and high-handed manner towards an employee, especially an executive, it will be made to pay more than simply compensation in lieu of notice.
Prior to joining IBM, Mr. Chalifour was president of his company, COGIT Inc., and worked under contract for the National Bank of Canada as a Senior Consulting and Technology Advisor. In 1995, after being approached by IBM, Mr. Chalifour gave up his role as a consultant and commenced employment with the global technology and consulting leader.
In 2006, after having a falling out with his superior (”Ms. Keating”), Mr. Chalifour was offered an inferior account to manage, despite his previous experience and responsibility. Mr. Chalifour refused to accept the change and was shortly thereafter diagnosed with bladder cancer. Borenstein J. acknowledged that, as a result of the falling out, Ms. Keating no longer wanted to work with Mr. Chalifour. Therefore, soon after his diagnoses and while on leave, IBM announced that Mr. Chalifour was being replaced and transferred, despite being previously assured he would occupy his position until the end of 2007. IBM then attempted to force upon Mr. Chalifour another, newly created position, a position that constituted a demotion and would fundamentally alter the employment relationship. IBM and Ms. Keating essentially deemed Mr. Chalifour unfit to hold any position equivalent to what he had previously held and attempted to impose a lesser position on him.
Mr. Chalifour’s medical condition was directly considered in the determination of this alternate role, despite the absence of any medical evidence. He was not considered for other more comparable positions to that which he previously occupied. In fact, prior to his diagnosis, IBM had been specifically considering relocating Mr. Chalifour to the U.S. into comparable employment amidst the issues with Ms. Keating. However, after the discovery of his cancer, there was no further consideration, he was simply offered a substandard position as result of Ms. Keating seeking to push him out of his role. Mr. Chalifour was then instructed to accept the position despite not knowing what his compensation would be, merely being told that he would learn of his pay once he accepted. In or around that time, Mr. Chalfiour filed a harassment complaint regarding his treatment.
Following his complaint, in June of 2007, after taking medical leave, Mr. Chalifour received a letter from IBM saying he had voluntarily resigned as a result of refusing to return to work. The court, however, concluded that Mr. Chalifour had been a victim of a cloaked firing, as Ms. Keating no longer wanted to work with him, and the position he was to assume involved a large reduction in responsibility including: supervising approximately two individuals rather than upwards of 250, as he previous had; and diminished income portfolio responsibilities.
In reaching her decision, Borenstein J. pointed out that where an employer decides to unilaterally make substantial changes to the essential terms of the contract of employment of its employees, and when an employee does not accept the changes and leaves their employment, the employee has not resigned but, rather, they have been constructively dismissed. Borenstein J. also reiterated that moral damages will be awarded when the manner of dismissal is humiliating, degrading and wounding, even taking into account acts occurring post-termination. Moreover, Borenstein J. reaffirmed that punitive damages exist to punish and dissuade.
In finding IBM liable for $35,000 in moral damages, Borenstein J. stated [at paras. 146-7 (translation)]:
The court will grant an amount of $35,000.00, as Chalifour was fired in a humiliating, degrading and offensive manner, and even after, Ms. Keating tried to injure him in his search for contracts.
An employer has the right to dismiss an employee, but in a dignified manner!
Borenstein J. also awarded $300,000 in punitive damages. In making her determination on punitive damages, Borenstein J. found that IBM intentionally and unilaterally altered the employment relationship as a result of its perception of Mr. Chalifour’s health and capacity, without any medical evidence, imposing a lesser position on him, which was an affront to his dignity and reputation. His superior also engaged in an intentional attack against Mr. Chalifour. Not only did Ms. Keating not want Mr. Chalifour as part of her team, but upon Mr. Chalifour leaving the company, she even sought to harm him in his search of contracts for his business. Borenstein J. specifically acknowledged that an award of $300,000 achieved the goal of punishment and dissuasion. The deterrent effect of granting punitive damages and IBM’s ability to pay were among the central factors taken into account in determining the quantum of damages. Borenstein J. specifically provided [at paras. 149-52 (translation)]:
. . . on September 20 before the discovery of cancer . . . IBM was considering the possibility of relocation to the United States, which would have allowed him to retain a position equivalent . . . and all the benefits that attached to it and to preserve his professional reputation.. . . after the announcement of the cancer . . . IBM considered Chalifour unfit to hold any position equivalent and attempts to impose a position that represents a fundamental change in its basic working conditions . . .
The evidence reported in this judgment shows . . . the perception of IBM regarding Chalifour, without any medical evidence . . .This was intended and, even after the departure, Ms. Keating sought to undermine the search for contracts by Chalifour.
After approximately 12 years with IBM, Borenstein J. also acknowledged that Mr. Chalifour was entitled to significant notice period if his employment was to be terminated without cause. Mr. Chalifour gave up his consulting business and related work when he came to work for IBM at their request. He also occupied a high position and there was no serious reason for his dismissal. In addition, Borenstein J. found that it would be difficult to find a similar position elsewhere. Upon making these findings, Borenstein J. awarded Mr. Chalifour 24 months’ notice. In light of the decision in Evans v. Teamsters Local Union No. 31 (2008), 292 D.L.R. (4th) 577, [2008] 1 S.C.R. 661, Borenstein J. determined that Mr. Chalifour was not obligated to mitigate his damages by returning to the position offered by IBM. Borenstein J. found such a prospect to be unreasonable, stating that it would be inhumane to require Mr. Chalifour to return to a position after the humiliation and degradation he was made to, and would continue to, suffer.
Extraordinary Damages Update
Recently, we have seen courts across Canada flexing their judicial muscle by imposing significant moral and punitive damage awards in the employment law context.
• In Altman v. Steve’s Music Store Inc. (2011), 89 C.C.E.L. (3d) 120, 2011 ONSC 1480, the Ontario Superior Court ordered an employer to pay more than $200,000 in damages, including $55,000 in moral and punitive damages, to a 59-year-old store manager with more than 30 years of service. Corrick J. held Steve’s Music liable for the wrongful dismissal of a long-term employee who had been diagnosed with lung cancer. In addition to the moral and punitive damages granted, Ms. Altman was awarded 22 months’ salary in lieu of notice. The employer contended that Ms. Altman’s employment had been frustrated by her illness and that she accordingly had no legal entitlement to compensation upon the termination. The court, however, disagreed, finding the employer’s actions to be very unsavoury. The court specifically acknowledged that the manner of communicating termination, as well as the employer’s harsh treatment of an individual known to be in difficult circumstances, can be grounds for a claim for mental distress and moral damages.
• In Elgert v. Home Hardware Stores Ltd. (2011), 336 D.L.R. (4th) 313, 527 W.A.C. 1 (Alta. C.A.), leave to appeal to S.C.C. refused 337 D.L.R. (4th) iv, the Alberta Court of Appeal reduced an extraordinary damage award stemming from a flawed workplace harassment investigation to $30,000 in moral damages and $150,000 in punitive damages. Despite the reduction, this remains one of the more significant awards since the decision in Keays v. Honda Canada Inc.
• In Vernon v. British Columbia (Ministry of Housing and Social Development, Liquor Distribution Branch), 2012 BCSC 133, 211 A.C.W.S. (3d) 577, addt’l reasons 2012 BCSC 445, 26 D.E.L.D. 56, an employee who was terminated for cause was awarded $35,000 in moral damages and another $50,000 in punitive damages after her employer conducted a haphazard investigation and treated her unfairly and in an unduly insensitive manner in the course of dismissal. Among the salient points was the fact that the defendant attempted to get the plaintiff to resign prior to termination.
These recent decisions highlight the increasing frequency of employers being held liable for extraordinary damage claims when they fail to treat their employees with dignity and respect. The Chalifour case, in particular, highlights the potential pitfalls and consequences when terminating or altering the employment of an executive and/or individual suffering from a serious illness. As human rights and extraordinary damage claims become more prevalent, employers need to proceed with greater caution when making decisions that impact their workplace, as courts and tribunals are no longer just simply focusing on compensatory damages.