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Unfounded Just Cause Dismissal Results in Punitive Damage Award of $100,000
(the abbreviated version of this article originally appeared in the The Employment Bulletin, January 2016)
An individual’s employment often comprises a large part of their identity. To this end Canadian employment law has long recognized that the employment relationship is different from a commercial relationship and that employees are vulnerable to the power imbalance that typically favours employers. Therefore, when employers dismiss employees and level unfounded allegations of just cause against them in an attempt to avoid legal and financial obligations, courts take exception.
This is no more apparent than in the recent case of Gordon v. Altus Group Ltd., 2015 CarswellOnt 16313, 2015 ONSC 6642 (Ont. S.C.J.) (”Altus”), where the trial judge, the Honourable Justice Glass of the Ontario Superior Court of Justice, awarded Alan Gordon $100,000 in punitive damages, in addition to damages for wrongful dismissal, on account of his employer’s bad faith just cause allegations.
The decision is best summarized by the following quote:
. . . they decided to be cheap and then conjured up a cause for firing in order to save money.
As practitioners of employment and labour law we often have to advise our clients that cause is difficult to prove and, at best, the chance of succeeding with proving cause is remote, with the just cause analysis often taking twists and turns through the disclosure process. More importantly, we continually advise that leveling allegations of cause which are known or ought to be known to be inadequate or false can expose our employer clients to large extraordinary damage awards given the implied duty of good faith and fair dealing endorsed by the Supreme Court of Canada. Cause is tantamount to “capital punishment”, in employment law circles, and it is strictly reserved for those few serious cases that meet that high-water mark when analyzed against the backdrop of a contextual analysis which calls for a proportional response to misconduct.
In the last few years alone we have witnessed several significant decisions involving significant damage awards where the employer has acted in bad faith at the time of dismissal. In fact, two decisions from British Columbia involving relatively baseless allegations of just cause resulted in over $600,000 in combined damages being awarded against employers: Vernon v. British Columbia (Housing & Social Development, Liquor Distribution Branch), 2012 C.L.L.C. 210-017, [2012] 7 W.W.R. 558 (B.C.S.C.), and Higginson v. Babine Forest Products Ltd. (2010), 94 C.P.C. (6th) 252, 2010 CarswellBC 1064 (B.C. Master). These decisions send the clear message that courts will not turn a blind eye to such gross employer misconduct and will heavily penalize those who seek to unjustifiably deny individual employees their basic legal entitlements in order to save money.
In Altus, Gordon sold his company to Altus and agreed to work for them after the sale of his business. The parties entered into a fixed term three-year employment contract that provided Gordon with a liquidated, agreed-upon amount if Altus terminated the contract “without cause” prior to the term lapsing. In addition, Gordon was subject to a non-competition covenant that Altus expected him to follow regardless of the basis for termination.
As February 2010 approached and a possible readjustment to the purchase price was looming, the relationship between the parties deteriorated. Gordon then invoked an arbitration clause in the purchase agreement to have his dispute with Altus over the purchase price of the company settled at arbitration.
By the end of March 2010, Altus alleged Gordon was not producing effectively and was a very unpleasant person to the point that the relationship could not be maintained. At the end of March 2010, Altus fired Mr. Gordon, purportedly for just cause.
At para. 25 of the decision, Justice Glass observed:
It appears that upon the Plaintiff giving notice for arbitration, Altus wanted to end the employment contract without paying out the contracted severance funds. In other words, they decided to be cheap and then conjured up a cause for firing in order to save money. I point out that arbitration does not appear to have been anticipated to be a short-termed process here because when this trial commenced, the arbitration was still in process. It appears to me that Altus did not want to have a disgruntled employee in the person of Alan Gordon working with them for an extended period of time. So, Altus fired him allegedly for cause.
The Altus case serves as a stark reminder of the cost Ontario employers are going to ultimately bear if they simply look to save a quick buck by alleging cause where it does not exist. While “scare” tactics can often come into play during litigation, alleging just cause absent any legitimate factual underpinning can result in enhanced damage and cost awards on account of such bad faith “hardball” tactics. Whether they are aimed at obtaining a discount or fully avoiding one’s obligations, there is inherent risk when relying on such tactics. When legal fees are factored in, the sensible solution in hindsight becomes a settlement at some mid-point along the way where both parties make some fair concessions. The reality is that there is generally a cost associated with the termination of an employee. As the case law demonstrates, attempting to avoid severance costs, in bad faith, can backfire for employers and is an inherently risky litigation and business strategy.