Canada: Court Of Appeal Overturns Award Of Punitive Damages To Wrongfully Dismissed Employee

The Ontario Court of Appeal has released its decision in Brito v. Canac Kitchens, an appeal from an Ontario Superior Court of Justice decision that we discussed in an earlier post. In its decision, the Superior Court awarded an employee significant damages for lost short-term and long-term disability benefits as well as $15,000 in ancillary damages due to the "hardball" approach that the employer took in terminating the long-service employee.

Background

As you may recall from our earlier post, the employee in this case, Mr. Luis Romero Olguin was terminated by his employer, Canac Kitchens (Canac), after 22 years of service at the age of 55. He was terminated without cause and provided with the statutory minimum amount of 8 weeks' pay in lieu of notice and continuation of benefits for the same period. Shortly after being terminated, Mr. Olguin was diagnosed with cancer which rendered him totally disabled and unable to work.  He brought an action for wrongful dismissal, including a claim for damages in lieu of disability benefits. In addition to the award of ancillary damages mentioned above, the trial judge, Justice Echlin, awarded Mr. Olguin 22 months' pay in lieu of notice and over $200,000 in damages in lieu of short-term disability (STD) and long-term disability (LTD) benefits, including the present value of the remainder of his LTD entitlements to his 65^th birthday.

Canac appealed the award of damages in respect of LTD benefits and the award of ancillary damages.

Court of Appeal Decision

The Court of Appeal was unwilling to overturn Justice Echlin's decision that Mr. Olguin met the definition of totally disabled under Canac's sponsored disability benefits plan and, accordingly, the award of damages for lost LTD benefits was upheld. The Court of Appeal's view was that the evidence presented at trial by Mr. Olguin was sufficient, if accepted, to support Justice Echlin's conclusion that Mr. Olguin met the evidentiary burden to establish total disability. As the trial judge appeared to have accepted Mr. Olguin's evidence (Canac did not call any medical evidence to support its own position), the Court of Appeal upheld Justice Echlin's decision on this issue.

Canac also tried to argue that Mr. Olguin failed to mitigate his damages by not undertaking job re-training efforts or looking for alternative employment after his STD benefits expired.  However, Justice Cronk for the Court of Appeal made it clear, somewhat obviously, that "there can be no obligation to mitigate damages by finding alternate employment where the employee is totally incapable of working." 

Canac was, however, successful in its appeal of the award of $15,000 in ancillary damages.  Justice Cronk characterized the award of "ancillary" damages as punitive damages. As Mr. Olguin did not claim punitive damages in his statement of claim, or during the trial, the Court of Appeal found that it was not open to the trial judge to make such an award. Interestingly, as Mr. Olguin was largely successful on appeal, he was awarded $20,000 in costs.

Our Views

Despite the fact that the employer in this case was successful in having the award of "ancillary" damages overturned on what may be viewed as a technical ground, this decision still leaves open the potential for an employee to be awarded punitive damages where the employer takes a "hard ball" or bare-minimum approach to terminating a long-service employee without cause.

Also, as we discussed in our previous post, this case serves as a reminder that courts will impose liability on employers where employees are terminated without cause and are not "made whole" during the reasonable notice period. Accordingly, employers who provide employees with only their minimum statutory entitlements upon termination (without a contractual basis for doing so) risk being found liable for additional amounts, including any lost benefits where the employee becomes disabled during the common law notice period. Damages in lieu of LTD benefits during the notice period can be quite costly. In fact, the most significant part of the award in this case was the award for damages in lieu of LTD benefits as a result of Mr. Olguin becoming disabled during the common law notice period. As Mr. Olguin did not have access to the benefits, by reason of the Company's actions, the Court effectively required Canac to step into the shoes of its insurer with respect to Mr. Olguin's LTD benefits.

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