Canada: Trial Judge Increases Punitive Damages Award To $550,000

An Ontario court recently came down hard on an employer that attempted to terminate an employee for cause without sufficient justification for doing so. The termination and the employer's actions related to the termination resulted in a criminal trial and a chain of events that led to the destruction of the employee's reputation, and, accordingly to the employee, his marriage. The trial judge initially awarded the employee $25,000 in punitive damages and aggravated damages of $75,000. The employee appealed the punitive damages award and a new trial was ordered. The trial judge then increased the award for punitive damages significantly, to $550,000.

Background

The employee in this case, John Gordon Pate, was terminated for cause from his position as the Chief Building Official for the Township of Galway and Cavendish. He had been employed by the Township for approximately 10 years before being terminated. The basis for the termination was related to permit fees that Mr. Pate had collected but could not, according to the Township, be accounted for. Mr. Pate's immediate supervisor, John Beaven, advised Mr. Pate that discrepancies with respect to the permit fees had been uncovered and insinuated that Mr. Pate had kept the missing amounts. No information regarding the details of these discrepancies was provided to Mr. Pate, nor was he offered a chance to respond to the allegations.  Instead, the Township gave him two options: a quiet self-imposed resignation without police involvement or dismissal by council and a police investigation.  Mr. Pate did not resign and the Township turned over some, but not all, of the information they had uncovered. A criminal trial followed. 

Mr. Pate was eventually acquitted of all charges, but not without severe damage to his personal and professional reputation, as well as his mental and emotional health.  A key point in the trial judge's decision to rule in favour of Mr. Pate was the exculpatory evidence in relation to the missing building permit fees which the Township had not turned over to the O.P.P. when the discrepancies were reported.  There was evidence that the missing permit fees may have been explained by files that were misplaced during an office move; however, the police were not informed of this fact. In addition, Mr. Pate maintained a detailed journal of all his records but the journal was seized by the Township at the time of Mr. Pate's termination – the journal was not returned to Mr. Pate, nor was it brought to the attention of the O.P.P. 

The O.P.P. confirmed that if the Township or Mr. Beaven had disclosed of any of the above potentially-exculpatory evidence, charges would not have been laid against Mr. Pate. 

Trial Decision

The trial judge, Gunsolus J., awarded the employee damages for wrongful dismissal as well as aggravated and punitive damages as a result of the Township's conduct in relation to Mr. Pate's termination. 

Wallace Damages

The Township acknowledged that Mr. Pate was wrongfully dismissed and the parties agreed that 12 months was a reasonable notice period. In addition, Mr. Pate argued that he was entitled to additional Wallace-type damages, based on the circumstances surrounding the termination, including the offer of clemency in exchange for Mr. Pate's resignation, Mr. Pate's clean employment record during his 10 years of service, the Township's continued reliance on the allegations against Mr. Pate, even after the allegations were proven to be unfounded, the Township's accusation of theft and its failure to give Mr. Pate an opportunity to  respond to such accusations.  This conduct, according to the judge, was a marked departure from "ordinary standards of decent behaviour" and amounted to bad faith.  As a result, the judge found that Mr. Pate was entitled to an additional 4 months' pay in lieu of notice.

Aggravated Damages

Aggravated damages of $75,000 were awarded to Mr. Pate in order to compensate him for the harm caused by the Township's conduct. The Plaintiff's four day criminal trial and very public humiliation in a small community affected him emotionally and financially and left him "humiliated" and "defeated". In addition, the Township alleged numerous other grounds for misconduct on the part of Mr. Pate which were not proven at trial (nor were they withdrawn by the Township). Moreover, the judge emphasized that the Township's decision to terminate Mr. Pate without any notice or reasons for his dismissal, and without giving him the opportunity to respond to allegations made against him, was "unfair and insensitive". The judge's view was that the Township terminated Mr. Pate and then held an investigation to build a case in order to justify the termination. This was not viewed favourably by the judge.

Punitive Damages

In addressing Mr. Pate's claim for punitive damages, the judge found that the Township's actions were reprehensible and that such conduct was intentional and resulted in significant mental distress, as well as social and economic damage to Mr. Pate.  The judge found that the harm caused to Mr. Pate as a result of the Township's actions was foreseeable and, as a result, ordered the Township to pay punitive damages of $25,000.  The judge did not provide an explanation as to the calculation of this amount.  Interestingly, after setting out the award, the judge stated: "I would order more, however, I am bound by the principles of proportionality".

Court of Appeal Decision

Mr. Pate appealed the trial judge's decision with respect to the amount of punitive damages.  The Court of Appeal allowed the appeal and found that, based on the Township's conduct as described by the trial judge, a higher award of punitive damages would not violate any "principle of proportionality". Accordingly, the Court ordered a new trial on the issue of the defendant's conduct so that the amount of punitive damages could be reconsidered.

The Second Trial Decision

In reconsidering its original punitive damages award, the judge again recounted the significant misconduct on the part of the Township and "the devastating impact on the employee's life, including his future employment prospects and broken marriage, and the fact that these were intentional and foreseeable actions significantly". After briefly reviewing the case law, the judge found it was reasonable to increase the award of punitive damages to $550,000. 

Our Views

While the facts of this case are very unique, this case demonstrates the care that must be taken before terminating an employee's employment for just cause. Prior to attempting to terminate an employee for cause, an employer should ensure it has evidence to support any allegations made at the time of termination, especially where such allegations could lead to criminal or other charges, or otherwise affect the employee's reputation or career prospects. Further, the reasons for the termination should be provided to the employee and the employee should be allowed the opportunity to respond to those reasons. Finally, in the event that evidence to support a termination for just cause is lacking, employers would be wise to recognize this and postpone the termination until such time as just cause can be established, or provide the employee with pay in lieu of notice of termination. Failure to do so, as demonstrated by this case, could result in further damages being payable to the employee.

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