Canada: Scary Amount Of Punitive Damages Ordered Against 'Mean And Cheap' Employer

​A recent Ontario court decision is a sharp criticism of employers who fail to implement their progressive discipline policies, and who make unfounded allegations of cause in order to gain an advantage.

Background

In the recent case of Gordon v Altus, 2015 ONSC 5, the Ontario Superior Court considered several issues that arose in a wrongful dismissal case. The plaintiff sold his company to the defendant and was hired on after the sale. However, the relationship broke down. In the employer's view, the plaintiff engaged in conduct that amounted to just cause, some of which was discovered after the dismissal: talking about senior personnel in a derogatory manner, swearing to the point where it made working with him unbearable, not disclosing lending money to a company the employer was doing business with, which created a conflict of interest, and employing someone who had been charged with fraud and misleading the defendant of same.

Employer failed to prove cause

However, the court did not agree with the employer's position on just cause. While an employer is allowed to allege misconduct after the fact of dismissal, the employer in this case did not have sufficient evidence of cause. The employer was seen to have invented cause allegations in order to avoid a dispute over the sale agreement. That agreement required the parties to resolve any disputes by arbitration. This ended up being a lengthy and drawn out process where millions of dollars were at stake. The employer was seen to have searched for a reason to dismiss the employee during the arbitration process to gain an advantage, and to avoid its severance obligations.

The court dismissed the testimony given by the employer on its various cause allegations, including the allegations of swearing (he was never warned, and other senior employees engaged in similar conduct), and the conflict of interest and employing a person accused of fraud were similarly rejected by the court. The employer had a policy on progressive discipline, yet it failed to engage that policy and provide the employee with the requisite warnings prior to termination.

The plaintiff was therefore entitled to the notice period set out in his contract. The plaintiff argued, unsuccessfully, that the employer's conduct was "mean-spirited enough" to render the employment contract unenforceable, which would have given him a longer (reasonable) notice period under the common law. Accordingly, the court awarded the period of notice set out in the employment contract, rather than what would have potentially been a lengthier notice period at common law.

Employee did not fail to mitigate

The court was particularly concerned with the employer's position that the employee had failed to mitigate his alleged damages. As the court stated, the plaintiff could not mitigate his damages because the employer enforced a non-competition provision after dismissing the employee for cause. The court described the employer as having "conducted itself so as to beat down the employee. It is a bully tactic."1

Employer ordered to pay punitive damages

The court harshly criticized the employer's conduct and awarded punitive damages of $100,000. The following quote from the decision is a pithy summary of the how the court viewed the facts:

The conduct of the Defendant corporation is outrageous because Altus got mean and cheap in trying to get rid of an employee as they approached arbitration for the determination of any adjustment in the asset purchase agreement price. They had a contracted process in place and chose to park it with an unfounded allegation to fire him. Altus paid Alan Gordon no money. Further, Altus expected Alan Gordon to act within the contract terms in not competing with Altus. In effect, he got nothing and was expected not to work within a competitive field to that of Altus. That appears to me to amount to Altus wanting to have its cake and eat it. Now, there is no free lunch in this world and Altus cannot expect to have one.

Lessons for Employers

There are two important lessons that can be taken from the decision in Gordon v. Altus:

Lesson #1: If a progressive discipline policy is in place, follow it.

Lesson #2: Cause allegations should be credible and convincing evidence, and not appear exaggerated or for an ulterior purpose.

The lessons for employers are not new, but the decision serves as a reminder of the possibility of punitive damages if unfounded cause allegations are made in the context of the employer trying to gain advantage for other purposes. In this case, the court decided the employer was trying to avoid significant financial obligations under an asset purchase agreement when it alleged cause. The court thus found the employer was liable not only for pay in lieu of notice, but $100,000 in punitive damages for its "harsh treatment" of the employee and "terrible conduct".

Footnote

1 The court appears not to have considered whether the non-competition agreement was enforceable, although perhaps this is because it was negotiated in the context of an asset purchase agreement.

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