Canada: Advancing Unfounded Just Cause Defence Leads To Large Damages Award

The B.C. Supreme Court's recent decision in Bailey v. Service Corporation (Canada) ULC, 2018 BCSC 235 highlights the perils of advancing unfounded just cause allegations and a court's willingness to sanction such conduct with substantial aggravated and punitive damages awards.

Facts

Donald Bailey was a 60-year old salesperson with 17 years of service at the time of termination of his employment. The defendant, Service Corporation International ("SCI"), is a large international company that owns and operates funeral homes. By all accounts, Mr. Bailey was a successful and productive employee, earning approximately $150,000 per year through salary and commissions.

Mr. Bailey's problems began when he went on medical leave in September 2013. He was turned down for short-term disability benefits by the insurer, Manulife, which determined that the illness was work-related and he should pursue a claim for benefits through WorkSafeBC. His employer formed the opinion that as a result of not being approved for benefits, his leave was not bona fide. It also concluded that Mr. Bailey must be working as a real estate agent. (Prior to going on leave, he had disclosed the fact that he was getting his real estate agent license but had described that pursuit as a hobby.)

SCI did not question Mr. Bailey about his fitness to return to work or whether he was working elsewhere. Instead, it terminated his employment in November 2013 about 2.5 months into his leave. Most surprisingly, it deliberately decided not to tell Mr. Bailey that it was ending his employment. In fact, he only found out he had been dismissed from employment when his wife tried to make a benefit claim and was told by the insurer that he was no longer an employee.

In its response to civil claim and in its evidence at trial, SCI denied that it had ever given Mr. Bailey authorization to be on leave. It maintained that it had repeatedly asked him to return to work but he had refused and, as such, he had abandoned his employment. It also continued to maintain that he was moonlighting as a real estate agent while pretending to be sick.

Decision

The Court very readily found that SCI did not have just cause for termination: Mr. Bailey was on an approved leave of absence and had not abandoned his job. The Court concluded that he had never been asked by SCI to return to work at all, and he had no knowledge that his employer took issue with his leave or his employment was in peril. In finding against the employer on the issue of cause, the Court was highly critical of SCI's witnesses, remarking that the company produced key documents mid-trial and advanced a "false story" that it had repeatedly asked Mr. Bailey to come back to work.

The Court then somewhat reluctantly determined that while SCI did not have just cause, the termination provision in Mr. Bailey's employment contract which limited him to employment standards minimums was enforceable. This resulted in an award of just eight weeks of notice (approximately $23,000) even though the common law notice period would have been 18 to 24 months.

The Court readily found that SCI was in breach of its duty of good faith and fair dealing in the manner of dismissal. While Mr. Bailey did not lead any medical evidence, $25,000 in aggravated damages was awarded on the basis of his testimony that the way he was treated was devastating to his mental health. The Court also awarded $110,000 in punitive damages, acknowledging that the amount was substantial but was appropriate in the circumstances because of the reprehensible conduct of the employer.

Of significance, a link was drawn by the Court between the punitive damages award and the termination clause in the employment agreement. The Court held that the "ungenerous" termination provision allowed SCI to treat employees "abusively" without the fear of litigation. A large punitive damages award was deemed necessary in order to deter SCI from treating other employees as "maliciously and callously" as it did Mr. Bailey. The Court further justified the amount of the award with a remark to the effect that Mr. Bailey's total damages were still far less than he would have been awarded had he received common law reasonable notice.

Lessons for Employers

There are many lessons about what not to do that can be gleaned from this case. Overall, the decision affirms that maintaining a just cause defence based on false allegations will undoubtedly lead to a punitive damages award. Further, if an employer relies on an employment agreement which limits notice to employment standards minimums and it engages in bad faith conduct, it may have a large punitive damages award made against it.

The decision also demonstrates the increasing willingness of courts to award aggravated damages in the absence of expert medical evidence and on the basis of a plaintiff's own testimony about the impact of the manner of dismissal on his or her health.

Finally, this case highlights the importance of not relying solely on the decisions of insurers or workers compensation representatives when assessing the validity of an employee's medical absence. Employers must always engage in their own investigation. It is critical to make all necessary and appropriate inquiries of an employee.

Previously printed in the LexisNexis Labour Notes Newsletter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.