The Court of Appeal recently confirmed that an employer defamed an ex-employee when the employer filed a false report with an industry regulator.
The employee in Hampton Securities Limited v. Dean was a proprietary trader. The employer accused the employee of making unauthorized trades which resulted in trading losses, and demanded she post $50,000 to her trading account or be barred from trading. The employee took the position that she had been constructively dismissed.
The parties were regulated by the Investment Industry Regulatory Organization of Canada ("IIROC"). The employer filed a notice on IIROC's public database, stating that the employee was terminated for cause for failing to follow trading policies and engaging in unauthorized trading which resulted in losses.
The trial court ruled that the employee had been defamed and wrongfully dismissed. The employer had not proven its allegations that the employee had failed to follow policy and procedure and had engaged in unauthorized trading at trial. Moreover, the trial court found the statement it made in the public database was clearly defamatory, and was made without an honest, good faith belief in the truth of its contents. As a result, it was not protected by the defence of qualified privilege.
Generally, a statement will be defamatory if it tends to diminish the reputation of its subject in the eyes of a reasonable person. Qualified privilege is a complete defence to defamation, where the party which made the statement had a legitimate interest in making a statement, others had a legitimate interest in receiving it, and the statement was made with an honest belief in the truth of its contents. For instance, employers operating in regulated industries may have certain obligations to report problematic or improper conduct to their regulator, and the regulator may subsequently make that information public. Regulators have an interest in receiving such information in order to regulate the profession, to be aware of potential misconduct, and to protect the public.
The Court of Appeal upheld the trial court's ruling that the employer could not avail itself of this defence, because it the statement was clearly false and misleading, and because it had exceeded its duty to report to IIROC. The Appeal Court reasoned that when it provided false or misleading statements the employer had exceeded the scope of the duty to report.
As a result, the Court of Appeal upheld the trial award of six months' reasonable notice, $25,000 in damages for defamation, and $25,000 in punitive damages. The Court placed particular emphasis on evidence that the employer's defamatory statement to IIROC was preventing her from obtaining another trading position.
We wrote recently about a case that confirmed employers' right to provide honest references for ex-employees, without facing liability for defamation or other torts. This case, however, illustrates that the courts will be particularly tough on employers where a statement or reference is made maliciously, or is knowingly false or misleading.
The Court of Appeal determined that the employer knew that the statements were untrue, and that it had made them maliciously. This would have been sufficient to disentitle the employer from relying on the defence of qualified privilege. However, the Court went further, and also found that the employer could not rely on the privilege because it had no legitimate interest in making the statement.
Clearly, the employer in this case had a legal obligation to report unauthorized trading. Read narrowly, the Appeal Court's decision simply confirmed the obvious – there is no duty to make a false or misleading report. The employer had no legitimate interest in making the statement and the regulator had no interest in receiving it. Therefore, the employer could not rely on the defence of qualified privilege.
It is somewhat concerning that the Appeal Court did not address whether the defence would be available to an employer that held an honest but mistaken belief that it was obligated to report certain employee behaviour. Regulators and the public have an interest in employers erring on the side of reporting when unsure whether they are required to do so.
However, if the employer in this case had an honest, though ultimately mistaken, belief that the employee had engaged in unauthorized trading, it is not clear from the Court's decision whether qualified privilege would have applied. Arguably, a regulator has an interest in receiving such reports, so that it may determine for itself whether disciplinary action is warranted.
In light of this decision, employers that are unsure whether they are legally obliged to make a report to a regulator would be well-advised to seek legal advice or to contact the regulator for guidance in advance of reporting.
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.