The Court of Appeal for Ontario recently rendered a decision in Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125, which serves as a cautionary tale for employers whose termination conduct reveals that they do not take their obligation of good faith and fair dealing in the manner of an employee’s dismissal as seriously as they should. 

In Ruston v. Keddco, the employee was last employed as the company’s president and was terminated after 11 years of employment. The employee was notified that his termination was for cause as he had committed fraud; specifics of the allegation were not provided. When the employee indicated he would retain a lawyer, he was advised that a counterclaim would be made and was warned about the expense that would ensue. 

The employee filed a statement of claim seeking damages for wrongful dismissal; it was met with a statement of defence and a counterclaim alleging cause. The employer sought damages of $1,700,000 for unjust enrichment, breach of fiduciary duty and fraud, and $50,000 in punitive damages. 

The trial judge, however, found that the company had:

• Failed to prove any allegations against the employee, let alone any cause for dismissal;

• Filed its counterclaim for damages in the amount of $1,700,000 as a tactic to intimidate the employee; and

• Breached its obligation of good faith and fair dealing in the manner of the employee’s dismissal.

The company’s counterclaim was dismissed and the employee was awarded the following damages:

• 19 months’ damages in lieu of reasonable notice, including bonus and benefits ($479,627);

• $100,000 punitive damages; and

• $25,000 moral damages.

In a subsequent decision, the court levied substantial indemnity costs in the amount of $546,684 against the employer.

The company appealed, arguing that the trial judge made reversible errors of law in its damage award representing the 19-month notice period, the aggravated damages award, the punitive damages award, and the costs award.  This appeal was dismissed in its entirety on the following basis:

Damage Award Representing the Notice Period

The trial judge did not err in awarding a 19-month notice period.  The following distinguishing factors made it less likely that the former employee would find similar employment and justified the award:

• His age: 54;

• He was not provided with a letter of reference; and

• He could only seek re-employment in a small area where he had family ties.  

Aggravated/Moral Damages Award

The $25,000 in aggravated damages was awarded to compensate “for heightened damages caused by the breach of the employer’s duty of good faith and fair dealing in the manner of dismissal,” specifically the employer’s manner of dismissal, including its conduct in threatening the employee not to make a claim and in filing a counterclaim that was calculated to, and did, cause the employee stress. 

Punitive Damages Award

The $100,000 punitive damages was awarded “to punish and denunciate inappropriate or unfair conduct,” including:

• The employer’s threat in the termination meeting that if the employee sued, it would counter claim, and that the employer did sue alleging fraud. 

• The fact that the employer did not seem to intend to prove damages but instead used the $1,700,000 claim as a strategy to intimidate the employee. 

The Court of Appeal rejected the company’s argument that because the trial judge referred to the same conduct in making the aggravated damages award and the punitive damages award, the punitive damage award amounted to either double recovery or double punishment.  Rather, the Court noted that the aim of  the aggravated damage award is distinct from the aim of the punitive damage award , as described above. 

Costs Award

Although the $546,684 costs award was unusually high, it was fair and reasonable in the circumstances. 

Bottom Line for Employers

Employers in Ontario that engage in hardball tactics before and after the termination of an employee will be subject to judicial condemnation should the employee pursue legal action.  In particular, employers will be viewed as having breached their obligation of good faith and fair dealing when their conduct involves:

• Allegations of cause in the absence of corroborating evidence;

• Threats of a counterclaim and comments about the expense of the counterclaim that would ensue for the employee, and then filing a counterclaim, all for the purpose of intimidating the employee and causing stress; or

• Efforts to dissuade the employee from engaging legal counsel.

Such behaviour will likely result in significant judicial sanctions, including considerable aggravated and punitive damages against the employer, and unusually high costs awards.