Accounting for Law
Employment & Labour

Employers could face punitive damages for ‘egregious’ behaviour

Companies that dismiss employees by claiming they were guilty of a serious crime such as fraud better have the evidence to support that assertion, or they may face significant punitive damages, Toronto employment lawyer Kathryn Marshall tells

“Accusing someone of committing fraud, or lying or stealing, are not allegations that you make lightly,” says Marshall, an associate with MacDonald & Associates. “You really have to have something to back those allegations up, or the court will punish you.”

She cites the example of a 2018 Ontario Superior Court of Justice ruling, where a former company president was awarded $100,000 in punitive damages.

According to the court judgment, three years earlier, at the age of 54, the man was given a termination notice for what he said were unspecified reasons, after 11 years of service with a manufacturing and distribution company.

He launched a claim, stating he was dismissed without notice or cause, and therefore was entitled to damages, court documents show. The judgment states he was advised in a counter-claim by the company that he was terminated for cause because he committed fraud.

In his ruling, the judge noted that that company “chose not to call any witnesses who could provide direct evidence to substantiate the allegations. Again, it appears that the counter-claim was merely a tactic employed by the defendant to induce the plaintiff to drop his claim.”

The judgment quotes a 2008 Supreme Court of Canada decision that found, “Punitive damages are meant to address wrongs on the part of the defendant ‘that are so malicious and outrageous that they are deserving of punishment on their own.’”

Marshall says punitive damages are a mechanism the court has to “deter outrageous behaviour.”

They are not designed to compensate the plaintiff, she says, but are “actually designed to punish the defendant for high-handed, egregious behaviour, that warrants some kind of message from the court.”

Marshall says the case highlights the danger that employers face if they “allege things in the termination of an employee that they don’t have the evidence to prove.”

She says another example is a 2017 Ontario Superior Court case, in which a former executive was awarded $500,000 in punitive damages plus $250,000 in moral damages. The plaintiff was represented by Toronto employment lawyer Natalie MacDonald, principal of MacDonald & Associates.

“In this case, the judge really was sending a strong message about the defendant’s pre- and post-litigation conduct,” Marshall says.

“A punitive damage award of $500,000 is really high,” she says. “This is the kind of verdict that shakes up the employment law world.”

Moral damages can be awarded by a judge “as compensation for the pain, humiliation and stress that the dismissal caused,” Marshall says.

The plaintiff can also face punitive damages, she says.

“Punitive damages can be awarded if any party engages in vexatious and improper conduct in the litigation process,” Marshall says, adding it is a long-standing principle in law that those giving testimony cannot be sued for defamation.

“However, that doesn’t mean that you can allege whatever you want, without any recourse,” she says. “You won’t be sued for defamation if your allegations are bogus, but the court may come down on you hard, in the form of punitive damages.”

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