Employment & Labour, Mediation

Decision wrongly links punitive and moral damages to income

By AdvocateDaily.com Staff

A record award in favour of a fired executive sends the wrong message about punitive and moral damages, Toronto employment mediator and arbitrator Barry B. Fisher tells AdvocateDaily.com.

The case, which has not been appealed, involved a woman regarded as a rising star in the boardroom of a major retailer before her unceremonious firing from a senior management position in 2010.

After an eight-year legal battle, an Ontario Superior Court judge ordered her former employer to pay her $750,000 in combined punitive and moral damages, an amount Fisher, principal of Barry Fisher Arbitration & Mediation, says is around 10 times higher than more typical awards.

“It’s out of all proportion compared with the harm suffered by other plaintiffs,” he says. “It seems like the judge awarded her a higher amount of money because she made a great deal of money, which is just fundamentally wrong.”

Fisher explains that it makes sense that damages for failing to provide reasonable notice are tied to the salary of the plaintiff because they are intended to compensate for the required notice period.

“If one person makes $100,000 per month, there is going to be more money involved than where a plaintiff makes $5,000 per month,” he says.

However, the same does not hold true for moral damages, which are intended to compensate for mental distress or psychological injuries suffered as a result of the employer’s actions.

“They should be strictly related to the harm caused to that person, not to their income,” Fisher says, using a personal injury case to illustrate his point:

“If a highly paid person is injured in the same accident as a low-paid employee, and they both suffer the same pain and suffering, it doesn’t make sense for one to get more than the other,” he adds.

The woman in the case won a number of promotions at the Canadian arm of an international retailer after it recruited her in 2002, including recognition from the firm’s global head office in the U.S.

However, her fortunes changed in early 2010 when the president and CEO of the Canadian division told her she was being removed from her position, while promising to find her a new role. The president also downgraded her performance rating without telling her, the decision says.

She wasn’t formally terminated until November of that year, after being left to “twist in the wind” for 10 months, prompting the judge to label the company’s conduct “callous, high-handed, insensitive and reprehensible.”

But Fisher says the executive’s ordeal doesn’t stack up against more egregious terminations. For example, in one case that was cited by the judge in this decision, the plaintiff, a housing officer employed by a municipality, was fired after placing a sex offender in low-cost housing, even though the local rules required him to make the placement.

The judge in that case also found that the man’s former boss had altered the results of an internal investigation to boost the chances of his firing, instigated a criminal complaint, and interfered with his subsequent search for a new job.

“They’re not on a similar level in my view,” Fisher says. “Compared to cases I see every day, paying someone for an extra 10 months is not the worst thing on the face of the earth. Presumably, they should have fired her earlier, but I’m not sure it created such a huge harm.”

In another case, a plaintiff saw his much more modest $7,500 moral damages award overturned by the Divisional Court, despite a small claims court finding that he had been left “hanging in the wind” for seven months when his employment was extended before his abrupt termination.

The judge in the retailer executive case also condemned the company’s post-termination conduct, which included cutting off the woman’s salary and benefits after less than a year following her departure, despite previously agreeing to pay her for a full two years as part of a non-compete agreement to keep her out of work in the same industry.

In addition, the judge expressed his displeasure with the way the company dragged out the litigation by its repeated failure to meet its disclosure obligations.

Both actions were “reprehensible,” Fisher says, adding the decision suggests the company’s behaviour was uniquely bad in this case.

“This is a fairly routine occurrence. I don’t agree with it, but almost every employer in the world will cut people off unilaterally well before the end of the notice period. Having said that, I welcome the fact that she did something about it,” he says.

“It’s also unfortunately common for plaintiffs to have to compel defendants to properly disclose material, but this is normally dealt with in a significant award for costs. I’ve never seen it used as the rationale for $50,000 in moral damages.”

Fisher says he understands the company’s decision to cut its losses, noting that the legal and public-relations costs of an appeal could easily consume the savings associated with any reduction in damages.

Still, The law in the area would have been better served by an appeal,” he adds.

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