by M. Norman Grosman
For the benefit of companies that believe, when faced with a wrongful dismissal lawsuit following the termination of an individual's employment, that the best defence is a good offence, which may include allegations of just cause and counterclaims, the courts continue to deliver a simple message: Don't. Judges generally take a dim view of the employer who makes serious allegations which either have to be withdrawn on the eve of trial or, worse yet, are maintained to the bitter end of the trial when there is precious little in the way of credible evidence to support them. In fact, it is the role of good legal counsel to ask the tough questions early on and dissuade a client from asserting unfounded or unsupportable cause allegations or counterclaims.
The recent British Columbia Supreme Court decision in Martin v. International Maple Leaf Springs Water Corp. (1998), 38 C.C.E.L. (2d) 128 (B.C.S.C.) [*098197073 - 21 pp.], represents another example of how judges react to vindictive behaviour by former employers. In that case, Martin commenced employment with Maple Leaf Springs, a company engaged in the sale and distribution of spring water, in July, 1994. He was hired by the president and promised a bright future with the company, including commissions over and above his base salary, shares in the company and a position as a director. On March 31, 1995, just nine months after the promises of career opportunities were made, Martin was dismissed at a meeting of the board of directors and accused of dishonesty and conflict of interest. Following Martin's termination, the president went even further and advised third parties outside of the company that Martin had been dishonest and had attended work under the influence of alcohol.
The company maintained its very serious allegations of cause for dismissal until approximately one week before the commencement of the trial. At the trial, Saunders J. heard evidence about the allegations of dishonesty and conflict of interest and determined that they were untrue and that there was no reasonable basis upon which the president, who directed the company's daily operations, could have made such accusations. Saunders J. assessed the following damages:
- Notice Period. Based upon his nine months of service and his age, 46 at the time of dismissal, as well as the fact that he had relocated geographically in order to accept the position, leaving behind his local contacts and business associates, Martin was awarded six months' pay in lieu of notice.
- Commissions. Saunders J. held that Martin was entitled to be compensated for the commissions he would have earned under the arranged sales of Maple Leaf Springs' water during his notice period, just as he would have been entitled to be compensated for salary he would have earned had he been strictly a salaried employee. The evidence at trial established that Maple Leaf Springs was not "assiduous" in seeking to perform its obligations under six agreements made at the time Martin was dismissed and that the company was wasteful of an opportunity to sell a large volume of water to an American company. Allowing a certain discount for negative contingencies due to production problems and non-performance by customers, Saunders J. made a determination that entitled Martin to commissions he would have earned over his six-month notice period had the deals been consummated.
- Bad Faith Damages. Saunders J. concluded that Martin's dismissal was at the president's initiative and was based upon reasons that were not true, which reasons were communicated to the other directors in attendance at the termination meeting. He further held that the president's evidence at trial was full of exaggeration and misrepresented facts and that [at p. 138] overall the dismissal was "high-handed and without objective basis". As a result, Martin received an incremental award of three months' compensation for the manner of his dismissal.
- Punitive Damages. After reviewing the evidence,Saunders J. held that punitive damages which are designed to punish a defendant whose conduct is harsh, vindictive, reprehensible and malicious were warranted in this case. Because Martin had been wrongly accused of dishonesty and taking a secret commission as well as misuse of alcohol when there was no foundation for any of the accusations, punitive damages were assessed against the company in the sum of $35,000.
- Damages Against the President. It is indeed in rare circumstances that a director will attract personal liability in a wrongful dismissal lawsuit. Such-liability only arises in circumstances where a director is acting outside the scope of his or her authority and is being motivated by the advancement of a personal interest, contrary to the interest of the company, or where he or she acts by fraud or with malice. Saunders J. found that, in this case, the president was the alter ego of the company and acted beyond his position by fabricating information upon which other directors relied in agreeing to dismiss Martin. Saunders J. held that in doing this the president had acted in bad faith towards Martin and with malice, bringing himself within the limited number of cases in which a director may be held liable for damages suffered by a person wronged by a corporate entity. As a result, damages were assessed personally against the president in the sum of $25,000.
In this British Columbia case, Maple Leaf Springs learned a difficult and expensive lesson. Serious allegations regarding misconduct of an individual made at the time of or following termination, or counterclaims asserted against a terminated individual, which do not have a creditable evidenciary foundation often backfire, increasing the damages which might otherwise be assessed against the company. Once made, such allegations are often difficult to withdraw without consequences. The courts are, for the most part, consistent in their approach and the requirement that employees be treated with decency, fairness and civility both during the course of their employment relationship and at the time of its termination. The best defence is rarely a good offence.
This article is excerpted from The Employment Bulletin.
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