by M. Norman Grosman
Nearly every wrongful dismissal lawsuit contains a claim for punitive damages. While most of those claims are ultimately unsuccessful, they are, nevertheless, disturbing to employers. As a result most employers keep a careful watch on the judicial pendulum as it relates to punitive damages.
The courts have been relatively clear in defining the circumstances in which punitive damages should be awarded. In an authoritative decision on point, the Supreme Court of Canada, in the case of Hill v. Church of Scientology of Toronto (1995), 126 D.L.R. (4th) 129 at pp. 185-6, [ 1995] 2 S.C.R. 1 130 [*095202034 - 1'15 pp.], held:
Punitive damages may be awarded in situations where the defendant's misconduct is so malicious, oppressive and highhanded that it offends the court's sense of decency. Punitive damages bear no relation to what the plaintiff should receive by way of compensation. Their aim is not to compensate the plaintiff, but rather to punish the defendant. It is the means by which the jury or judge expresses its outrage at the egregious conduct of the defendant. They are in the nature of a fine which is meant to act as a deterrent to the defendant and to others from acting in this manner. It is important to emphasize that punitive damages should only be awarded in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence.
Accordingly, for an award of punitive damages to be made, two requirements must be met. First, the defendant must have committed an independent or separate actionable wrong causing damage to the plaintiff. Secondly, the defendant's conduct must be sufficiently harsh, vindictive, reprehensible and malicious as to attract such an award. Whether the second arm of the test is met, in any particular lawsuit, is a question of fact based on the circumstances which evolved between the parties. The first arm of the test, however, tends to be more of a legal issue.
How then does the question of whether or not there has been an independent or separate actionable wrong causing damage to the plaintiff arise in the context of an employment or wrongful dismissal case. In a recent decision by the Supreme Court of Canada. Wallace v. United Grain Growers Ltd. (1997), 152 D.L.R. (4th) 1 at p. 33. [ 1997] 3 S.C.R. 701 [*097307115 - 73 pp.], it was determined by the court that it is an implied term of every employment contract that "employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal" of their employees. The Wallace case, of course, has become notorious for providing latitude to the courts to extend what would otherwise be an appropriate notice period because of bad faith on the part of the employer.
A recent Ontario Court of Appeal decision. Whiten v. Pilot Insurance Co. (1999), 170 D.L.R. (4th) 280, 42 O.R. (3d) 641 (C.A.) [*099040022- 41 pp.], although arising in the context of an insurance policy, determined quite clearly that a claim for punitive damages can arise out of a contractual relationship. Since all employment relationships are contractual in their nature, this case certainly has implications for employers in respect of future claims for punitive damages. The Court of Appeal, in Whiten, confirmed that a contract between an insurer and its insured is one of utmost good faith. This is not unlike the Supreme Court of Canada's conclusion in Wallace as to the nature of the relationship between employers and their employees. Since the insurance company holds a position of power over the insured, the insured is therefore in a vulnerable position, entirely dependent upon the insurer. Thus, in every insurance contract an insurer has an obligation to deal with the claims of the insured in good faith. That obligation to act in good faith is separate from the insurer's obligation to compensate the insured for losses covered by the policy. Breach of an insurer's obligation to act in good faith was determined, in Whiten, to be a separate or independent wrong from the wrong for which compensation could be claimed under the policy, and therefore to be the proper subject of a claim for punitive damages.
The analogy to an employment law case is clear. Although the employer has an obligation to provide reasonable notice or compensation in lieu thereof on a termination without just cause, a breach of an employer's implied obligation to treat the employee in a good faith manner can constitute a separate or independent actionable wrong which may form the basis or foundation of a proper claim for punitive damages. As a result, the judicial pendulum in respect of punitive damages has moved incrementally forward.
Accordingly, employers who breach the obligation to treat employees with good faith, decency and fairness lay exposed to an increase in the notice period or, it seems, an independent claim for punitive damages to punish their behaviour and deter their organizations and others from engaging in similar behaviour. It is no longer necessary for a dismissed employee to establish that the actions or behaviour of the former employer were of a tortious nature in order to advance a claim for punitive damages. Such employees may, instead, rely upon the implied duty of the employer to actin good faith and the breach of that duty as a contractual matter.
Practically, the Whiten decision is likely to act as a catalyst to the proliferation of punitive damage claims in wrongful dismissal actions. While there are probably very few cases where a dismissed employee will refrain from alleging that the employer somehow breached its duty of good faith, decency and fairness in the decision to dismiss and the implementation of that decision, the threshold to meet that test is still fairly high. As a result, it is probable that courts will continue to look for reprehensible, malicious and offensive conduct in order to make and justify awards of punitive damages.
This article is excerpted from The Employment Bulletin.
Published by Canada Law Book Inc.
Subscriptions can be obtained by calling: (905) 841-6472
Toll Free 1-800-263-2037