In a recent decision, the BC Court of Appeal overturned a trial judgment awarding aggravated damages to a plaintiff who had been wrongfully dismissed from his employment.
In Lau v. Royal Bank of Canada, 2017 BCCA 253 [Lau], the plaintiff, a mutual fund sales representative, was terminated for falsifying bank records and for not telling the truth during an investigation into the complaint that led to his dismissal. The defendant bank alleged that he was terminated for cause, but the trial judge found that the termination was wrongful. The trial judge held that the plaintiff had been telling the truth when the bank confronted him with the allegations and, although the judge found that he had committed misconduct by recording renewed or retained investments as new sales, that misconduct did not justify termination.
In addition to awarding damages for wrongful dismissal, the trial judge awarded aggravated damages as compensation for the manner in which the plaintiff was dismissed. She determined that the bank and the third party investigator hired by the bank to investigate the complaint made against the plaintiff failed to meet their obligations of good faith and fair dealing when dismissing the plaintiff. The trial judge determined that, as a result, the plaintiff was suffering from depression based on the “slow, quiet, and almost monotone manner in which he testified” (para. 15).
The defendants appealed the aggravated damages award on the basis of the Supreme Court of Canada’s decision in the case of Honda Canada Inc. v. Keays, 2008 SCC 39 [Honda]. In Honda, the court held that aggravated damages are appropriate when two factors are present: first, an employer breaches its duty of good faith and fair dealing in the manner of dismissal and, second, the employee suffers damage resulting from that breach. The defendants appealed on the basis that neither factor was present. Specifically, the defendants argued that the judge erred in finding that the manner of dismissal was unfair or in bad faith and that there was no evidence to support an award of aggravated damages.
The Court of Appeal’s analysis of the issue started with a discussion about the importance of the employment relationship, as acknowledged in previous Supreme Court of Canada decisions. For example, in Wallace v. United Grain Growers Limited,  3 S.C.R. 701 [Wallace], the court held that “…for most people, work is one of the defining features of their lives. Accordingly, any change in a person’s employment status is bound to have far-reaching repercussions” (Wallace, para. 94). The court in Wallace went on to say that the employee is at their most vulnerable at the time the employment relationship “ruptures” and it is at this point that the employee is most in need of protection. Where the manner of dismissal is harsh and unfair, this can be just as devastating to an individual’s identity as the loss of the job itself. Employers, therefore, have an obligation to act in good faith deal fairly when dismissing an employee. This means that they must be “candid, honest and forthright” and must avoid being “untruthful, misleading or unduly insensitive” (Wallace, para. 98). Employers who breach those obligations may be subject to damages awards against them for injuries to the employee “such as humiliation, embarrassment and damage to one’s self-worth and self-esteem” (Wallace, para. 103).
The Wallace decision also established that compensation is not appropriate for injuries stemming from the dismissal itself. Feelings of general upset and hurt feelings do not justify compensation; it is only if an employer acts unfairly or in bad faith that compensation may be appropriate. Examples of unfair or bad faith conduct include maintaining a wrongful theft allegation against an employee and advising potential employers of the allegation; making unfounded theft allegations and refusing to give a letter of reference on the basis of the unfounded allegation; terminating an employee while in the process of moving to take a new position after being promised that new position; firing an employee while on disability leave; making declarations when an employee is dismissed that attack the employee’s reputation; and misrepresenting the reason for the termination (see Lau, para. 31). The court in Lau found there to be no evidence that the plaintiff was harassed, scolded, or mistreated, nor was there evidence that the defendants had an ulterior motive in terminating Mr. Lau (para. 43).
However, unfair or bad faith conduct is not enough in and of itself to justify compensation. In addition, the employee must prove that they suffered damages as a direct result of the employer’s misconduct. The Court of Appeal in Lau focused on this issue and found that there was no evidence that Mr. Lau had suffered mental distress, loss of reputation or any other psychological injury. While the court held that the case law did not require medical evidence of depression or other psychological affliction, there had to be some evidence of mental distress that goes beyond a mere observation of “the demeanour of the plaintiff in the witness stand” (para. 49). For example, having friends or family testify as to the plaintiff’s mental state may be sufficient, as long as that evidence reveals a “serious and prolonged disruption that transcended ordinary emotional upset or distress” (Lau, para. 49, quoting the Supreme Court of Canada in Saadati v. Moorehead, 2017 SCC 28 at para. 40).
The court pointed out that the plaintiff led no evidence whatsoever, whether from friends, family or experts, that supported the conclusion that he had suffered mental distress arising from the manner in which he was dismissed. As a result, there was no basis for an aggravated damages award. Damages of this kind must reflect the actual harm that the plaintiff suffered, but also a link between the manner in which the plaintiff was dismissed and the alleged harm suffered (para. 60). General difficulty in finding a new job, for example, is not compensable in the form of aggravated damages. The notice period itself is the compensation for a dismissed employee in their search to find new employment (para. 61).
The key takeaway here is this: no employment relationship lasts forever. Whether an employee quits for another job, retires, or is dismissed, the relationship will eventually come to an end. If the employer determines that the ending will come in the form of a dismissal, it is natural that the employee may feel sad, upset, or even traumatised. These hurt feelings alone will not justify an award of aggravated damages. It is only if the employer acts unfairly or in bad faith during the dismissal process and if that misconduct is the cause of significant mental distress beyond the hurt feelings that are a natural part of an unpleasant experience that aggravated damages are appropriate.