TERMINATION OF EMPLOYMENT: INDEX THE NOTICE PERIOD.

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1 TERMINATION OF EMPLOYMENT: DAMAGES INDEX PAGE I. INTRODUCTION II. THE NOTICE PERIOD. 2 A. FIXED TERM CONTRACTS 2 B. STIPULATED NOTICE PROVISIONS 3 C. INDEFINITE TERM CONTRACTS 7 1. Relevant Considerations 2. Re: Notice Period Length of Service: 8 Of Fluctuating Importance? The Concept of "Ballpark Justice".. 14 III. BENEFITS, BONUSES AND COMMISSIONS 17 A. BENEFITS Pension Benefits, Early 18 Retirement and C.P.P Vacation Pay Health Benefits and Insurance Company Automobile and Allowance B. C. SALARY INCENTIVES AND BONUSES COMMISSIONS IV. AGGRAVATED DAMAGES, PUNITIVE DAMAGES, AND DAMAGES FOR MENTAL DISTRESS AND LOSS OF REPUTATION 31 A. PRIOR TO VORVIS V. I.C.B.C. 1. Damages for Nervous Distress 31 and Loss of Reputation Punitive Damages 34 B. THE EFFECT OF VORVIS V. I.C.B.C Aggravated Damages Punitive Damages 40 V. MITIGATION. 42 A. B. DUTY AND ONUS DUTY TO RELOCATE C. EXPENSES

2 VI. U.I.C., WORKERS' COMPENSATION, INCOME TAX AND GST A. UNEMPLOYMENT INSURANCE COMMISSION. 1. In Relation to Damages Liability for U.I.C. Overpayment. B. WORKERS' COMPENSATION. c. INCOME TAX. 1. Taxability. 2. R.R.S.P. Rollover. 3. Withholding at Source. 4. Deductibility of Legal Expenses. D. GOODS AND SERVICES TAX. 46 ) VII. CORPORATE TRANSITIONS AND MULTI-CORPORATE STRUCTURES A. SALE OF THE BUSINESS. B. MULTI-CORPORATE STRUCTURES. C. BUSINESS FAILURE OR DISSOLUTION. 1. Directors' Liability. 2. Receivers' Liability

3 TERMINATION OF EMPLOYMENT: DAMAGES I. INTRODUCTION The measure of damages for wrongful dismissal is prima facie the amount the the plaintiff would have earned had the employment continued according to contract, subject to a deduction in respect of any amount accruing from any other employment which the plaintiff, in minimizing damages, either had obtained or should reasonably have obtained: Gardner v. Rockwell International of Canada Ltd. (1975), 9 O.R. (2d) 105, at 107, (H.C.J.); Herbison v. Intercontinental Packers, infra. Once liability is established, the next major issue is to determine the period of notice to which the employee is entitled. In Meyers v. Walters Cycle Co. Ltd. and Walters (1990), 85 Sask. R. 222, the Saskatchewan Court of Appeal has recently reiterated that an action for damages for wrongful dismissal is not a claim for pay in lieu of notice, but an action for damages for the breach of an implied term of the employment contract requiring reasonable notice of dismissal; an action for pay in lieu of notice would be, on the other hand, an action for specific performance if the term of a contract requiring such payment,". or in more common terms, an action for money due and owing under an agreement." The general measure of such damages is, of course, the amount to

4 - 2 - which the employee would have been entitled had he continued to work during the period of reasonable notice. II. THE NOTICE PERIOD A. FIXED TERM CONTRACTS If an employee is hired for a definite term, employment will automatically terminate at the end of the term and no further remedy is available: Dombrowski v. Board of Governors of Dalhousie University (1975), 55 D.L.R. (3d) 268. If, however, the employee is kept on for even one day beyond the expiration of the term, without any qualification, the contract becomes one of indefinite hiring, terminable only upon reasonable notice: Messer v. Barrett Company, [1927J 1 D.L.R. 184; Brown v. Northern Light School Division No. 113 (1982), 16 A.C.W.S. (2d) 255 (Sask. Q. B. ). If an employee is discharged before the contract expires, the employee can sue for loss suffered during the remainder of the term, subject to his obligation to mitigate damage: Zaglanikis v. Dana West Hotels Ltd. (1982), 20 Sask. R. 59, Affd. 26 Sask. R. 319 (C.A.). Similarly, if the employee resigns, the employer may sue for damages suffered.

5 - 3 - Neither written nor oral employment contracts may be enforced by specific performance._ B. STIPULATED NOTICE PROVISIONS written employment contracts will generally specify the length of notice period or payment in lieu of notice in the event of termination. Severance pay will generally only be provided if no cause for termination exists. If there is cause, the contract will generally provide that no notice or pay in lieu of notice will be provided. In any event, the cases are clear that express unambiguous language must be used to deprive an employee of reasonable notice of termination: See, generally, H.A. Levitt, The Law of Dismissal in Canada (1985: Canada Law Book Inc.), at p. 25 ff. To uphold such provisions, it is important that the court is convinced that there is a meeting of the minds concerning the termination provisions in the agreement, otherwise those provisions may be deemed to be unenforceable. In this regard, it would be wise to ensure that the prospective employee obtains independent legal advice prior to executing the contract. For example, in instances where the courts have deemed the

6 - 4 - notice period to be too minimal, they have struck down those provisions as unconscionable. Although the notice period can be less than the employee's common law rights, if it is so short that it is considered completely unreasonable, it may be struck down as harsh and unconscionable. The following are some examples: i) Where the contract provided that: "... the employers may at any time hereafter at their absolute discretion, terminate this engagement at any earlier date than that specified if they may desire to do so" (Re African Assn. Ltd., [ 1910 ] 1 K. B. 396); ii) Or, where the contract provided that: "Either party may terminate this contract at any time with or without cause." (Chadburn v. Sinclair oil (1966), 57 W.W.R. 477). These clauses were held not to bind the employee and deprive him of the right to reasonable notice because they did not specifically state that no notice or severance pay was required. Likewise, where the contract provided for termination of employment upon 30 days' notice, but the employee had worked for six years prior to executing the agreement, the court found that the parties would not have intended, after six years, that, when the employee was eventually terminated 18 years later, 30 days' notice would have been adequate. The

7 - 5 - court found the contract to be unenforceable on the basis that 30 days was a "harsh provision": Allison v. Amoco Production company (1975), 58 O.L.R. (3d) 233 (Alta. S.C.T.O.); but contrast, Hine, infra. Also, even though a contract may have been enforceable when signed, passage of time may result in its becoming unenforceable~ For example, where the employee's position has undergone substantial changes in responsibility and job content, it becomes less likely that the original contract may be enforced against him or her: Nardocchio v. CIBC (1979), 41 N.S.R. (2d) 26 (T.O.). However, where there are no such substantial changes, the contract may be enforceable even after a great length of time. In contract, however, in Hine v. Susan Shoe Ind. Ltd. (1990), 71 O.R. (2d) 438 (Ont. H.C.), it was held that where the plaintiff's responsibilities in his position as vice-president for over 20 years had not radically changed, the employment contract signed in 1964 governed the contractual notice to which he was entitled, which was six months. It should also be noted that the notice period stipulated in the contract must provide for more notice than the statutory period contained in The Labour Standards Act, otherwise the contract provision will be void and the employee entitled to

8 - 6 - rely on his or her common law rights: Collins v. Kappele, Wright and McLeod Ltd. (1983), 3 C.C.E.L. 228 (Ont.). Accordingly, for a short period of notice to be binding, the employee should have independent legal advice prior to executing the contract. However, in the proper circumstances, the courts will uphold agreements providing for very short notice. In the decision of Lake Ontario Portland Cement Company Ltd. v. Groner, [1961] S.C.R. 553, the Supreme Court of Canada upheld a ten day notice provision. It is also important to note that the courts, in these situations, appear to regularly apply the contra proferentum rule to interpret the contract strictly against the party drafting it, which is usually the employer. The Saskatchewan Court of Queen's Bench has recently confirmed that where an employment contract provides the formula by which severance pay is calculated, that formula, in the absence of considerations that make it inapplicable, ought to govern the parties' contractual rights and obligations: Snead v. Agricultural Dev. Corp. (1990), 85 Sask. R. 13 (Q. B.).

9 - 7 - It should also be noted that the courts may impose a specific duty of "procedural fairness" in dismissing an employee in addition to the duty to simply give reasonable notice, in certain classes of cases where dismissal of employees under contract may be affected by the terms of a specific statute: See, for example, Knight v. Indian Head School Div., [1990J 3 W.W.R. 290 (S.C.C.); and cases involving Federal non-unionized employees. C. INDEFINITE TERM CONTRACTS Most employees are hired for an indefinite term pursuant to a partially written or entirely oral agreement. In providing an employee with reasonable notice, the employer has the option to continue to keep the employee working during that period or to provide the employee with pay in lieu of notice. Practical considerations will usually govern which course is chosen. Although notice of termination must be clear and unequivocal, it is generally held that the period of notice commences when an employee is first told of the termination rather than the specific date of termination, which may be some time in the future.

10 Relevant Considerations Re: Notice Period The basic principle to be applied in determining reasonable notice is that enunciated in Bardal v. Globe and Mail Ltd., [1960] O.W.N. 253, at p. 255: "There could be no catalogue laid down as to what was reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of service of the servant, the age of the servant, and the availability of similar employment, having regard to the experience, training and qualifications of the servant." Many recent decisions have expanded upon this to delineate the test as being that the proper period of notice depends on the "reasonable expectations" the employment was entered into: of the parties at the time Brown v. Waterloo Regional Board of Police Commissioners (1983), 43 O.R. (2d) 113, at 117, (C.A.) But this does not really take into account unforeseeable future events and text-writer Levitt, supra, has suggested that the appropriate test might be: What notice the parties would have agreed to at the time of hiring if they had contemplated the factors existent at the time of termination.

11 - 9 - This concept was recently considered by the British Columbia Court of Appeal, which refined it further by holding that the relevant intention in determining length of notice is the intention of the parties at the time the contract was last changed in some fundamental aspect, prior to the events leading to termination: Woodlock v. Noracorp Inc. Consulting Inc., [1990] 6 W.W.R. 454 (B.C.C.A.). This recognizes that the relationship is not static and may be amended frequently over time on such fundamental terms as remuneration and responsibilities. The reported case decisions have, over the years, disclosed a great number of factors that the courts have taken into consideration in determining what is reasonable notice. Of course, some are more widely accepted than others, and some are given consideration in nearly every case. At pages , Levitt, supra, enumerates some 76 of these factors, gleaned from the case reports. These may be summarized as follows: - availability of similar employment; - status and specialization; - importance of the employee to the company's operations; - age, education, family circumstances; - length of service; - conscientiousness;

12 value of the employee to the company's performance; - the employee's individual performance and quality of work; - recent promotion; - representations by employer as to job security; presence or absence of prior warnings; - success of the company; - the employee was looking for alternative work anyway; - the employee had been induced to leave former employment; - the employee was unemployed at the time of hiring; - the employee had knowledge of his employer's financial instability at the time of hiring; - the employee had been hired for a specific project; - the effect of the position on the employee's opportunity for re-employment; - the employee had been relocated on accepting the position; - the employee had knowledge that the position would not be long-term; - the size of the company; - general economic recession (may increase or decrease the period of notice awarded); - the cyclical nature of the industry; - custom in the industry; - representations by the company as to the potential for long-term work; - employee misconduct;

13 the employee required a period of notice in order to become qualified for a pension; - acceptance of an offer as to amount of severance; - employee's lack of ability to relocate; - health status; - failure to mitigate; - the finding of a higher paying job; - the notice received by other employees; - the employer had made serious unsubstantiated allegations. However, certain of these factors are definitely of more importance than others. For example, specialization and status of the employee's position is one of the most important factors, and the notice period will generally bear a direct relation to the increase in status and responsibility more senior employees receive proportionately higher awards, as will those with higher salaries. However, even a junior employee who has a highly specialized position may be entitled to longer notice: Blackburn v. Koyle Motors Ltd. (1983), 44 O.R. (2d) 690 (a bookkeeping clerk~working with a unique system of bookkeeping). It has been held that the availability of similar employment

14 is the major factor in determining an appropriate notice period because the justification for reasonable notice is to give the employee a fair opportunity to look for alternative employment: smith v. Tamblyn (Alberta) Ltd. (1979), 9 Alta. L.R. (2d) 274. On the other hand, the ontario Court of Appeal has stated that the length of time to find alternative employment may be a factor, but it is not the governing factor: Issacs v. M.H.G. International Ltd. (1984), 45 O.R. (2d) 693 (C.A.). There can be no doubt, however, that the general state of the economy will, and has, resulted in shifts in the courts' attitude to either lengthen or shorten the period of notice that the courts have tended to award. It is not the intention of this paper to discuss all of the factors which may affect the period of notice. But, there are a couple of areas which are particularly in a state of flux. One of these concerns the importance of length of seryice in determining the period of notice. 2. Length of Service: Of Fluctuating Importance? Length of service is often perceived to be the most important factor in determining the period of notice -- and often it is. However, lawyers often tend to mathematically

15 link an employee's length of service to the entitlement to notice. But, this adherence to formula is often not applicable. As mentioned earlier, an employee's status may be the overriding factor in determining the notice period. In other situations, where a short-service employee has taken the new position in circumstances which have caused him to sever previous ties or make it difficult to obtain alternative employment, a substantial period of notice may be in order; or where the employee has moved and incurred substantial cost in taking the new position. Another example would be the cases of anticipatory breach, where the new employer terminates the employee before they have actually commenced the new employment. (See, for example, Rioux v. Pharmacie Edmunston Ltee. (1980), 34 N.B.R. (2d) 416, where the floor manager of a pharmacy was awarded six months' severance when he was terminated before the job had commenced.) The effect of general economic conditions on the determination of the entitlement to reasonable notice is well-illustrated in McIntosh v. Sask. Water Corp. (1989), 77 Sask. R. 81, where the Court of Appeal increased the entitlement awarded at trial in finding that the trial judge had placed insufficient emphasis on the effect of the recession in Saskatchewan and the consequent unavailability

16 of similar employment. 3. The Concept of "Ballpark Justice" Of late, the ontario courts have appeared to accept a concept aptly called "ballpark justice", which refers to the rationale applied in a series of cases which hold that a court should award wrongful dismissal damages to a plaintiff only if the defendant employer's severance pay offer was unreasonable: See, Rivers v. Gulf Canada Ltd. (1986), 13 C.C.E.L. 131; McKee v. N.C.R. Canada Ltd. (1986), 10 C.C.E.L. 128 (Ont. S.C.). The concept is based upon the feeling that the courts should not arbitrarily establish a notice period but "should approach the matter first on the basis of whether or not the employer's severance arrangements were fair", and, only if a severance package was unreasonable, "the courts should interfere": McKee, supra. An example of the application of the concept is found in De Freitas v. Canadian Express and Transportation Ltd. (1986), 18 C.C.E.L. 160 (Ont. S.C.), where it was stated that the court should not interfere if an employer's payment was within three months of the court's own notice assessment. On appeal, however, (at 1988, 18 C.C.E.L. xxii) the ontario Court of Appeal did not deal

17 directly with the issue and simply stated: "While the 18 months' notice fixed by the trial judge as reasonable notice was higher than the amount which this court would have fixed, we do not consider that it was so inordinately high that we should interfere with the decision." Another example of the operation of the principle is in the more recent ontario case of Hillhouse v. Alexander Consulting Group Ltd. (unreported, March 17, 1989, Onto s.c.). The plaintiff, a 47 year old actuary, had been offered a severance package based upon six months' notice. The court examined whether the employer's dismissal package was reasonable, and only after concluding that it was not, did the court then assess notice, namely 12 months. what it believed to be reasonable The court stated: "I approach it on the basis of what has been referred to as 'the ballpark reasonable company offer'. The recent cases on this point suggest that... as a first step, a court should consider whether the offer made by the company is a reasonable one and if it is, should not 'tinker' with the offer." In the Saskatchewan courts, however, the concept appears to have been given somewhat short shrift, although it has not been specifically referred to by name. In Rupchan v. Simpson Timber Company Ltd. (1989), 71 Sask. R. 143 (Q.B.),

18 Maurice, J., appeared to suggest that there might be some possibility of application of the notion in certain cases. At page 145 he states: "It is fair to say that for each case there is a range of reasonable notice, and if an employer offers a settlement within the range, a court should not tinker with the offer, 'second-guess' the employer and impose the exact notice the court feels the. case requires within the reasonable range. The reason for non-interference in such circumstances is the need for some degree of certainty in the termination of employment contracts. It is in the best interests of employer and employee to avoid the cost and expense of wrongful dismissal litigation. Employers must be encouraged to make reasonable severance offers and employees must be encouraged to accept reasonable severance offers without recourse to the court." However, these comments are purely obiter as the court found that the offer made by the employer in this case was, in any event, unreasonable. (The employer had offered six months plus one week and the court awarded nine months loss of salary plus an amount for loss of benefits and pre-judgment interest.) And, interestingly, in a case decided some three months later, Danyluk v. Simpson Timber Company Ltd. (1989), 74 Sask. R. 37 (per Lawton, J.), the court appeared to reject the notion without specific reference to it. The plaintiff

19 was one of more than 50 employees terminated by the employer due to deteriorating economic conditions. He had worked for the company for more than 21 years and the company offered him job search assistance and a severance package based on 54 weeks (12 1/2 months) pay. The plaintiff claimed 21 months would have been reasonable notice in all the circumstances. The court determined that he was entitled to 14 months salary as damages, one and a half months more than was offered by the employer. (The court had concluded that the plaintiff had not fully attempted to mitigate his loss.) However, in the circumstances, therefore, the court did not apparently apply any notion of "ballpark justice". The status of the notion in the Saskatchewan courts, therefore, yet remains to be conclusively decided. III. BENEFITS, BONUSES AND COMMISSIONS As part of the damages to which an plaintiff is entitled in a wrongful dismissal action, the court considers not only damages for loss of salary per se, but also the matter of fringe benefits, bonuses, pensions and the like. The general rule is that damages for the loss of such benefits, prima facie, will be awarded, if, in the circumstances, it is shown that the employer was bound by

20 contract to pay such benefits to the employee: Herbison v. Intercontinental Packers Ltd. (1982), 17 Sask. R. 271, affirmed in part and on this point, (1984), 29 Sask. R. 296 (Sask. C.A.). A. BENEFITS The list of items which may be considered by the court respecting the matter of damages for loss of benefits is extensive and certainly no comprehensive review can be undertaken here. Such fringe benefits range from earnings incentive programs, to medical plans, to stock options, to company automobiles, to club dues, to board and lodging, to shift premiums, to pension plans, and on and on. Accordingly, only some of the more common fringe benefits shall be considered here. 1. Pension Benefits, Early Retirement and C.P.P. In the leading case of Bardal v. Globe and Mail, supra, the court concluded that the loss of the defendant employer's pension contribution within the appropriate period of notice, which contribution would have resulted in a higher pension allowance, justified an award of further damages.

21 In Herbison, supra, the Saskatchewan Court of Appeal did not disturb the finding of the trial judge, based on actuarial evidence, allowing "the amount required to replace the pension benefits lost to the plaintiff over the 18 month period he is entitled to." This amounted to some $14, However, the trial judge had also allowed a considerable amount for loss of what was called a "long service pension supplement", based on testimony that it was the general policy of the employer with respect to its executive employees to provide them with the same benefits that accrued to its unionized staff, including a pension supplement formula based on the best five of the last ten years service to the company, as a reward for long service. The Court of Appeal struck down the award on this item on the basis that this supplement was only payable to unionized employees at the time of actual retirement and on the basis that the plaintiff's evidence fell short of proving that he had a contractual right to a supplement. The Court stated: "He had to prove that, by reason of the company's breach of contract in not giving him proper notice of the termination of his employment, he lost that which, but for the breach, he would have received." The issue, therefore, that arises involves the impact that a reasonable period of notice would have upon the pension plan

22 as a component of damages. The argument is usually made that had the plaintiff been given a reasonable period of notice, the pension plan would have been funded by both the employer and employee contributions, where applicable, which would thus result in a higher entitlement at the normal retirement date. The discrepancy between the actual entitlement and the higher projected figure should be capitalized by employing annuity tables based on the anticipated life span at retirement date. This figure then represents a loss reasonably flowing from the termination: See, Harris, Wrongful Dismissal (1990: Richard de Boo), at page 4~54. The Court of Appeal in Herbison (as have decisions in many other Canadian jurisdictions) appears to confirm this measure of damages for this item. The alternative would simply be to award the amount of exact dollar contributions that would have been made by the employer to the plan throughout the notice period. However, it appears that the court will recognize an agreement by the parties to this latter measure, that is, simply a quantification of the employer's contributions during the period of notice. For example, in Danyluk, supra, and Rupchan, supra, the Court of Queen's Bench recognized the apparent agreement by the parties at trial that, based on the 5 percent contribution to the plan by the

23 ~ 21 - employer, the damages for this item would simply be calculated as the notional earnings for the notice period times 5 percent. This will often make sense where the costs of actuarial evidence cannot be justified. In Vorvis, infra, the Supreme Court of Canada recently held that where the plaintiff's pension benefits would not have "vested" during the period of reasonable notice (because he had been employed for less than the ten years required for vesting under the plan), the plaintiff was not entitled to damages for lost pension benefits, such benefits being expressly defined in the pension agreement. Recent cases have also dealt with the issue of entitlement to damages of an employee wrongfully dismissed at a time when he might have, at his option, elected the benefits of early retirement at a full or discounted pension. The courts have held that damages should be awarded on the basis that if the plaintiff had been given proper notice he would have retained the option to receive retirement benefits within the notice period and would likely have exercised that option. The damages should therefore be equal to the benefits of early retirement of which the wrongly dismissed employee has been deprived: See, Harris v. Robert Simpson Company Ltd. (1984), 7 C.C.E.L. 202 (Alta. Q.B.),

24 where the court found that because the law required the employer to place the plaintiff in a position he would have been in if the employer had respected the employee's rights, if the employer had given proper notice, the plaintiff would have enjoyed all the benefits of his employment during the period of notice, including the right to exercise the early retirement option. The courts generally recognize that employees are entitled to receive the amount of the employer's premium towards the Canada Pension Plan during the period of notice: Danyluk and Rupchan, both supra. 2. Vacation Pay The courts have generally recognized that vacation pay that would have been accrued during the period of notice is properly compensable, based upon the appropriate percentage required by statute, since it would have been earned during the notice period if the employee's employment status had been maintained. However, in Herbison, supra, where the plaintiff had claimed damages for the loss of holiday pay during the period of notice, the Court of Appeal held that in the absence of evidence to suggest that had he remained in the employ of the company during the notice period, he

25 would not have been permitted to take the annual holiday to which he was entitled, he could not claim an additional sum for the holidays he would have earned during the notice period. The court recognizes the entitlement to payment of accumulated holiday time that has already been earned, but takes the approach that to allow a dollar amount for holidays not taken during the notice period would result in double recovery. 3. Health Benefits and Insurance In Saskatchewan, damages for the loss of insurance and medical plans are properly included in the measure of damages based upon the actual cost to the employee to replace these benefits. In other words, prima facie, if the employee does not replace the benefits after dismissal, no claim will be recognized therefor. Of course, the claim, in any event, will be limited to the cost of replacement during the period of notice: Herbison, supra, at p. 304 (C.A.); Graff v. Interprovincial Steel (1984), 35 Sask. R. 18 (Q.B.). However, suffers if the damages employee does not replace the plan, but which would have been covered under the plan, Herbison, supra, suggests that a claim may be

26 made, but it is not clear whether that claim would be for the value of the premiums only or for the damages actually suffered. Several decisions in other jurisdictions have recognized claims for the full. amount of the actual damages: See, for example, Brown v. Waterloo Regional Board of Police Commissioners (1982), 37 a.r. (2d) 277, at 283; wilks v. Moore Dry Kiln Company (1981), 32 B.C.L.R The basis for such an award appears to be because, generally, coverage equivalent to that in group plans cannot be obtained privately on an individual basis except at a prohibitive cost. The same principles apply to company insurance plans: Herbison, supra, at pp Company Automobile and Allowance Levitt, supra, at pages , has summarized the treatment of automobile fringe benefits as follows: "If the primary purpose of providing an employee with an automobile is to assist in the performance of his or her job functions, no damages will be provided for its loss, even though the employee had the automobile for personal use as well. However, if the employee does not require extensive use of the car for business purposes and it is provided primarily as a perquisite, damages will be provided for its loss during the period of reasonable

27 notice. In assessing damages for the loss of the car, the courts often use the company's premium cost of the automobile. Some courts have calculated the percentage of personal versus business use of the car, and allocated damages accordingly." In Metz v. Con-stan Canada Inc. (1982), 16 Sask. R. 270, varied on other grounds at (1984), 33 Sask. R. 3 (C.A.), the court based the personal use portion on the one-third deemed for personal' use for tax purposes by the plaintiff. However, some courts have also tended to use the "actual replacement" test applied to medical plans (see, supra): "It has been held that unless the employee replaces the automobile with a substitute vehicle, damages will not be awarded since the employee will not have incurred any loss.": (Levitt, supra, p. 209). Similarly, with respect to a "car allowance", the court will recognize the "personal use" portion: "If a car allowance is provided, that amount will be used to calculate the damages during the period of reasonable notice. The court will award the allowance attributable to the personal use of the car. Similarly, if the company pays for the automobile's insurance or other expenses the court will award an amount attributable to the personal use of that as well.": (Levitt, supra, pp ). However, in Zaglanikis v. Dana West Hotels Ltd. (1982),

28 Sask. R. 59, affirmed 27 Sask. R. 319 (C.A.), it was held that the vehicle operating expenses should be deducted from the allowance because the employee would no longer have the expenses of operating the vehicle for business purposes. In Brown v. Ipsco Inc. (1987), 60 Sask. R. 8 (Q.B.), while employed by the defendant, the plaintiff enjoyed the use of a leased vehicle. He estimated, however, that his personal use of the vehicle amounted to approximately 20 percent of its total use. The court awarded the defendant the value of the personal use of the vehicle (i.e., 20 percent of the lease cost) over the notice period, and the full amount of operating expenses for that period. B. SALARY INCENTIVES AND BONUSES On the basis of the decision in Herbison, supra, and, indeed, in Bardal v. The Globe and Mail, supra, damages in respect of bonuses may only be awarded where they are the subject of the contract between the parties rather than being voluntary on the employer's part. For example, a Christmas bonus that is a matter of goodwill, and therefore, discretionary on the part of the employer, cannot be the subject of a valid claim. That is, the

29 payments must be an integral part of the employee's remuneration and not simply payments made ex gratia. However, if the discretionary bonus is "well entrenched in the scheme of remuneration" and there is no reason given why that discretion would have been exercised against the employee, the court may award damages for the loss of the bonus: Arnott v. stewart-warner of Canada Limited (1982), 13 A.C.W.S. (2d) 43 (Ont. Co. ct.). Accordingly, if it is found that the bonus is an incentive for performance in the future and to motivate the employee to perform, then the employer has an obligation to pay such additional remuneration to the plaintiff. Also, if the company has formed a scheme whereby incentives will be paid based on the financial performance or profit of the company and it is determined to be part of the employment contract, then damages may be claimed for this item: Herbison, supra. In Graff v. Interprovincial Steel (1984), 35 Sask. R. 18 (Q.B.), the defendant employer was able to establish that for the period of reasonable notice no bonuses were paid or would be payable to any employee in the plaintiff's category, and the court, accordingly, made no )

30 allowance under this head. C. COMMISSIONS If the plaintiff's ordinary remuneration included commissions for work performed, the include such additional income as the award of damages should employee would likely have received within the requisite period of notice: Laishley v. Goold Bicycle (1905), 35 S.C.R The damages suffered by way of loss of commissions also includes the loss of opportunity to earn such commissions during the notice period. The onus of proof, however, rests with the plaintiff to prove the reasonable probability of earning commissions on the lost opportunities on a balance of probabilities: Prozak v. Bell Telephone (1984), 4 C.C.E.L. 202 (Ont. C.A.). Generally, the court will determine commissions on the basis of the amount the employee actually sold during the last year (or other appropriate period) of employment: Morrell v. Grafton-Fraser Inc. (1981), 44 N.S.R. (2d) 289, affirmed, 51 N.S.R. (2d) 138 (App. Div.). However, if this method is not representative, the court may use other methods to determine what the employee would have earned had he remained employed during the period of reasonable notice.

31 Such tests have included the commissions earned by the employee's replacement, projections based on the general sales results of the company, sales in the period of notice, the average of the last several years' commissions, and an assessment of the employee's opportunity to earn commission over the period of notice together with a calculation of the commission actually earned: Se~, Levitt, supra, at pp But, factors such as general economic conditions, declining sales, or quality problems with the employer's products, may all be considered in determining what this figure should be. In the situation where the employee is terminated part way through a transaction that results in the generation of a commission, the test that is used is to determine whether the employee was the "effective cause" of the sale or transaction. For example, where a salesman sued for commission which he claimed to be payable for the sale of tractors originally delivered to the purchaser under a rental agreement with an option to purchase, and several months after the salesman's termination, the purchaser exercised the option and purchased the tractors, the court held, notwithstanding that his employment had been terminated, that the salesperson had been the effective cause of the sale: Hawkins v. Mack Maritime Distributors

32 Ltd. (1970), 2 N.B.R. (2d) 427 (App. Div). Metz v...=.c..=.o..:..;n:...--=s:...t:...a=.:n~_-=-c.=.:a.:..;n-=-a:..:.d:..:.a= =i::.:n:..:.c=--=-., supr a, specifically considered the situation where the employee had received so-called "pyramid commissions" derived from sales by all persons under her that she had been responsible for bringing on staff, and which constituted a large part of her income. The court rejected this claim on the grounds that the right to such commissions was not vested in the plaintiff prior to termination: it was part of the plaintiff's contractual duty to bring in and train others; the right to receive commissions on their sales was not assignable by the plaintiff without the consent of the employer, and without assignment, her replacement would receive nothing from their sales; the plaintiff had no right to sell her "chain" with the consent of the employer which was entirely within its discretion. In dealing.with the contention that this would result in a potential windfall to the employer, the court stated at p. 286 (Q.B.): "It is true that having developed such a chain it became a thing of value to the defendant provided it could be serviced directly or through one or more of the other agents. In the relevant principle of wrongful dismissal, damages are assessed on the basis of the net loss to the servant not on the net gain to the master."

33 IV. AGGRAVATED DAMAGES, PUNITIVE DAMAGES, AND DAMAGES FOR MENTAL DISTRESS AND LOSS OF REPUTATION The issues of damages for mental distress, loss of reputation and punitive damages in the context of claims for damages as a result of the breach of employment contract have been troubling to Canadian courts for many years. A. PRIOR TO VORVIS V. I.C.B.C. 1. Damages for Nervous Distress and Loss of Reputation with respect to damages for mental distress and loss of reputation, the more or less general rule that followed the Supreme Court of Canada decision in Peso silver Mines Ltd. v. Cropper, [1966] S.C.R. 673, was that, as the claim was founded on breach of contract, the damages could not be increased by reason of the circumstances of the dismissal. That is, if it was the fact of dismissal itself that caused the plaintiff his nervous distress, or had a prejudicial effect upon his reputation and chances of finding other employment, the claim would be denied. But, if these effects were the result of the failure to provide adequate notice, and not the fact of dismissal itself, then damages may be awarded. In other words, in the latter case, if the

34 employer gave adequate notice or an adequate termination allowance, there was nothing on which the damages for mental distress could be based, for such a claim was not an independent cause of action. If the employer gave an inadequate notice or allowance, however, even though it might have been very close to what might have been adequate, the claim for mental distress could be supported. The courts had created a problem in this regard and they occasionally justified the award on the fact that the distress was caused by the inadequate allowance or notice: See, for example, Rusello v. Jannock Ltd. (1987), 37 D.L.R. (4th) 372 (Ont. H.C.). To be compensable as damages flowing from a breach of contract, the emotional distress had to pass a twofold test: 1. It must have been within the reasonable contemplation of the parties at the time the contract was made, that discharge of the employee without adequate notice, would result in emotional distress; and, 2. The emotional distress must have been occasioned, not by the termination, but by the termination without adequate notice.

35 The problem, of course, is that in reality, in almost every case, it is the loss of the job that causes the distress and not the fact that the person is not given what lawyers might think is adequate notice. In Ewasiuk v. Estevan Home Area Home Care District, infra, the Saskatchewan Queen's Bench awarded damages for mental distress based upon the manner of firing. with respect, specifically, to damages for loss of reputation, it had generally been held that such damages could not be claimed in a suit for wrongful dismissal unless the claim was independently actionable: Abouana v. Foothills Provincial General Hospital Board, [1978] 2 W.W.R. 130, 83 D.L.R. (3d) 333 (Alta. C.A.). In Saskatchewan, in Farrell v. Duperow, [1979] 5 W.W.R. 498, 101 D.L.R. (3d) 460, the Court of Appeal, in dealing with a preliminary motion to strike out certain paragraphs of the claim which pleaded a separate action claiming damages for defamation joined in the claim of wrongful dismissal, ordered that the two causes of action be separated for trial. That is, the court did not hold that no reasonable cause of action was shown, merely that it ought not to be tried with the action for damages for

36 wrongful dismissal. In his authoritative text, Harris, supra, at p , makes the observation that,' in fact, no court has yet awarded damages for loss of reputation as a component of damage within a wrongful dismissal claim (as opposed to damages which may be granted in a separate action). However, damages were awarded for slander within such an action in Collior v. Robinson Diesel Injection (1989), 72 Sask. R. 81 (Q.B.). 2. Punitive Damages The traditional common law approach has been to deny the award of punitive or exemplary damages in an action for breach of contract: Addis v. Gramophone Company, [1909] A.C. 488 (H.L.). However, it has been awarded in some cases where the employer's conduct was found to be "high-handed, shocking or arrogant" to a degree which demeaned the employee so as to attract the condemnation of the court. In Ewasiuk v. Estevan Area Home Care District (1986), 42 Sask. R. 38, the court, however, refused to award punitive damages although it found that the employer's conduct was high-handed and callous, because "what was done was not likely to be repeated".

37 ) It is interesting to note, however, that in Ewasiuk, the court, relying on the rule in Hadley v. Baxendale (1854), 9 Ex. 341 (that damages in respect of breach of contract will be awarded if they may fairly and reasonably be foreseeable as arising from such breach) saw fit to award damages for mental distress because the manner in which the employee had been terminated could have been reasonably expected to result in the type of mental suffering that occurred. B. THE EFFECT OF VORVIS V. I.C.B.C. In the recent decision in vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085, 4 W.W.R. 218, 58 D.L.R. (4th) 193, 94 N.R. 321, the Supreme Court of Canada dealt with these issues head on. Specifically, the court considered the plaintiff's claims for damages for mental distress, which it referred to as a claim for "aggravated damages", and for punitive damages. Specific issues before the court were whether such claims were maintainable in an action for breach of an employment contract, and, if so, whether anything should be awarded in the present case. The majority judgment (3:2) held that

38 while claims for both aggravated damages and punitive damages could be awarded in actions for breach of contract, neither claim should be recognized on the facts of the present case. The minority judgment disagreed with the majority with respect to the formulation of the tests for determining whether damages for mental distress or punitive damages might be awarded, and would have awarded such damages in this case. First of all, the court described the difference between aggravated damages and punitive damages: The former are stated to be compensatory, and the latter are not compensatory but their purpose is rather to punish. At page 202 (D.L.R.), Mr. Justice McIntyre states: "Aggravated damages are awarded to compensate for aggravated damage. As explained by Waddams, they take account of intangible injuries and by definition will generally augment damages assessed under the general rules relating to the assessment of damages. Aggravated damages are compensatory in nature and may only be awarded for that purpose. Punitive damages on the other hand, are punitive in nature and may only be employed in circumstances where the conduct giving rise for complaint is of such nature that it merits punishment."

39 Aggravated Damages In Vorvis, the plaintiff claimed that the offensive and unjustifiable conduct of his superior was such that it caused great mental distress, anxiety, vexation and frustration. He relied upon the line of cases following Jarvis v. Swans Tours Ltd., [1973J 1 All E.R. 71 (C.A.), where a breach of contract by a travel agent caused the loss of a holiday with attendant distress, upset and frustration. The court concluded that, while it may not be true that aggravated damages could never be awarded in a case of wrongful dismissal, particularly if the acts complained of were also independently actionable, here, the acts were not independently actionable and, although the actions of the employer were offensive and unjustified, any injury which they may have caused did not arise out of the dismissal itself, but preceded the wrongful dismissal. Accordingly, they could not aggravate the damage incurred as a result of that dismissal. In referring to the Jarvis v. Swans Tours Ltd., supra, line of cases, Mr. Justice McIntyre stated, at page 204: "These cases stand for the proposition that in some contracts the parties may well have contemplated at the time of the contract that a breach in certain

40 circumstances would cause a plaintiff mental distress.... It may be said that the power of the court to award damages upon that basis in an appropriate case [is] implicitly accepted. I would conclude that while aggravated damages may be awarded in actions for breach of contract in appropriate cases, this is not a case where they should be given. The rule long established in the Addis and Paso Silver Mines cases has generally been applied to deny such damages, and the employer/employee relationship... has always been one where either party could terminate the contract of employment by due notice, and therefore the only damage which could arise would result from a failure to give such notice. I would not wish to be taken as saying that aggravated damages could never be awarded in a case of wrongful dismissal, particularly where the acts complained of were also independently actionable, a factor not present here." The minority decision, however, would deal with the problem of recovery for mental distress on the basis of the rule in Hadley v. Baxendale, supra. That is, recovery would depend on whether the plaintiff "should be compensated for damage the defendant should reasonably have anticipated that [the plaintiff] would suffer as a consequence of the breach": See, p. 218 (D.L.R.). In the recent Saskatchewan case of Wankling v. Sask. Urban Municipalities Association (1989), 75 Sask. R. 252

41 (Q.B.), the court rejected the plaintiff's claim for damages for mental distress which he had based upon the manner of the dismissal as being "brutal... an unpleasant situation... a blow to my ego which caused loss of confidence". Madam Justice Wedge concluded that the claim could not survive on either the test of independent actionability or foreseeability. In Battaja v. Canada Tungsten Mining corp., [1990] 2 W.W.R. 72 (N.W.T.S.C.), the court appeared to attempt to circumvent the restrictions on such damages. The plaintiff had become deeply depressed for three months because of the dismissal and did not seek alternative employment during that period. six months after that he eventually found another job. The court concluded that the reasonable notice of termination of the contract was nine months (the employer's severance package had been based upon six months). The court specifically stated that the enlargement of the reasonable notice period took into account the period of three months during which the effects of the plaintiff's mental distress affected his ability to seek new employment. The court stated that it did this on the basis that it was ". inevitable that the plaintiff would suffer acute mental distress and consequently would require more time to re-establish himself, given the course followed by the defendant". It is unclear whether that "course" was the

42 fact of termination or the failure to give more than six months' severance. 2. punitive Damages In vorvis, the Supreme court concluded that, although punitive damages may be awarded in cases of breach of contract, a contractual breach which would make their award appropriate would be rare, and would not be made just because the court does not approve of the defendant's conduct. The court states that the circumstances governing the award of such damages would be restricted to the situation where the employer has acted in an entirely unwarranted manner: "Moreover, punitive damages may only be awarded in respect of conduct which is of such nature as to be deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature. I do not suggest that I have exhausted the adjectives which could describe the conduct capable of characterizing a punitive award, but in any case where such an award is made the conduct must be extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment." However, the major restriction placed upon the award of such damages by the court, is found at page 206 (D.L.R.):