Handling the Sensitive Employee: A Canadian Survey By: Mort Mitchnick and Jolie Cheung Borden Ladner Gervais LLP The Court s point of view The jurisprudence surrounding the award of damages for mental distress, characterized as aggravated damages, 1 had been restrictive in Canada prior to 2006. Generally, damages for mental distress were not recoverable for breach of an employment contract. In Addis v Gramophone Co., the plaintiff was held to have been wrongfully dismissed from his employment with the defendant. The defendant provided the appropriate six months notice but immediately appointed a new employee. The defendant s conduct in carrying out the dismissal injured the plaintiff s business reputation and caused him significant distress and humiliation. The plaintiff was found to have been wrongfully dismissed and was awarded fixed damages for wrongful dismissal and lost commissions. However, Addis has long stood for the proposition that in a case of wrongful dismissal, allocation of damages are confined to the loss suffered due to an employer s failure to provide proper notice. Damages could not be awarded for either the injured feelings or the loss of reputation inherent in any termination of employment. 2 In Peso Silver Milner Ltd., the corporation made unsubstantiated charges against a director who was dismissed, thereby injuring his reputation. The claimant brought an action for wrongful dismissal and claimed, in addition to lost salary, damages for impairing his reputation in the mining community. The Supreme Court of Canada re-affirmed the general principle in Addis and refused to increase damages by reason of the circumstances surrounding the dismissal, whether in 1 Vorvis v Insurance Corporation of British Columbia, [1989] 1 SCR 1085. 2 Addis v Gramophone Co. Ltd., [1909] AC 488 HL (Eng.).
respect of wounded feelings or the prejudicial effect upon his reputation and chances of finding other employment. 3 In Vorvis v. Insurance Company of British Columbia, the Supreme Court began to open the door. The Court found that where the acts complained of amounted to an independent actionable wrong, aggravated damages for mental distress could be awarded. Vorvis involved the wrongful dismissal of a solicitor in a legal department, who was described as conscientious to a fault. As the pressure increased during the weekly productivity meetings held by the employer, Mr. Vorvis mental and emotional states deteriorated and he was ultimately dismissed for incompetency. However, since the employer s conduct in the wrongful dismissal did not aggravate the damage incurred as a result of the dismissal, the Court found that the conduct was not independently actionable. Thus, the claims for aggravated damages in respect of the wrongful dismissal were refused. 4 In 1997, the Supreme Court of Canada in Wallace affirmed that, absent an independently actionable wrong, the foreseeability of mental distress or the fact that parties contemplated its occurrence is of no consequence. 5 However, a Court may award damages, now known as Wallace damages, resulting from the manner of dismissal itself. The Court held that an extended period of notice in a wrongful dismissal action may be awarded if the employer was found to have engaged in bad faith conduct or unfair dealing in the course of dismissal, causing injuries such as humiliation, embarrassment and damage to one s sense of self-worth and self-esteem. 6 Then came Fidler v. SunLife Assurance Company. The Fidler case dealt with an insurer denying payment of benefits under a long-term disability insurance policy. The Supreme Court of Canada 3 Peso Silver Mines Ltd. v Cropper, [1966] SCR 673. 4 Supra note 1. 5 Wallace v United Grain Growers Ltd., [1997] 3 SCR 701 [Wallace]. 6 Ibid. 2
reconsidered the Vorvis approach and held that an independent actionable wrong was no longer necessary for the recovery of mental distress damages. 7 Instead, the Court must be satisfied: (1) that an object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and (2) that the degree of mental suffering caused by the breach was of sufficient magnitude to warrant compensation. Given the nature of disability insurance contracts, it was within the reasonable contemplation of the parties at the time the contract was made that mental distress would likely flow from a failure to pay the required benefits. Since an unwarranted delay due to the employer s fault can be extremely stressful for the plaintiff, the mental distress was of a sufficient degree to warrant compensation of $20,000.00. 8 The cases across the country following Fidler have awarded a broad range of damages for mental distress. For example in Warrington v. Great-West Life Assurance Co., the British Columbia Court of Appeal upheld a $10,000 award for a claimant s mental distress caused by the disability insurance policy lasting only two weeks. 9 In Rowe v. Onum Life Insurance Co. of America, 10 an Ontario case and Sanders v. RBC Life Insurance Co., 11 a case from the Newfoundland and Labrador Supreme Court, damages of $30,000.00 and $35,000.00 were awarded to the plaintiffs to compensate for the mental stress suffered from the breach of the peace of mind contract, which again promised benefits in the case of disability. Similarly in Lumsden v. Manitoba, the Manitoba Court found for the 45-year-old claimant, disabled as a result of a number of medical disorders. Taking into account that the claimant s distress was exacerbated by the several denials of his benefit claims, the Court awarded damages for mental distress at the lower end of the range in the 7 Supra note 4. 8 Ibid. 9 24 BCLR (3d) 1, 139 DLR (4th) 18. 10 2006 CarswellOnt 7785. 11 2007 NLTD 104. 3
amount of $45,000. 12 In Fowler v. Maritime Life Assurance Co., the manner in which an insurance company dealt with the insured came under severe criticism by the court, which found that the insured had taken an unnecessarily adversarial approach towards Mr. Fowler. The Newfoundland and Labrador Supreme Court awarded generous aggravated damages of $75,000.00, which also served for the purpose of retribution, deterrence and denunciation. 13 In 2008, the Supreme Court of Canada in Keays v. Honda Canada Inc. applied the Fidler analysis in the case of a disabled employee who was terminated after fourteen years of service. Eleven years after he began working, Keays was diagnosed with chronic fatigue syndrome and went on disability-leave for more than two years. Due to Keays continuous absenteeism, he was directed to meet with a doctor. He refused to do so, retained an attorney and was subsequently terminated. The Trial Judge awarded $500,000 in general damages. On appeal, the Supreme Court of Canada affirmed the general rule that normal distress and hurt feelings resulting from a dismissal are not compensable. Furthermore, although both parties to an employment contract should have an expectation of good faith in the manner of dismissal, such that a breach of that duty can lead to foreseeable and compensable damages, 14 the Court in Keays found that the employer did not engaged in conduct during the dismissal that was unfair or in bad faith by being, for example, untruthful, misleading or unduly insensitive. The former approach to Wallace damages was also rejected. Where it can be shown that it was within the reasonable contemplation of the parties that the manner of dismissal would cause the employee mental distress, the award should reflect the actual damages rather than an extension of the notice period. The Court went on to emphasize that aggravated or punitive damages should be limited to exceptional cases, and awarded none in this case. 12 2007 MBQB 227. 13 [2002] N.J. No. 217. 14 Honda Canada Inc. v Keays 2008 SCC 39. 4
Despite the fact that punitive damages are awarded only in rare and exceptional cases, cases in recent years have shown that where they are granted, the amount can be quite significant. In Asselstine v. Manufactures Life Insurance Co., the plaintiff was a research nurse who became disabled when diagnosed with multiple sclerosis. Her long term disability benefits were denied despite the presence of conflicting medical evidence on her state of disability prior to the end of her employment. The British Columbia Court of Appeal upheld the trial judge s award of punitive damages in the amount of $150,000.00. In warning the defendants against similar conduct in the future, the Court awarded punitive damages to address the defendant s problematic conduct in its complete disregard of compelling medical information, while placing undue emphasis on evidence that aligned only with their interest. 15 Where this growing trend in favour of damages for mental suffering may be heading became apparent in the case of Piresferreira v. Ayotte. The Plaintiff was, the Trial Court found, treated roughly by her supervisor, in both a mental and a physical sense, and never worked again. Described by her co-workers as well known to be nervous and sensitive, the Plaintiff in the result was awarded $500,000 in general damages. Although the decision was vacated by the Court of Appeal on liability grounds, the original precedent has received widespread publication and notoriety. The arbitrators point of view In the landmark decision of Weber v. Ontario Hydro, the Supreme Court of Canada adopted the approach of giving arbitrators exclusive jurisdiction over all aspects of a dispute arising from the 15 2005 BCCA 465. 5
collective agreement in order to allow all issues pertaining to that factual matrix to be dealt with in one forum, and to avoid a real deprivation of ultimate remedy. 16 This broadened jurisdiction enabling arbitrators to consider all issues from a common claim has been followed in particular by arbitrators in British Columbia. In Pacific Press, a grievance was filed alleging the employer s improper denial of an employee s short term disability benefits pursuant to the terms of the collective agreement. The Union also claimed damages in tort for the emotional and financial stress caused to the Grievor as a consequence of the manner in which the Employer dealt with her benefit claims. In holding the employer liable to the grievor for the intentional infliction of mental distress, an award of $8,000.00 was found to be appropriate. 17 In Surrey (City), the grievor claimed damages for the intentional infliction of mental distress, defamation, as well as aggravated and punitive damages as a result of being terminated due to allegations of sexual harassment. In concluding that the termination was an excessive response by the employer, the arbitrator found the employer responsible for wrongful termination and tortious conduct. As a result, the arbitrator awarded the grievor, in addition to lost wages and benefits, a mid-range amount of $20,000.00 for the tort of intentional infliction of mental distress; and an additional $20,000.00 for the grievor s loss of reputation and career goals. Since no evidence of malice was found, aggravated damages were not awarded and neither were punitive damages. 18 In CVC Services the arbitrator found that the termination of the grievor based largely on an uninvestigated allegation of promiscuity constituted flagrant and extreme conduct. Secondly, it was clearly foreseeable that such a false allegation would cause the grievor profound distress as well as affect her ability to find employment elsewhere. Finally, visible and provable illness was 16 (1995), 125 DLR (4th) 583. 17 Pacific Press and C.E.P., Local 115-M (1998), 73 LAC (4th) 35. 18 Surrey (City) v C.U.P.E., Local 402 [2003] B.C.C.A.A.A. No. 243. 6
evidenced by the grievor s depression. 19 The Arbitrator was satisfied that he had the jurisdiction to award substantial damages for the combined torts (ultimately settled by the parties). By contrast, arbitrators in the East have been more cautious in assessing damages. The collective agreement will be closely examined to determine whether this type of damage-recovery was within the contemplation of the parties. In Transit Windsor, the collective agreement referenced the employer s obligation to act fairly and in a fair and reasonable manner in the exercise of its management functions. Thus, the defamation claim was found to have arisen inferentially out of the collective agreement. 20 By contrast, the arbitrator in Seneca College did not find that the tort allegations arose expressly or inferentially from the collective agreement, and dismissed the claim. Although the Divisional Court quashed the award, the appellate court restored the arbitrator s award by distinguishing the collective agreement in Weber where a clause extending the grievance and arbitration process to any allegation that an employee has been subjected to unfair treatment was present. 21 In Dynatec Corp, a Saskatchewan Arbitration Board noted that although it was possible to award damages for bad faith, as discussed by the Supreme Court of Canada in Keays, clearly egregious behaviour on the part of an employer and exceptional damages suffered by an employee are required before awarding punitive and aggravated damages. 22 By that standard, punitive and aggravated damages were denied. A similar ruling was made in J.D. Irving, where a New Brunswick Arbitration Board held that the employer was justified in imposing discipline upon the grievor. Despite the fact that the employer may have been abrupt at times, the arbitrator found that 19 CVC Services v. IWA-Canada, Local 1-71, 65 LAC (4th) 54. 20 Transit Windsor v A.T.U., Local 616, 114 LAC (4th) 285. 21 O.P.S.E.U v Seneca College of Applied Arts & Technology, (2006), 267 DLR (4th) 509 (ON CA), leave to appeal to the Supreme Court of Canada refused on November 16, 2006. 22 C.E.P., Local 890 v Dynatec Corp, 2009 CarswellSask 423. See also The International Brotherhood of Boilermakers v Georgia-Pacific Canada Inc. (Edmonton) [2006] AGAA No. 30. 7
his conduct fell far short of the standard required to initiate an action for aggravated and punitive damages. The employer had a right to be severe, since he had to deal with an employee who would not follow the normal practice in the plant. 23 Nonetheless, in rare circumstances, punitive and aggravated damages have been granted by arbitrators in the East as well. In Greater Toronto Airports Authority, punitive damages were awarded against the employer who failed to consider the grievor s years of unblemished service or to attempt to secure an independent medical opinion before terminating the grievor for fraudulent use of sick leave. Since compensatory damages were insufficient to accomplish the objectives of retribution, deterrence and denunciation, $50,000 in punitive damages was awarded. Additionally, however, the grievor suffered a complete mental breakdown over the circumstances of her firing, and because, in the arbitrator s words, the employer was aware that the grievor was highly vulnerable because of her past abusive experience with the husband, another $50,000 was awarded for the infliction of mental suffering. Fortunately for employers, the Divisional Court on judicial review remitted the damages awarded back to the arbitrator for further consideration; but the Court nonetheless affirmed that, in the appropriate circumstances, both heads of damages existed as a possibility. 24 In Hamilton Health Sciences and O.N.A. (Bell), Arbitrator Devlin adopted Fidler s principles where an independent actionable wrong was not necessary to establish entitlement to damages for mental distress, so long as they were contemplated to flow from the breach of a contract which [was] intended to secure a psychological benefit. The arbitrator found that it was reasonably foreseeable that the denial of short-term disability benefits would exacerbated the grievor s depression and anxiety. Based on those circumstances, an award of $5,000.00 for mental distress 23 J.D. Irving Ltd. v C.E.P., Local 112 N, 1999 CarswellNB 596, [1999] LVI 3069-7. 24 Greater Toronto Airports Authority and P.S.A.C., Local 0004 (GV-008-04) (Re), (2010), 191 LAC (4th) 277 rev d in part, 2011 ONSC 487. 8
was found to be appropriate. 25 Thus, following the approach in Fidler, arbitrators are now asking whether the union and the employer would have had as one of their objectives the provision of a psychological benefit in the collective agreement; and thus whether damages for mental distress were within their reasonable contemplation at the time the contract was made. The focus in the East continues to be, however, on the nature of the particular clause in the collective agreement that had been breached and that led to the grievance. For example, damages for mental distress were awarded to the grievor in the sum of $20,000.00 where he was found to have been a victim of racial harassment, contrary to a contract term that prohibited such harassment. A breach of this contractual protection would thus be reasonably expected to cause mental distress. 26 It is further noteworthy that arbitrators in Canada are generally given the express jurisdiction to interpret and apply employment-related legislation. Thus claims at arbitration are often coupled with claims for damages for violation of the applicable human rights law, including the failure to appropriately accommodate employees with a handicap or disability. And as damage awards for human rights violations continue to escalate at the various Human Rights Tribunals across the country, it is not difficult to anticipate a corresponding increase in the claims and ultimate awards at grievance arbitration. 27 Thin-skulled plaintiff and an employer s duty As can be seen, the law on damages for mental distress has undergone significant changes. Based on the surrounding law, the onus is high on the employer to be sensitive to the employee and his or her accompanying disability or mental state. The law on mental distress damages is clearly embracing a rule similar to tort law s traditional thin skull rule, where a tortfeasor must take his 25 Hamilton Health Sciences and O.N.A. (Bell) (2009), 169 LAC (4th) 293. 26 Ontario (Ministry of Community Safety and Correctional Services) and Charlton (Re) (2007), 162 LAC (4th) 71 at 83. 27 Fenton v. Rona Revy Inc. (No. 2), 2004 50 C.H.R.R. D/419. 9
victim as he finds him with all of his susceptibilities. It is a challenge to employers to know exactly how to deal with the employee who must be terminated, but who at the same time is known to suffer from an affliction or mental state that makes the employee particularly vulnerable. Unfortunately, the employer who fails to chart a careful path to meet that challenge does so at its peril. TOR01: 4660724: v6 10