A. INTRODUCTION
In the recent New Brunswick Court of
Queen’s Bench decision of MacDonald-Ross v. Connect North
America Corp.
an employee was terminated after five and a half years of
service. While she was initially terminated without cause,
the employer changed its position after the employee filed
a wrongful dismissal lawsuit, alleging that the employee
misappropriated company funds. It also contacted the police
to file a criminal complaint against the former employee.
The court found that the employer had no reasonable basis
to allege misappropriation, or any other wrongful conduct.
The employer’s decision to deal with the employee in this
manner was considered by the court to warrant a punitive
damage award of $50,000, in addition to an eight month pay
in lieu of notice judgment. This decision highlights the
risks of terminating employees “for cause”, and serves as
a lesson to charities and not-for-profit organizations that
alleging cause without proper evidence may be a costly decision
should the matter end up before the courts.
B. BACKGROUND TO THE DECISION
The plaintiff began working
for Connect North America Corporation (the “employer”) in
2002 as a telephone operator. She had several promotions
which led to her roles as supervisor, centre manager, and
finally, the Director of Marketing. After five and a half
years of service with the employer, her employment was terminated
in 2007, with no cause for termination alleged by the employer
at the time. The initial reason given to the plaintiff for
her termination was a ‘shortage of work’. The plaintiff
subsequently filed an action for wrongful dismissal. Not
long after this, the employer alleged termination for cause,
and in a letter to the plaintiff, claimed that she had engaged
in the unauthorized use of company funds. The employer even
went so far as to post on the company website that there
had been a significant misappropriation of cash funds by
management.
C. THE ISSUES AND DECISION
The relevant issues of
the decision, for the purposes of this Bulletin are:
1. Did the plaintiff misappropriate
or engage in the unauthorized use of company funds? and
2. Were punitive damages appropriate?
1.
Issue One - Cause
The employer alleged that
the plaintiff had stolen from the company. However, the
court found that the use of unclaimed incentive funds as
a petty cash fund for small parties, minor incidental expenses
and occasional small pay advances was authorized and condoned
by the employer’s management. As a result, the plaintiff
did not engage in the unauthorized use or misappropriation
of funds by permitting these funds to be used for such purposes,
or by overseeing or managing the funds. The court ultimately
found that there were no grounds for the dismissal of the
plaintiff and she was wrongfully dismissed from her employment.
2.
Issue Two - Damages
In deciding whether punitive
damages were appropriate, the court reviewed the legal principles
as developed by cases decided by the Supreme Court of Canada. Since punitive damages
are usually seen as the exception rather than the rule,
the threshold issue in awarding such damages is whether
the defendant’s “conduct is so outrageous that punitive
damages are rationally required for the purposes of deterrence,
denunciation and retribution.”
The employer in this case
made a serious complaint to the police of fraud and misappropriation
that was baseless and without foundation, and in direct
response to the commencement of legal proceedings for wrongful
dismissal by the employee. Also, in addition to these allegations,
the employer made inappropriate postings on the company
website which were deliberately targeted at the employee
to disparage and intimidate her. While the postings did
not specifically name her, the court found that there was
a serious implication that the information provided on the
website was referencing the employee.
As a result of these actions
by the employer, the court held that its conduct in concocting
cause after-the-fact based on unfounded allegations to the
police was reprehensible and egregious. Although this kind
of conduct is rare, the judge ruled that for the purposes
of deterrence, denunciation and retribution, it was necessary
to award punitive damages. Also, the judge ruled that it
was important for employers to be reminded that they may
be liable for any type of “brutish and reprehensible conduct”
towards employees.
The court awarded the plaintiff
$50,000 in punitive damages. In awarding this amount, the
judge took into consideration several factors including:
the blameworthiness of the employer’s conduct, the vulnerability
of the plaintiff at the time of dismissal, the harm directed
at the plaintiff, the need for deterrence, and the advantage
the defendants sought by seeking to avoid damages for wrongful
dismissal.
D. CONCLUSION
The Supreme Court of Canada
has made it clear that punitive damages should only be awarded
in exceptional circumstances. As a result, punitive damages
are relatively rare in wrongful dismissal cases. However,
the outcome of this decision demonstrates that the court
will not hesitate to impose punitive damages on employers,
under the right circumstances. This decision is a useful
reminder for employers to act in good faith when dealing
with employees upon termination.
