Williams HR Law LLP

Employer Liability for Moral and Punitive Damages

March 7, 2018

[vc_row][vc_column width=”1/4″][vc_single_image image=”2554″ img_size=”large”][/vc_column][vc_column width=”3/4″][vc_column_text]Because of the special nature of an employment relationship, employers have an obligation to act in good faith and to deal fairly with their employees.

If an employer fails to act in good faith, courts may award damages against them for this failure. If the employer’s behaviour is particularly egregious, further damages may be awarded to punish the employer.

In Galea v Wal-Mart [Galea], the Ontario Superior Court of Justice awarded $750,000.00 for moral and punitive damages to a senior managerial employee whose employment was terminated without cause after ten months of effectively being “benched”.

What are moral and punitive damages?

As stated above, employers have a duty of good faith and fair dealing in the employment relationship and the termination of the employment relationship. Moral damages are meant to compensate the employee’s loss as a result of the employer’s bad faith behaviour rather than punish the employer’s alleged misconduct. Therefore, the employee must demonstrate an actual injury or loss. This damage or loss must be a result of the manner of dismissal and not the mere fact of dismissal.

Unlike moral damages, punitive damages are not compensatory. They are meant to punish the defendant who has acted in a malicious, oppressive and high-handed manner in a way that represents a marked departure from ordinary standards of decent behaviour. The punitive damages award, when added to the compensatory award, must be rationally required to punish the defendant and meet the goals of retribution, deterrence and denunciation. Where the matter is an alleged breach of contract, the employer must have committed an independent actionable wrong, such as (but not limited to) a breach of the duty of good faith described above, to be ordered to pay punitive damages.

The Case

Galea was hired by Wal-Mart as a District Manager-in-Training in September 2002. She was considered a rising star and was promoted up the corporate ranks to the role of Vice-President, General Merchandise. She consistently had excellent performance reviews and was told formally and informally that she was expected to eventually be promoted to Chief Merchandising Officer. However, in January 2010, Galea was informed that she would be removed from her Vice-President role due to corporate restructuring and that, while she was still “valued by the company”, they “did not know what to do with her”. For ten months after the meeting, Galea attempted to find another role within the Wal-Mart group of companies. During this time, she learned that her most recent performance review had been changed from a promotion to a non-promotion rating. In November 2010, Wal-Mart gave Galea formal notice of termination.

Galea’s contract with Wal-Mart indicated that the company would continue to pay her base salary for two years in the event of a without cause dismissal. However, eleven and a half months after her employment was terminated, Wal-Mart unilaterally, and without explanation, discontinued payment.

The Ontario Superior Court of Justice found that Wal-Mart’s conduct was “misleading at best, and dishonest at worst” because the company knew Galea’s career there was over long before the formal termination of employment. The decision to keep her in “suspended animation” was unduly insensitive and caused her mental distress. Similarly, the decision to stop payment of her base salary was unduly insensitive. The Court further found that Wal-Mart’s delay in answering undertakings until the eve of trial, and the torrent of production made during trail were capable of causing Galea anguish. As a result, the Court awarded $200,000.00 in moral damages for pre-termination conduct and $50,000.00 for litigation conduct.

The Court ordered a further $500,000.00 in punitive damages because, during the ten months when Galea was trying to find an alternate role within the Walmart group of companies, Wal-Mart would make representations to Galea about her career prospects that “detracted from, or even defeated that purpose” in a way that “was not just unduly insensitive, it was mean”.

What does this mean for employers?

Galea provides a reminder to employers about the importance of maintaining good faith and fair dealing throughout the employment relationship, including with regards to the termination of employment. Despite the magnitude of the $750,000.00 award, employers should note that as a large company, Wal-Mart can be expected to face higher moral and punitive damages than a smaller company would for the same behaviour.

Wal-Mart has a history of successfully lowering substantial extraordinary damage awards on appeal. In a 2014 decision of the Ontario Court of Appeal, Boucher v Wal-Mart Canada Corp, Wal-Mart successfully argued for a reduction of a $1,000,000.00 punitive damages award at trial to $100,000.00. Therefore, it remains to be seen whether Wal-Mart will appeal this award, and what degree of success it may have.

 

This blog is provided as information and a summary of workplace legal issues.

This information is not intended as legal advice.

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