The details of Koshman v Controlex Corporation [Koshman] are salacious, but the decision is a reminder that courts will consider employers’ conduct when assessing damages. In Koshman, the Ontario Superior Court of Justice (“ONSC”) awarded 24 months’ notice and an additional $100,000 in aggravated and punitive damages due to the employer’s egregious misconduct before, during, and after the employee’s dismissal.

All said, the employer was ordered to pay the employee nearly $775,000, as the employer was also ordered to pay approximately $200,000 in legal costs.

Background

The employee, the vice president (“VP”), worked for the employer for 18.5 years and was responsible for operational and property management. He had significant autonomy and only reported directly to the employer’s founder for major decisions.

The founder’s wife was not previously involved with the company, but she assumed the founder’s role (“President”) after her husband passed away in July 2020.

While the President never met with the VP, she restricted the VP’s independence by revoking his signing authority and informing his clients of same, directing his subordinates without his knowledge, and instructing his clients to speak with her instead of with the VP.

In addition to altering the VP’s duties, the President also made comments to his colleagues and clients that damaged his reputation, and she encouraged others to spread the misinformation. Some of her comments included statements that the VP:

• was involved in her husband’s murder;
• was “a nobody”, “no good”, and dishonest;
• took kickbacks; and
• was dismissed.

The VP discovered the President offered had his role to one of his direct reports before he was ever dismissed. In September 2020, the VP was formally dismissed without cause by way of a couriered letter. He was provided with eight weeks of his base salary.

The VP sued for wrongful dismissal. The employer filed a counterclaim, alleging the VP breached his fiduciary duty. At a later stage in litigation, the employer amended its pleadings to alleged it had cause for his dismissal.

The ONSC Decision

Reasonable Notice

The ONSC found the VP was entitled to common law reasonable notice, as he did not have a written employment agreement, and awarded him with 24 months of notice. The VP’s 18.5 years of service, 69 years of age, role, and his remuneration (over $225,000) justified a notice period in the upper range.

The ONSC also noted the President’s defamatory comments and “baseless” counterclaim obstructed the VP’s ability to mitigate. Despite the VP’s reasonable mitigation efforts earning him approximately $9,000, the ONSC did not set off this amount from his wrongful dismissal damages because the part-time assignments he had fulfilled were not reasonably comparable to his VP role with the employer.

The VP’s notice-period damages amounted to over $470,000.

Aggravated and Punitive Damages

While aggravated damages may be awarded to compensate an employee for an employer’s bad-faith conduct in the manner of dismissal, punitive damages are awarded to punish the employer’s malicious conduct. The ONSC in Koshman held that both types of damages were appropriate and necessary to award in this case.

The employer was ordered to pay $50,000 in aggravated damages and another $50,000 in punitive damages due to its “disrespectful and offensive” conduct that “set out to destroy [the VP’s] reputation”.

In addition to considering the President’s conduct during the VP’s employment and dismissal, the ONSC considered the employer’s conduct throughout litigation. Along with the employer’s “baseless” counterclaim and just-cause position, the employer had also initially refused to pay the VP’s accrued vacation entitlements, which amounted to over $150,000. The employer also ultimately abandoned its defence and failed to attend the trial, without notifying the ONSC or the VP.

Takeaways

While unsubstantiated allegations of murder are very unlikely to occur in most wrongful dismissal cases, Koshman featured facts that frequently increase damage awards for dismissed employees. Employers should implement the following best practices to reduce any liability they may face when dismissing an employee:

• Use Written Employment Agreements: Written employment agreements with properly drafted, enforceable termination clauses will help to limit termination entitlements. To avoid owing significant termination entitlements under the common law, as the employer did in Koshman, see our blog on Dufault v The Corporation of the Township of Ignace.
• Engage in Good Faith Conduct: While employment relationships can be emotionally fraught, employers must act in good faith when dealing with employees/former employees. Courts will consider an employer’s conduct at all stages of the employment relationship when assessing damages. To avoid costly aggravated and punitive damage awards, employers should pay termination entitlements in accordance with their statutory/contractual obligations, avoid making remarks that will harm the employee’s reputation, and only consider advancing a claim/counterclaim where there is merit to do so.
• Avoid Constructive Dismissal Claims: While the VP in Koshman was explicitly dismissed by his employer, the essential elements of constructive dismissal were also present. Employers should be aware that constructive dismissal damages are similar to wrongful dismissal damages. Had the VP not been formally dismissed, he could have still received the same damage award if he was forced to resign and claimed constructive dismissal. Employers should avoid taking steps that effectively push employees out of the workplace.

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

This information is not intended as legal advice.