The Ontario Superior Court in Altman v. Steve’s Music, 2011 ONSC 1480 (CanLII) handed down an important decision in a wrongful dismissal case where the dismissed plaintiff sought and recovered substantial punitive damages.
The Facts:
[1] Shelley Altman is a 59-year-old woman who worked for Steve’s Music Store for slightly more than 30 years. In December 2007 Ms. Altman was diagnosed with stage IIIa non-small cell lung cancer. On April 7, 2009 Steve’s Music terminated Ms. Altman’s employment.
[2] This is an action for wrongful dismissal. Ms. Altman seeks damages under the following heads: pay in lieu of notice, moral damages for mental distress, and punitive damages. She also seeks payment of salary and benefits earned before her termination remaining unpaid, including wages, vacation pay, commissions, bonuses and deferred profit sharing plan entitlements.
The Issues:
[4] There are five issues to decide:
1. Does Steve’s owe Ms. Altman any outstanding compensation for severance, wages, vacation, commission, bonus and deferred profit sharing plan?
2. Was Ms. Altman’s employment contract frustrated?
3. If Ms. Altman’s employment contract was not frustrated, what is the appropriate period of notice?
4. Are moral damages for mental distress appropriate, and if so, what is the quantum?
5. Are punitive damages appropriate, and if so, what is the quantum?
The Award:
[6] For the reasons that follow, I find that Ms. Altman’s employment contract was not frustrated and that she was wrongfully dismissed. She is entitled to 22 months salary in lieu of notice, $35,000.00 in damages for mental distress and $20,000 in punitive damages.
The Analysis:
The court determined that regardless of the ongoing disability of the plaintiff, the employment agreement was not legally frustrated.
Frustration
[58] Steve’s submits that Ms. Altman’s employment contract was frustrated due to her illness. Steve’s bears the onus of establishing that the employment contract was frustrated.
[59] In 1904, in the case of Marks v. Dartmouth Ferry Commission,[13] the Supreme Court of Canada first articulated the principle that whether the termination of employment is justified depends on whether the employee’s disability is temporary or permanent. In a subsequent decision the term ‘permanent’ has been used to describe an illness that would “put an end, in [the] business sense, to their business engagement” and thus “frustrate the object of that engagement.”[14]
[60] To determine whether an illness should be considered temporary or permanent, many courts have relied on guidelines laid out in Marshall v. Harland & Wolff Ltd.[15] In that case, Sir John Donaldson held that the dismissal of an employee who was absent for 18 months during his twenty-third year of employment was wrongful. At pages 718-719, he said the following:
The tribunal must ask itself: was the employee’s incapacity, looked at before the purported dismissal, of such a nature, or did it appear likely to continue for such a period, that further performance of his obligations in the future would either be impossible or would be a thing radically different from that undertaken by him and agreed to be accepted by the employer under the agreed terms of his employment?
[61] He then laid out a number of matters to be taken into account in determining whether the illness should be considered temporary or permanent. These matters include the terms of the contract, how long the employment was likely to last in the absence of illness, the nature of the employment, the nature of the illness or injury and how long it has lasted, the prospects of recovery, and the period of past employment. These matters are obviously useful considerations, although they may not be exhaustive and any one matter is not necessarily determinative. Each case must be decided on its own facts.
[62] Some cases have narrowed the list of relevant matters for consideration to this:
To determine if a contract has been frustrated, regard must be had to the relationship of the term of the incapacity or absence from work to the duration of the contract, and to the nature of the services to be performed.[16]
The court decided that it preferred a line of cases (not adopted in BC) that only evidence as to the state of disability at the time of the employee was “fired” was material to the question of frustration.
Applying the test suggested in Marshall v. Harland & Wolff Ltd., the court found that at the time of dismissal, the plaintiff’s employment was not “frustrated”.
Then, the court went on to award $35,000 for damages for mental stress, or “Moral Damages”.
Moral Damages
[116] Ms. Altman claims damages resulting from the failure of Steve’s to act in good faith in the manner of her termination.
[117] The Supreme Court of Canada’s decision in Honda Canada Inc. v. Keays, confirmed its earlier ruling in Wallace v. United Grain Growers Ltd. that damages resulting from the manner of dismissal will be available if the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.”The normal distress and hurt feelings resulting from dismissal from employment are not compensable. The award of damages for mental distress caused by the manner of termination must reflect the actual damage caused and is meant to be compensatory in nature.
…
[131] Steve’s treatment of Ms. Altman was callous and insensitive. She was a 30-year employee who had been treated like family, and who worked for Steve’s as if she were a member of the family. She deserved to be treated better than twice having a bailiff deliver her a letter replete with mistruths from Steve’s lawyers – especially when Steve’s knew she was recovering from cancer treatment. No one in the management of Steve’s had the decency or courtesy to speak to her personally to express their dissatisfaction with the work arrangement to which they had previously agreed. I conclude that once Steve’s decided that Ms. Altman had become more of a liability than an asset to the organization because of her cancer, they abandoned her to be dealt with by their lawyers. These letters devastated Ms. Altman and caused her significant mental distress to the point of clinical depression. Ms. Altman’s mental distress has been long lasting and is ongoing.
[132] I award Ms. Altman damages in the amount of $35,000.00 as compensatory damages as a result of Steve’s breach of its duty to deal with Ms. Altman in good faith and with fairness in the manner in which they terminated her employment.
Punitive Damages
[133] Ms. Altman also seeks punitive damages. To succeed, Ms. Altman must establish three things:
1. Steve’s conduct was so harsh, vindictive, reprehensible and malicious or so malicious, oppressive and high handed that it offends the court’s sense of decency.
2. Steve’s committed a separate or independent actionable wrong causing her damage.
3. The compensatory damages are not sufficient to express the court’s repugnance at Steve’s conduct, and to punish and deter Steve’s.[43]
[134] The Supreme Court of Canada in Honda Canada Inc. v. Keays[44] set out the circumstances in which punitive damages may be awarded. At paragraph 62, Bastarache J. said, “punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.”
[135] I am required by the Honda decision to focus on the misconduct of Steve’s Music, rather than on the loss suffered by Ms. Altman in determining whether to award punitive damages.
[136] In my view, the following conduct on the part of Steve’s Music calls for an award of punitive damages:
a. Steve’s refused to pay Ms. Altman the statutory minimum termination pay set out in the Act until Ms. Altman brought an application for summary judgment in December 2010, 20 months after her employment was terminated. Steve’s was ordered to pay the statutory minimum by Conway J.
b. Steve’s has improperly withheld wages Ms. Altman earned, contrary to the Act.
c. Steve’s failed to provide Ms. Altman an accounting of the amount held for her in the deferred profit sharing plan, contrary to the order made by Conway J. on December 29, 2010.
d. Steve’s used Ms. Altman’s vacation bank to reimburse itself for time Ms. Altman was absent. This factor is particularly important given that at all times, Steve’s led Ms. Altman to believe that she was being paid her full salary and never informed her it would use the time she had accrued in her vacation bank. This was done in the face of section 40 of the Act, which deems employers to hold all vacation pay accruing to employees in trust for the employees.
e. Despite numerous attempts by Ms. Altman, and others on her behalf, to have Steve’s complete the Policyholder’s Statement in the Standard Life claim form, Steve’s failed to do so until more than one year after Ms. Altman went on medical leave, and more than six months after it terminated Ms. Altman’s employment. Ms. Altman was unable to receive the disability benefits she had paid for because of Steve’s failure to complete this form. She ultimately received benefits in December 2009 retroactively.
f. Ms. Altman was required to retain counsel to obtain her Record of Employment that would permit her to receive Employment Insurance Benefits. Her counsel received the Record of Employment on December 1, 2008. Michael Kirman’s only explanation for this delay was that the Record of Employment must have been lost in the mail. Steve’s failure to provide Ms. Altman with this document meant that Ms. Altman had no income whatsoever between October 18 and December 18, 2008.
[137] Steve’s violations of the Employment Standards Act amount to an independent actionable wrong, separate from its breach of the employment contract in not providing Ms. Altman reasonable notice of termination.
[138] Steve’s conduct in relation to Ms. Altman is consistent with the description provided by its counsel in his submissions – “Steve’s Music Store has been for many years Steve’s. He’s the guiding light. He’s the boss.” That is the way the business is run. Michael Kirman testified that Steve’s has no employment policy manual. He guessed that employees learn of Steve’s employment policies through their managers, who know them based on the tradition of how Steve’s has conducted business over the years. I find that in this case Ms. Altman was the victim of ad hoc decisions made by the management of Steve’s. When she first became ill, Steve Kirman decided that she would be paid her salary. When her illness resulted in too many absences, Steve decided to withdraw her vacation pay without telling her. When she became more of a liability to the business than an asset, Steve’s decided to terminate her employment and withhold her wages, termination pay, and other money owed Ms. Altman to make up for her missed work time. As the April 7, 2009 letter to Ms. Altman from Kaufman Laramée said,
As for your reference to so called outstanding issues relating to your remuneration and unpaid benefits, once again, the correspondence addressed to you to date is clear and unequivocal in that Steve’s Music was fully entitled to offset and deduct from your remuneration or for that matter any other sums due and owing to you, for your absenteeism, late arrivals and early departures. [emphasis added]
Consequently, be advised that according to Steve’s Music’s records, you are owed nothing further. Consequently, be advised that any attempt to claim any sums whatsoever from your former employer, will be vigorously contested.
[139] Steve’s conduct must be viewed in the totality of Ms. Altman’s circumstances. In October 2008, Ms. Altman had just completed very intensive cancer treatment. Steve’s did not pay her during her medical leave, which began on October 17, 2008. In fact, Steve’s did not pay her for the hours she had worked that week. Ms. Altman had no source of income. Steve’s failure to honour its statutory obligations to pay her termination pay, to provide her with a Record of Employment to allow her to obtain Employment Insurance benefits, to comply with an order made by Conway J. to provide Ms. Altman with an accounting of her share of the deferred profit sharing plan, together with the other misconduct listed in paragraph 136 is reprehensible and high handed conduct that is deserving of this court’s denunciation.
[140] Punitive damages must serve a rational purpose. They must be rationally required to serve as a deterrent. “This rationality test applies to the question of whether the award should be made at all and to the question of the amount:” Whiten v. Pilot Insurance Co.[45] In Whiten, Binnie J. held that proportionality is the “key to the permissible quantum of punitive damages.”[46] To determine proportionality, Binnie J. listed a number of factors to consider, including, the blameworthiness of the defendant’s conduct, the degree of vulnerability of the plaintiff, the harm directed specifically at the plaintiff and the need for deterrence.[47]
[141] Relevant to the blameworthiness of Steve’s conduct is the fact that it persisted until Ms. Altman was forced to retain counsel to bring an application before the court to force Steve’s to pay her statutory termination pay.
[142] I need not repeat the details of Ms. Altman’s circumstances, including her health and lack of income, to indicate that Ms. Altman was vulnerable.
[143] Steve’s conduct was directed specifically at Ms. Altman.
[144] The conduct on the part of Steve’s Music that I have outlined above as worthy of punitive damages is different from the conduct that serves as the foundation for the award of damages for mental distress. The compensatory damages awarded Ms. Altman for her mental distress are not sufficient to avoid a repetition of this conduct or to express the court’s repugnance at the conduct. In the circumstances, I award Ms. Altman $20,000.00 in punitive damages.
IMPLICATIONS FOR BC LAW:
BC law is common law based. Decisions in the courts of Ontario, as with other provincial superior court decisions, are persuasive in our courts. Steve’s Music contains an important analysis of principles of frustration of employment contracts where employees have longlasting physical disabilities, and even more importantly the risk to employers of dismissing disabled employees without proper regard to their obligations. Damages for bad faith conduct at the time of discharge may be substantial where employees suffer mental distress as a result, and if an employer’s conduct is seen as being sufficiently egregious, punitive damages are possible as well.