Wednesday, January 15, 2014

Punitive Damages in Ontario Employment Law - Pate Estate v. Galway-Cavendish and Harvey (Township)

American courtroom dramas and John Grisham novels tend to skew Canadian views on what punitive damages are and how they are awarded.

The Ontario Court of Appeal’s November 2013 decision in
Pate Estate v. Galway-Cavendish and Harvey (Township) provides some clarity on the awarding of punitive damages in the employment law context. 

What are Punitive Damages?

In Whitten v. Pilot Insurance, the Supreme Court of Canada articulated the purpose, appropriateness and range of punitive damage awards in Canada. An award for punitive damages is only appropriate if conduct is “high-handed, malicious, arbitrary or highly reprehensible ... that departs to a marked degree from ordinary standards of decent behaviour.” 

Punitive damages awards are not appropriate to compensate the plaintiff, but rather to provide retribution, deterrence and denunciation as a result of the defendant’s conduct. Factors a court considers on awarding such damages, including:
  • Blameworthiness of the defendant's conduct;
  • Degree of vulnerability of the plaintiff;
  • Need for deterrence;
  • Other penalties paid by the defendant; and
  • Any advantage wrongfully gained by the defendant. 
Confusion often arises with respect to the difference between “punitive” and “aggravated” damages, terms which are often conflated and used interchangeably. As per Vorvis v. Insurance Corporation of British Columbia, the general rule for awarding aggravated damages is to compensate the injured rather than punish the wrongdoer. 

Punitive damages, however are an exception to this rule, since they are designed to punish the conduct of the defendant. Unlike punitive damages, aggravated damages are aimed at compensating the plaintiff, while taking into account one's intangible injuries, such as distress and humiliation, that may have been caused by the defendant's insulting behaviour.

Pate Estate v. Galway-Cavendish and Harvey (Township)

After nearly ten years of employment at the Corporation of the Township of Galway-Cavendish and Harvey (the “Township”), Jordan Gordon Pate’s employment was terminated on the basis that the employer had uncovered financial discrepancies. No further particulars were provided to Mr. Pate and he was told that if he resigned the police would not be contacted. Mr. Pate refused to resign. 

Upon his dismissal, the employer turned over information to the Ontario Provincial Police which resulted in criminal charges being laid against Mr. Pate. After a four-day criminal trial, Mr. Pate was ultimately acquitted of the charges. 

Mr. Pate successfully sued his former employer for damages for wrongful dismissal and malicious prosecution. At the Ontario Court of Appeal, the Township appealed the Superior Court's award of $550,000.00 as punitive damages awarded to Mr. Pate.

Double Compensation and Double Punishment

In Whiten, the Supreme Court of Canada held that Canadian courts must refrain from awarding plaintiffs double recovery, "once under the heading of compensation and secondly under the heading of punishment (Whiten, para 116)." 

At the Court of Appeal, the Township contended that the award for compensatory damages related to many of the same factors as the award for punitive damages, resulting in "double compensation" to Mr. Pate and "double punishment" to the Township. 

These factors included:
  • Damage to Mr. Pate's reputation;
  • The Township's unfounded allegations of misconduct;
  • The Township's failure to provide Mr. Pate with particulars of the allegations or an opportunity to respond; and
  • The ultimatum provided to Mr. Pate that police would not be contacted if he resigned from his employment.
The majority of the Court of Appeal agreed in part with the Township and reduced the punitive damages award to $450,000.00

The majority opinion held that punitive damages award in this case failed to take into account the overall set of damages awarded to Mr. Pate, which also included compensatory damages in the amount of $34,100.00, general and aggravated damages in the amount of $75,000.00 and substantial indemnity costs. This, the Court concluded, was contrary to "the requirement that an award of punitive damages, 'when added to compensatory damages, must produce a total sum which is rationally required to punish the defendant (Pate Estate, para 202)."

Where the Law Stands

As stated at the outset of this blog post, Canadian courts rarely order punitive damages, and certainly steer clear of the exorbitant penalties frequently imposed south of the border. 

This ruling reiterates that "compensatory damages also punish. In many cases they will be all the 'punishment' required (Whiten, para 123)."

Nonetheless, the $450,000 award in Pate stands as an important, but rare illustration of Ontario courts' willingness to impose significant punitive damages in the employment law context.

- Nitin Pardal, Toronto
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