UPDATE: On September 19, 2019, the application for leave to appeal from the judgment of the Court of Appeal for Ontario in Colistro v. Tbaytel, 2019 ONCA 197 was dismissed with costs by the Supreme Court of Canada. 

A recent decision of the Court of Appeal of Ontario, Colistro v. Tbaytel, 2019 ONCA 197, puts employers in Ontario on notice that if they re-hire an employee who has a history of victimizing a current employee by sexual harassment or otherwise, and the current employee finds continued employment intolerable, they risk liability for constructive dismissal. Damages awarded to the employee may include damages in lieu of notice and bad-faith damages. The decision further cautions employers that, absent an offer to accommodate the employee to avoid imposing mental suffering on the employee, they also risk liability for intentional infliction of mental suffering.   

In addition to cautioning employers of these possible dangers, Colistro v. Tbaytel indicates that in the right circumstances, an employee who successfully sues an employer may be required to pay the employer’s costs.  If there is a substantial disparity in the damages sought by the employee and the damages awarded by the court, an employer can argue that it should be awarded costs because it is the substantially successful party in the litigation.

Background

Colistro v. Tbaytel arose when a company re-hired an executive that its predecessor had terminated 11 years earlier in part because of complaints that he had sexually harassed the employee and others.  Although the executive’s termination was not for cause, the sexual harassment complaints were among the reasons for his termination.

At the time of the executive’s termination, he was the employee’s immediate manager. On the day of the announcement of his re-hiring, the employee advised her supervisor and the vice-president of human resources of the circumstances of the executive’s termination. Approximately one week later, the employee advised that she was “not eating or sleeping, was vomiting and on the verge of a nervous breakdown.”  She obtained a note from her doctor advising that she would be off work due to stress for a month. The company offered to accommodate her by transferring her to an equivalent position in an adjacent building but she demanded that the company not proceed with the re-hiring. The employee did not return to work and was diagnosed with post-traumatic stress disorder (PTSD) and depression. 

The employee launched a claim for intentional infliction of mental suffering and wrongful dismissal. The trial judge dismissed the mental suffering claim but found that she had been constructively dismissed on the date she was advised by letter that the company would proceed with the re-hiring. He ordered damages equal to pay in lieu of 12 months’ notice, less the short-term salary continuance she was paid and the long-term disability benefits she received over that period, plus bad-faith damages for breach of the duty of good faith in the manner of dismissal (“bad-faith damages”) in the amount of $100,000.¹  Finally, the trial judge held that the company and its predecessor were the substantially successful parties to the litigation because the damages sought by the employee at trial totaled more than $3,000,000 and she recovered only $114,082,² and ordered the employee to pay costs of $200,000.³

The employee appealed the dismissal of her claim for intentional infliction of mental suffering and sought leave to appeal the trial judge’s costs order. 

The company and its predecessor cross-appealed, arguing that the trial judge erred in finding constructive dismissal in awarding bad-faith damages, and that the first element of the tort of intentional infliction of mental suffering was made out.    

The Court of Appeal’s reasons for upholding the dismissal of the claim for mental suffering, and declaration that the employee was constructively dismissed are set out below:

Intentional Infliction of Mental Suffering 

The three elements of the tort of intentional infliction of mental suffering are:

1.  Flagrant or outrageous conduct (objective element);

2. Calculated to produce harm (subjective element); and

3. Resulting in a visible and provable illness (objective element).

The trial judge concluded that the first and third objective elements of the test were satisfied. The company knew that the re-hired executive had sexually harassed the employee and had been terminated because of this behaviour.  It hoped to:

…put the [employee’s] concerns to rest by shuffling her to another building.  This decision minimized and invalidated the sexual harassment complaints of [the employee], a 20 year valued and respected current employee of the company.

Tbaytel’s conduct in this regard exceeds insensitivity or poor management…

The trial judge concluded that this conduct was “flagrant and outrageous conduct.”  Furthermore, the re-hiring of the executive resulted in visible and provable illnesses:  PTSD and depression. 

The appeal with regard to the mental suffering claim turned on the question of whether the second subjective element of the test (calculated to produce harm) could be satisfied. The trial judge denied the claim on the basis that this second element could not be satisfied, and the Court of Appeal concurred. In its view, this element of the test did not require the company to know that their conduct in re-hiring the executive was substantially certain to precipitate the employee’s specific psychiatric illnesses, PTSD and depression, but rather that its conduct was substantially certain to cause her serious psychological injury. Focusing on the company’s offer of accommodation, which it characterized as “ostensibly for the purpose of avoiding the imposition of mental suffering upon her,” the Court of Appeal concluded that the evidence did not support the inference that the company subjectively knew that the serious psychological injury that ensued was substantially certain to occur. The Court of Appeal noted that, “Individuals subjected to harassment of any kind respond in different ways.”  It concluded that although the company’s offer of accommodation was not acceptable to the employee, it could have been acceptable to others.   

Constructive Dismissal

The trial judge concluded that the employee had been constructively dismissed for the following reasons: she could potentially come into contact with the executive and she found this unacceptable; the company’s position on the issue re-victimized the employee and minimized the past conduct of the executive in her eyes and that of other company employees; the company’s position as enunciated in its letter to the employee was demeaning and dismissive; the company showed a blatant disregard for the interests of the employee; and, finally, an objective reasonable bystander, aware of all of the facts, would conclude that the employee’s continued employment in these circumstances was intolerable. 

The company argued that constructive dismissal cannot be found on a single bad act by the employer, and that the finding of constructive dismissal rested on a single act: the company’s letter to the employee communicating its decision to re-hire the executive. In responding to this argument, the Court of Appeal referred to the Supreme Court of Canada in Potter v. New Brunswick Legal Aid Services, [2015] 1 S.C.R. 500, which provides:

• “Constructive dismissal arises when an employer’s conduct evinces an intention to no longer be bound by the employment contract.”

• In determining whether an employer’s conduct evinces such an intention, the court either: (a) identifies an express or implied term that has been breached and then determines whether the breach was sufficiently serious to constitute constructive dismissal; or (b) considers whether the employer’s conduct more generally shows that the employer intended not to be bound by the contract; a specific fundamental term of the employment contract that has been breached need not be identified where the employer’s treatment of the employee makes the continued employment intolerable. This approach requires a consideration of the cumulative effect of the employer’s past acts.

• Whether an employer’s treatment of an employee made continued employment intolerable is assessed objectively.

The trial judge employed the second approach. Finding that the company’s position was demeaning, dismissive and re-victimized the employee, the trial judge concluded that a reasonable person would see the employee’s continued employment as intolerable, and accordingly the employee had been constructively dismissed. The Court of Appeal deferred to that finding. 

Notably, in the process of conducting its constructive dismissal analysis, the Court of Appeal rejected the company’s argument that a single act by an employer cannot evince an intention not to be bound by the contract.  Rather, it noted, “…a stand-alone incident can render an employee’s continued employment intolerable.  Whether it does so will depend on all of the circumstances.” 

Bad-faith Damages

In considering the award of bad-faith damages, the Court of Appeal concluded that the facts underpinning the trial judge’s conclusion that the employee was constructively dismissed supported his finding that the company’s conduct in the course of dismissal was unduly insensitive. Furthermore, it noted that the $100,000 quantum of bad-faith damages awarded to the employee was not dissimilar to amounts recently awarded to other employees mistreated in their manner of termination. The Court of Appeal dismissed the argument that the trial judge should not have awarded bad-faith damages.    

Costs Order

The Court of Appeal denied the employee leave to appeal the costs order on the basis that she could not satisfy the stringent test for such leave to appeal, namely that there are strong grounds upon which the court could find that the judge erred in exercising his discretion. 

Bottom Line for Employers

Colistro v. Tbaytel is a cautionary tale for Ontario employers: if you choose to re-hire an employee who has a history of victimizing a current employee by sexual harassment or otherwise, you have a greater risk of issues relating to damages for constructive dismissal, bad faith and mental suffering. 

The Colistro decision is also a huge wake-up call for any employee who claims excessive damages and recovers only a fraction of their claim. That can mean a huge costs award to an employer who can argue that they are the substantially successful party to the litigation. As counsel to employees become increasingly aware of this development, we expect them to become more realistic in selecting the quantum of the damages claimed.  Some employees may even be reluctant to make a claim at all.