In Porcupine Opportunities Program Inc. v Cooper, 2020 SKCA 33 (Porcupine), the Saskatchewan Court of Appeal affirmed, among other things, that a trial court appropriately decided to award $20,000 in moral damages to an employee upon finding that the employer had breached its duty of good faith and fair dealing when it was untruthful and misleading during the termination process.  

Background

The employer is a community-based and community-governed organization dedicated to enhancing the quality of life of persons experiencing disability. A 53-year-old employee of 33.5 years came under the supervision of a newly hired general manager.  At an in camera meeting of the board of directors, the general manager alleged that the employee had been stealing product, and recommended a new approach that involved eliminating the employee’s position.  At that meeting, the board resolved to terminate the employee.  The next day, the employee met with the general manager and three board members who informed him that he was being laid off and that his position was being eliminated.  The employee was asked to return all corporate property and leave the premises, and he was given eight weeks’ pay in lieu of notice. 

Two months later, the employee received a letter from the general manager alleging that the employee had been attempting to communicate in an inappropriate and threatening manner with program participants, and the employer’s board and management. The general manager indicated that this letter constituted notice pursuant to The Trespass to Property Act, and that the employee would not be permitted to enter any property owned by the employer.  The general manager also asked that further communication be directed to legal counsel. 

The employee made a claim for wrongful dismissal and moral damages.

Trial Decision

At trial, it was decided that the employee’s appropriate notice period was 18 months.  Furthermore, the trial judge found that the general manager fabricated the theft allegations to justify the termination and that the “inappropriate and threatening” conduct never occurred.  The trial judge determined that the general manager lied about the position being eliminated as the employee’s former assistant was later hired to replace him, and drew negative inferences against the employer, as it did not provide evidence to back up its allegations against the employee.    

Moral damages award

The trial judge decided that the employer breached its duty of good faith and fair dealing in the course of dismissal and awarded $20,000 in moral damages, based on the cumulative consequences of: (1) the false allegations of theft; (2) the false explanation that the employee’s position would be eliminated; and (3) the false allegations of threatening and inappropriate communications. 

Decision of the Court of Appeal

The employer appealed, arguing that the trial judge erred by awarding moral damages or, if awardable, by fixing them at $20,000. 

Moral damages award

The employer argued that the $20,000 moral damages award was inconsistent with the decision of the Saskatchewan Court of Appeal in Capital Pontiac Buick Cadillac GMC Ltd. v Coppola, 2013 SKCA 80 (Coppola) as: (a) there was an insufficient basis to make the award; and (b) the quantum awarded was unsupported by the evidence, especially when compared to the facts in Coppola.  Although the Court of Appeal conceded that the employee’s claim to moral damages may have been weaker than the claim in Coppola, it decided that the trial court acted correctly in making the award and fixing it at $20,000. 

The court provided the following explanation of the law of moral damages, as established by the Supreme Court of Canada:

• Employers have a legal duty to engage in “good faith and fair dealing” during the dismissal process, including in their conduct pre- or post-termination.
• The duty requires employers to be “candid, reasonable, honest and forthright” and to refrain from “untruthful, misleading or unduly insensitive” behaviour.
• The employer’s actions must involve some level of intent, malice or blatant disregard for the employee.
• The breach must be connected to a quantifiable loss or harm, however “normal distress and hurt feelings resulting from dismissal are not compensable.”
• Medical evidence is not strictly necessary to prove mental distress provided there is an adequate factual basis to support an award of moral damages based on the employer’s conduct.

The court provided the following examples from the caselaw of a breach of the duty of good faith and fair dealing in dismissal:

• Unfounded allegations of theft communicated to other potential employers;
• Maintaining unfounded allegations of theft against the employee;
• Refusing to provide a letter of reference after termination;
• Misrepresenting to an employee that they would be transferred when the employee was actually to be terminated;
• Attacking the employee’s reputation with statements made at the time of dismissal;
• Misrepresenting the reason for the decision to dismiss the employee, and
• Dismissal to deprive the employee of a pension benefit or other right.

The Court of Appeal concluded that the trial judge referred to the following facts, which justified his findings that the employer, acting through the general manager, breached its duty of good faith and fair dealing, and that an award of moral damages was appropriate:

• The allegations of theft at the in camera board meeting were unsubstantiated and not truthful;
• The allegations of theft were made to eight or nine members of the board who are also members of the community, and this:
  
  • Significantly impacted the employee emotionally;
  • Damaged the employee’s community reputation; and
  • Impacted the employee’s ability to find re-employment, particularly since he lived in a small community;
• The general manager made the false allegations of theft “to accomplish his goal of terminating the employee’s employment;”
• The general manager’s actions and the lack of supporting evidence about the allegations of theft reflected poorly on the general manager’s credibility;
• The general manager prepared and sent the December letter, which stated the employee had made attempts to communicate in an inappropriate and threatening manner with participants in the employer’s programs, its board members, and its management, but no such allegations had been made by those persons;
• The general manager’s evidence purporting to show that the true reason for the employee’s termination was that his position had been eliminated was not true; and
• All of the foregoing was “very damaging” to the employee’s reputation in the community and negatively affected his ability to become re-employed in that community.

The Court of Appeal noted that the trial judge did not consider whether the false allegations had been made publicly because the fact that they were false proved the employer was not being “candid, reasonable, honest and forthright.”  The court emphasized, however:

In a small town context, where everyone knows everyone and everyone else’s business, a sudden, unexplained termination after 33.5 years of work would necessarily have generated speculation and rumour, regardless of whether the false allegations had been made public. (para. 28)

Quantum of Moral Damages

The Court of Appeal noted that the quantification of moral damages is “a highly fact specific task driven by the context of dismissal,” and that since it is a task that attracts deference, an appeal court is unlikely to interfere with the quantum awarded at trial unless it is “inordinately high or low.”  Noting that the range of moral damages is $5,000 to $25,000, the court acknowledged that $20,000 is at the high end; however, it concluded that since it was not “inordinately high,” it would not interfere with the trial judge’s exercise of judicial discretion.    

Bottom Line for Employers

Porcupine provides employers with invaluable guidance regarding how they should manage a dismissal as well as the pre- and post-termination events.  The decision cautions employers that they may be found in breach their duty of good faith and fair dealing and subject to a moral damages award if:

• Upon dismissing an employee, they fail to conduct themselves candidly, reasonably, honestly and forthrightly, and with intent, malice or blatant disregard for the employee,  they engage in conduct that is untruthful, misleading or unduly insensitive; and
• The employee experiences quantifiable loss or harm greater than normal distress and hurt feelings resulting from dismissal, such as significant emotional impact, damage to their reputation, and the inability to find re-employment.

As a result, employers are strongly encouraged to be honest with employees throughout the process about the reasons for dismissal.   

The facts in Porcupine provide an example of behaviour on the part of an employer in the dismissal process that courts may find unreasonable, and that seemed especially questionable given the employee’s more than three decades of service to the employer.  Specifically, the employer’s failure to investigate the newly employed general manager’s theft allegation against its long-term employee before proceeding with the employee’s dismissal is a unique fact in Porcupine that seems to have contributed to the Court of Appeal’s decision to uphold the trial judge’s moral damages award against the employer.  The case serves as a reminder to employers that they should strive to investigate and substantiate allegations leveled at an employee prior to proceeding with a termination.  Such an investigation is important even when reasonable notice is offered to the employee, which was not the case in Porcupine.

Finally, the decision indicates that an employer’s false allegations need not be made publicly to be evidence of an employer’s mistreatment of an employee.  In this vein, Porcupine refers to employers in small towns, and emphasizes that in such a community where everyone’s business is known, even when false allegations are not made publicly, an employee’s sudden, unexplained termination could generate speculation, rumour, and reputational damage.  Notably, the possibility of such damage to the employee’s reputation is especially great when a small town employer’s board of directors is comprised of members of the community.  Accordingly, in dismissing an employee, all employers—especially small town, community-governed employers—should avoid engaging in untruthful conduct that can damage an employee’s reputation.