Firing an employee? Be nice.

August 2017

Article by: Mike Hamata

Can bad faith employer conduct during the course of dismissal lead to both aggravated damages and a longer notice period? On July 7, 2017, the British Columbia Court of Appeal revisited those issues in Lau v. Royal Bank of Canada, 2017 BCCA 253.

The Facts

The plaintiff, Mr. Lau, was employed by RBC as a customer service representative. Following a customer complaint about Mr. Lau, RBC commenced an investigation. The investigation revealed that Mr. Lau had incorrectly recorded sales as “new money” instead of renewed investments, which improperly improved his sales figures. RBC terminated Mr. Lau for cause.

Lau wins big at trial

Mr. Lau sued for wrongful dismissal, as well as aggravated damages for the manner in which he was dismissed. He was successful on both fronts.

The trial judge found that RBC did not have cause to terminate Mr. Lau and awarded him nine months’ reasonable notice. This was a generous award given Mr. Lau’s age (30 years) and his five years of service in a relatively junior role. In the trial judge’s view, Mr. Lau’s prospects for reemployment were poor, given the damage to his reputation as a result of the employer’s grounds for termination:

[208]     With respect to the availability of equivalent alternate employment, there is little doubt, that given the grounds upon which Mr. Lau has been terminated, none has been available.

The judge used that finding to inflate Mr. Lau’s notice entitlement.

The trial judge also awarded Mr. Lau $30,000 in aggravated damages for the manner of dismissal. The trial judge found that RBC acted in bad faith because it:

  1. Conducted a flawed investigation;
  2. Lost key evidence;
  3. Failed to confront Mr. Lau with key evidence; and
  4. Filed a form with the applicable regulator, which brought the foregoing errors into the public domain.

Court of Appeal reverses aggravated damages award

RBC successfully appealed the aggravated damages award. It did not challenge the notice period.

Aggravated damages are intended to compensate for employer bad faith conduct in the course of termination, where that conduct causes the terminated employee to suffer damages, usually in the form of mental distress.

The Court first looked at RBC’s conduct, and compared it to circumstances where courts have found employer bad faith. In doing so, the Court synthesized a (non-exhaustive) list of the type of employer conduct that has resulted in findings of bad faith:

  • Maintaining a wrongful allegation of involvement in theft and communicating that allegation to potential employers;
  • Making unfounded allegations of theft and refusing to give a letter of reference;
  • Terminating an employee who was promised a transfer to a new position and who was already in the process of moving to the new position;
  • Firing an employee on disability leave;
  • Dismissing a laid-off employee and hiring a replacement without notice or advice;
  • Attacking an employee’s reputation by declarations made at the time of dismissal;
  • Misrepresenting the reasons for the termination decision; and
  • Terminating an employee in a way meant to deprive the employee of a pension benefit or other right.

The appeal did not turn on whether RBC acted in bad faith. Instead, the Court allowed the appeal because there was no evidentiary basis upon which the trial judge could have concluded that Mr. Lau had suffered mental distress as a result of the employer’s conduct. As the Court said, “…damages cannot be assumed.”

Expert evidence of a recognized psychiatric illness is not required to prove mental distress – a court can find mental distress based on the evidence of family, friends, or from the plaintiff directly. However, in the Lau case, the trial judge based her finding of mental distress largely on the plaintiff’s demeanour during his testimony. A morose witness is not enough to prove mental distress:

[70]         In awarding damages for mental distress, the trial judge erred by relying on her observations of Mr. Lau’s demeanour while testifying, in the absence of any evidence or testimony other than Mr. Lau’s own. Even Mr. Lau’s testimony did not provide a sound basis for finding he suffered injury beyond the hurt feelings and distress that accompany any termination.

On appeal, counsel for Mr. Lau argued also argued that he was entitled to damages because of the “intangible effects” he suffered. The Court rejected that argument.

Nine months’ notice?

The Court of Appeal was not asked to deal with the nine months of notice that was awarded to Mr. Lau. The main factor driving that relatively lengthy notice period was the “public” reasons RBC gave for Mr. Lau’s termination, which made it more difficult for Mr. Lau to find replacement employment. Unlike aggravated damages, increased reasonable notice does not require corresponding mental distress.

Key Employer Takeaways

Lau offers three key takeaways for employers in the course of terminating an employee. Employers should:

  1. Avoid engaging in the list of bad faith conduct identified by the Court of Appeal;
  2. Know that aggravated damages for the manner of dismissal require both bad faith employer conduct and for that conduct to actually cause the employee to suffer damages; and
  3. Remember that even if an employee does not suffer mental distress, a trial judge might extend the period of reasonable notice if an employer advances grounds for termination that reduce the availability of alternate equivalent employment – a step taken by the trial judge which was undisturbed by the Court of Appeal.