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Labour Arbitrator Awards Dismissed Employee $500,000 in Damages!

Thanks to the folks at Lancaster House Publishing for passing along word of a ground-breaking arbitration award decided by Owen Shime recently in which a dismissed employee of the Greater Toronto Airport Authority was awarded an employee over half a million dollars (that is Lancaster House’s calculation, which I”ll assume to be correct).  Here is the full decision.

The facts take dozens of pages to recite, but in essence they boil down to this:  an employee with 23 years’ good service was injured, had surgery,  and was advised by her doctor to take 4-6 weeks off.  The employer video-taped her walking and driving and concluded she and her medical professionals were all lying about her medical limitations.  Rather than consider how to accommodate her in modified duties, the employer called her into a meeting, accused her of being a lier, and dismissed her for cause.  The employee had a history of being physically abused and had suffered post-traumatic stress disorder (PTSD) as a result.  The employer knew about this.  The harsh manner in which she was dismissed caused her psychological harm, including reviving her PTSD.

The arbitrator finds that the employer completely ignored the unambiguous medical evidence and decided for some reason to instead treat the employee has a cheat and lier.  And the employer was ordered to pay for its arrogance.

There are several interesting legal nuggets in this decision, including the following:

1.  Shime finds that collective agreements include an implied term requiring employers to administer the agreements in “good faith”. This conclusion flowed from the collective agreement language (which required the employer to ‘execute its rights in a reasonable manner’) and also from the more general duty to bargain in good faith found in the Canada Labour Code (and all other labour law statutes in Canada).  Shime wrote:  ”it would be completely antithetical to the Code to bargain the provisions of a collective agreement in good faith and not administer them in the same manner” (p 104).   Whether employers have a general duty to act in good faith in the exercise of their management power has been a long-standing debate, so we will see what the review court in the case has to say about that.

2.  Shime also imported the British common law implied term that neither party to the employment relationship shall act in a manner likely to destroy the mutual trust and confidence that is required in the employment relationship (p 115-116).  While that is today one of the most significant terms of employment law in Britain, it has not been adopted by the Canadian courts.  However, Canadian courts have developed a very similar implied term in the past decade that requires employers to treat employees with civility, decency, and respect.  In a paper I published in the Queens Law Journal back in 2005, I traced the development of the two terms and queried whether the duty of trust and confidence will one day make its appearance in Canada.  Shime has taken that step.  This could have important effects in Canadian law if the term takes hold.  In Britain, the term has created a broad range of obligations on employers to at all times behave in a manner that protects the employees’ interests.  So, for example, in the leading House of Lords case (Malik v. BCCI 1997), cited by Shime, the employees of a bank were awarded damages for lost income because the employer’s wrongful acts had caused the bank to go under and tainted all of the employees of the bank in their future job searches.

The other important implication of the recognition of the implied duty to preserve trust and confidence is that it creates a distinct contract term the breach of which is compensable.  In other words, if an employer behaves in a way that destroys the employee’s trust in the employer, and as a result, the employee suffers some quantifiable harm (including damages from mental suffering), then the employee is entitled to recover damages for that harm.  The legal rule is that an award of aggravated (mental suffering) and punitive damages must be based on the breach of contract term other than the term that governs the right of the employer to dismiss the employee.   An implied term requiring ‘good faith’ or ‘to preserve trust and confidence’ provides that new term that enables courts/arbitrators to order these sorts of additional damages.

3.  Shime rules that a collective agreement is one of those contracts that is intended to provide the employee with a psychological benefit and security.  That finding means that an employer who treats employees harshly and in bad faith can be dinged with high damages for mental suffering, since the very purpose of the contract is to help protect employees from psychological harm.  In other words, the law assumes that when the parties contract to provide psychological benefits to the employees, that it is completely foreseeable that the employee will suffer damages  if the employer  then engages in conduct that psychologically harms the employee.

These three findings enable Shime to craft the very high damages award.  His award includes back wages from the date of termination to the date of the decision (with some adjustments due to delay), future wages based on the collective agreement rates to the date the employee would have been entitled to early retirement (some 8 years), damages for mental suffering in the amount of $50,000, plus an additional $50,000 for punitive damages.

Not surprisingly, the employer has applied for judicial review.  Do you think the court should uphold Arbitrator Shime’s decision?

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3 Responses to Labour Arbitrator Awards Dismissed Employee $500,000 in Damages!

  1. Kim Reply

    April 26, 2010 at 9:49 pm

    Do I think the court should uphold Arbitrator Shime’s decision?
    Absolutely.

  2. Dennis Buchanan Reply

    April 27, 2010 at 9:28 pm

    I would expect the Court to defer on the matter of pecuniary compensatory damages. In light of Keays, there’s a close look to be taken at Arbitrator Shime’s application of Wallace, but it seems like the elements are there. However, the punitive damages award is a pretty significant break from judicial jurisprudence on the point. The courts have consistently held that the threshold for an employer being required to pay punitive damages is extremely high, and it’s a rather hard sell to say that a $450,000 compensatory award is “insufficient to
    accomplish the objectives of retribution, deterrence and denunciation as to what has
    occurred.”

  3. Brian McArthur Reply

    December 4, 2016 at 1:13 am

    Absolutely Arbitrators should have the descretion to award punitive damages subject to the cntracting parties agreeement.

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