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Most of Arbitrator’s $500,000 Damage Award Survives Judicial Review

Last April, I noted an arbitration award by well-respected labour arbitrator Owen Shime in which the employer was ordered to pay over $500,000 in damages to an employee dismissed without just cause.  The employer was Greater Toronto Airport Authority, and here is the arbitrator’s award.  Predictably, the employer sought judicial review (like an appeal, for my non-law students) of that decision.

The Ontario Divisional Court recently overturned parts of the decision, but left the majority of the damages award in tact.  Here is the Court’s decision.

It  was written by Justice Swinton, who once taught me labour law at U of T Law School.  She is one of those labour law profs turned judge, so she knows all about arbitration.  She said that the standard of review was “reasonableness”, and that there were no limits in the collective agreement on the arbitrator’s authority to fashion a remedy.

On Shime’s decision ordering $50,000 for mental distress and $50,000 punitive damages:

The Court traced the evolution of the power to order these damages for breach of contract.  For a long time, damages were not available for mental distress arising from breach of contract, unless the contract itself was intended to protect “peace of mind”. such as a wedding services contract.   Or, in the case of an employment contract, the courts said that mental distress could be awarded for breach of an “independent actionable wrong” (i.e. a breach of a distinct contract term other than the term governing how the contract can be dismissed, or a tort).  In Wallace (1997), the SCC said that an employment contract was not a “peace of mind” contract.  In Fidler (2006), the SCC said that an independently actionable wrong was no longer required for mental distress damages.  Instead, if the purpose of the contract was to provide a psychological benefit, then “damages for mental distress would be recoverable if they were within the reasonable contemplation of the parties at the time the contract was made”.   In Keays (2008), the SCC said that, since Wallace, it has been foreseeable that bad faith in the manner of dismissal would be compensable if the employee can prove mental distress.  Moreover, punitive damages still required an independently actionable wrong.

The Court overturned the punitive damages award of Shime because the employer had not been clearly told the source of the independent actionable wrong during the arbitration hearing, and so had not had a fair opportunity to argue the point, and also because the arbitrator had not clearly explained in the decision what the independent breach was and why punitive damages amounting to $50,000 were necessary for deterrence.

The Court upheld the award for Past and Future economic loss, which amounted to by far and away the bulk of the damage award.  In the end, the grievor was awarded back wages from the date of dismissal and future wages to the date she could have taken early retirement, about 8 years’ salary (less some mitigation amounts).

The Court overturned the award for pain and suffering due to aggravation of the grievor’s knee injury, because there was no evidence to support that award.

The Court approved an award of Mental Suffering, but sent it back the arbitrator to assess the proper amount because Shime combined the mental distress award and the pain and suffering award in calculating the $50,000 amount, and the latter award had been set aside.  The Court rejected the Arbitrator’s finding that a collective agreement is a contract for a psychological benefit.  However, Justice Swinton ruled that Arbitrator Shime acted reasonably in finding that mental suffering was a reasonably foreseeable consequence of a discharge that takes place in a manner that is “unjust, unreasonable, and in bad faith”.  So, in other words, it is possible for an arbitrator to award mental suffering damages for bad faith in the manner of dismissal, similar to what now happens in the nonunion setting after the Keays decision.

So, in the end, most of the Award survived the judicial review.  The punitive damages and the pain and suffering relating to the knee injury were set aside. However, the punitive damages may not be completely  dead, as I read the decision, since the Court sent back to Shime not only the task of calculating how much of the $50,ooo award was for mental suffering and how much was for pain and suffering, but also the  ”punitive damages issue in light of this decision.”  That suggests that Shime could revisit punitive damages by allowing the parties to argue the independent actionable breach issue. Overall, this is still a big victory for the grievor and the union in this case.

Any thoughts on the outcome of this case?


3 Responses to Most of Arbitrator’s $500,000 Damage Award Survives Judicial Review

  1. Ryan Reply

    February 28, 2011 at 1:25 pm

    Interesting. What would have been really useful would have been for the court to clarify the relationship between mental distress (aka Keays damages), past/future income loss, and torts. In other words, can past/future income loss be awarded for a tortious act that coincides with the manner of dismissal? From what I can tell, it can’t, as it all gets shoved under the Keays/Hadley test on a contract measure of damages. I was really hoping the SCC would have fixed this with Piresferreira, but they denied leave. Hopefully this one will make it up there so we can get a crystal clear decision from Bev that’ll remove all this ambiguity.

  2. Ali Reply

    March 31, 2011 at 3:26 pm

    Do you know if a stay was requested and/or granted for the period between the Award and the Judicial Review? Was there any issue of paying the Award out and then having to attempt to get it back?

  3. Andy Todd Reply

    August 29, 2014 at 3:39 pm

    In passing, Katharine Swinton was also, albeit briefly, an arbitrator herself so probably has experienced both sides of a judicial review.

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