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Boucher v. Walmart: Court of Appeal Confirms an Implied Obligation of Good Faith and Fair Dealing in Employment Contracts

The Ontario Court of Appeal issued an interesting employment law decision last week that considered the ‘reprehensible’ conduct of Walmart and one of its managers in Windsor.  It dealt with an appeal by Walmart and the manager (Pinnock) of a huge jury award ordered against both parties.  The case is called Boucher v. Walmart Canada.

Quick Rundown of Facts

Boucher was a female assistant manager who was subjected to a pattern of verbal abuse at the hands of the manager for a extended period of time.  The abuse began after Boucher refused to falsify a log on the manager’s order.  From that point on, the manager engaged in a campaign to intimidate, humiliate, and abuse Boucher in the hopes that this would drive her to quit.  It did.  However, before she quit, she attempted to get help from Walmart.  She used their so-called “Open Door Policy”, which is supposed to permit employees to bring forward confidential concerns to

Court of Appeal:  Walmart's Behaviour was "Reprehensible"

Court of Appeal: Walmart’s Behaviour was “Reprehensible”

management.  Her request for a meeting was leaked to the manager, who then threatened her again for attempting to use the policy.  Despite ample evidence of the abuse, including other employee witnesses, Walmart remarkably concluded that Boucher was making up stories and threatened to discipline her for trying to undermine the abusive manager.  Unreal.  Boucher finally had enough, quit.  She had medical evidence indicating the abuse caused her serious though temporary medical harm.  She sued.

The jury was unimpressed.  It’s award is summarized by the Court of Appeal:

The jury found that Boucher had been constructively dismissed and awarded her damages equivalent to 20 weeks salary, as specified in her employment contract.  The jury also awarded her damages of $1,200,000 against Wal-Mart, made up of $200,000 in aggravated damages for the manner in which she was dismissed, and $1,000,000 in punitive damages.  And the jury awarded Boucher damages of $250,000 against Pinnock, made up of $100,000 for intentional infliction of mental suffering, and $150,000 in punitive damages (awards for which Wal-Mart is vicariously liable as Pinnock’s employer).

The Court of Appeal’s Bottom Line Decision

Both the manager and Walmart appealed the jury’s ruling.   All aspects of the jury’s award were upheld by the Court of Appeal, except the amount of the punitive damages.  The punitive damages against the manager Pinnock were reduced from $150,000 to $10,000, and against Walmart from $1 million to $100,000, still a very large punitive damages award in an employment case.  The punitive damages were reduced on the basis that, given the large amount of damages awarded on the other heads of damages, the very high punitive damage awards were ‘not rationally required’ to further  punish Walmart and Pinnock.

The Court’s Treatment of Walmart’s Wrongful Actions

I want to say a few words about how the Court dealt with the claims against Walmart.  The actual abuse of the employee was committed by an employee, which the court ruled violated the tort of intentional infliction of mental suffering.   Walmart’s misconduct relates to its response to that abuse once it became aware of it.  Not only did Walmart not take actions to reign in and discipline the abusive manager, it actually took his side and allowed the abuse to continue.  The Court of Appeal summarized Walmart’s response as follows:

the evidence reasonably supports the jury’s finding that Wal-Mart’s own conduct was reprehensible.  That evidence, which I reviewed earlier, includes Wal-Mart’s refusal to take Boucher’s complaints about Pinnock seriously, its dismissal of those complaints as unsubstantiated despite substantial evidence to the contrary, its unwillingness to discipline Pinnock or intervene to stop his continuing mistreatment of Boucher, its threatened reprisal against her, and its contravention of its workplace policies.  Although Wal-Mart may not have deliberately sought Boucher’s resignation, on the evidence led at trial that the jury undoubtedly accepted, Wal-Mart’s actions and its inaction were reprehensible.

Walmart was guilty of breach of contract amounting to a constructive dismissal.  But what term of the contract did Walmart breach by it’s inaction in protecting Boucher from the abuse?

This question becomes important especially in the discussion of punitive damages, since a punitive damages award in a contract case requires ‘an independent actionable wrong’.  That is, Walmart’s ‘reprehensible’ conduct must constitute a legal wrong separate from the breach of the contract term requiring notice of termination (constructive dismissal).   That separate wrong cannot be the tort committed by the manager.  It has to be a legal wrong committed by Walmart for punitive damages to be awarded against Walmart.  The Court of Appeal finds that the trial judge erred by telling the jury that the tort committed by the manager could ground punitive damages against Walmart.

Therefore, the Court of Appeal had to consider whether Walmart had committed an independent actionable wrong, and it ruled that it did.  The Court ruled that the jury had actually found that Walmart breached an implied term of the contract.  Here’s what the Court said:

 In substance, [the jury] found that Wal-Mart breached its duty of good faith and fair dealing towards Boucher.  It committed an actionable wrong that would support an award of punitive damages.

Ah-Ha!

I would have relied on the implied term requiring employers to treat employees with ‘decency, civility, respect, and dignity’, the origins and implications of which I explained in this article from back in 2005.   In that article, I argued that employee counsel should develop this implied term and forgo the alternative approach accepted by the Court of Appeal in Shah v. Xerox Canada.  In Shah, the Court said that a constructive dismissal could result from abusive employer behaviour, even if no term is breached, if the employer’s conduct renders the employment relationship intolerable for the employee.  I noted then that the problem with the Shah approach is that it would restrict the option of employee’s arguing for punitive damages (and aggravated damages back in 2005, when an independent actionable wrong was also required for aggravated damages).  A separate contract term requiring decent treatment would enable employees to satisfy the independent actionable wrong requirement to recover these other damages.  This Walmart decision rephrases the implied term as the duty to treat employees “with good faith and fair dealing”, but it would seem to have the same meaning as the term described by lower courts as a duty to treat employees decently and with civility and respect.

Conclusion

This new Walmart decision clarifies that employment contracts include a implied term requiring employers to treat employees “with good faith and fair dealing”.   That term has great potential to apply to a broad range of employer behaviour, and is similar in tone if not content to the the very important British implied term requiring employers to act so as to preserve ‘mutual trust and confidence’.  That latter term has evolved to become the most important contract term governing employer behaviour in Britain (as I explain in my article).  We will have to watch developments in this area carefully.

 

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5 Responses to Boucher v. Walmart: Court of Appeal Confirms an Implied Obligation of Good Faith and Fair Dealing in Employment Contracts

  1. Fernando Reis Reply

    May 28, 2014 at 4:06 pm

    Hi David:

    In your view, does this decision advance the law with respect to recognizing an implied term of good faith during the entirety of a contract of employment and not mereley to the point and manner of dismissal? I believe the decision in Colwell v Cornerstone Properties stands for this proposition. Regards, Fernando.

  2. John Reply

    May 29, 2014 at 11:58 pm

    I’m skeptical that an implied term requiring good faith and fair dealing is just a license to engage in palm tree justice in employment cases. One would think that some other ground could have been found to support punitive damages against Wal-Mart on the facts of this case.

  3. Sean Bawden Reply

    June 2, 2014 at 11:12 pm

    David (and other readers):

    Two points of follow-up on your post.

    The first is your observation that the court in Boucher appears to say that there is a duty of good faith and fair dealing throughout employment. Do you believe that the court in Boucher has advanced the law from Piresferreira, in which the court said that that duty was only owed on termination?

    Second, I have mused that the court also advanced the law with respect to the tort of intentional infliction of mental suffering and am of the opinion (which is not shared by all) that the court also said that with respect to the requirement to intend harm, the requirement for “physical harm” may have been eliminated. My full commentary is here: http://www.ottawaemploymentlaw.com/2014/05/wal-mart-rolls-back-award-of-punitive-damages.html. Do you have any thoughts on that argument?

  4. Doorey Reply

    June 4, 2014 at 1:50 pm

    Hi Sean,

    Piresferreira confused me at the time, since for the life of me, I don’t know how that case is not a breach of contract case. The court ruled that the contract included a term prohibiting verbal and physical abuse and that the term was breached during the life of the employment relationship. By any theory of contract law, damages should have been recoverable for that breach, quite apart from any tort. The Court finds a breach of contract and then ignores it’s own finding in assessing damages. I argued this point when that case was issued: http://lawofwork.ca/?p=1963

    As I read Boucher, again there is an implied contract term that was breached by the employer. The court expressly finds this and that the damages were foreseeable. Where there is a breach, there is a remedy. Here, the court orders a remedy for the breach in punitive damages only. It could have ordered a remedy for the contract breach itself, rather than simply treating the breach as the independent wrong on which to ground punitive damages. Moreover, the treatment of employer actions/inaction weeks and months before the contract terminates as action ‘in the manner of dismissal’ strains logic. When the ER first learned of the abuse of Boucher, the contract was still well alive and neither party had contemplated terminating it. So how is that ‘in the manner of dismissal’?

    Future courts may indeed interpret Boucher as saying only that the implied contract term requiring fair dealing applies only “in the manner of termination”, and ‘manner of termination” includes all abusive actions that occur against the employee at any time in the life of employment. But I think that’s not sustainable logic. Eventually, a judge somewhere will notice that if there is an implied contract term prohibiting abuse of employees, then a breach of that term at any point during the life of the contract should give rise to independent contractual damages, quite apart from punitive damages.

    On the tort angle, I need to think more about that. Thanks as always.

  5. Melissa Seal Reply

    August 25, 2014 at 11:25 am

    I know I’m a little late to the party, but if the Court wanted to grant damages for the breach of the contract, wouldn’t it be bound by the principle from Open Window Bakery? If so, then the damages are the amount which is owing on termination under the contract. That amount was already ordered as constructive dismissal damages. Having an award for contractual breach damages beyond that (other than punitive or aggravated damages) would arguably be double recovery. Of course, you can get additional compensatory damages for mental distress arising from contractual breach if the contract is a “peace of mind” contract or an object of the contract at the time it was made was to confer a psychological benefit. Even with an implied term of good faith and fair dealing, I’m not sure we’re there yet. What do you think?

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