Courts in Canada have not been kind to insensitive, mean employers in recent years. The recently released decision in Altman v. Steve’s Music Store is another example.
Altman has worked for Steve’s for 30 years in various capacities, and as a manager in the end. She was 59 in 2007 when she was diagnosed with cancer. She missed a lot of work in the months that followed for her treatment. The employer decided to pay her full salary for those absences. She was able to work on and off, sometimes on a part time basis during her treatment. The employer permitted this and did not complain. So far so good. However, in the fall of 2008, things changed. The employer stopped talking to her and instructed their lawyers to send a letter to her telling her that if she does not return to work on full time hours her employment “will be terminated, without further notice or delay”. This letter was sent to her by a bailiff! Altman then took a medical leave, and when she advised the employer that she was ready to return to work in April 2009, the employer’s lawyers sent her another letter by bailiff. This one terminated her, and advised her that she was entitled to monies and that the employer “was fully entitled to offset and deduct from your remuneration or for that matter any other sums due and owing to you.”
Altman sued. She won. There are a number of issues in the case worthy of mention.
On Severance Pay: In Ontario, employees are entitled to severance pay if their employer has an annual payroll of over $2.5 million (Section 64). Steves’ Music had a payroll of $2.1 million in Ontario, but more than $2.5 million if Montreal employees are counted. The Court ruled that the $2.5 million threshold in the ESA applies only to Ontario operations. Therefore, she’s not entitled to severance pay under the ESA.
On an employer’s right to withhold wages: The employee here was not paid for some of the hours she worked during her period of cancer treatment. The employer argued that it was entitled to withhold those wages because it had paid her wages for time she had not worked at the outset of her cancer treatment. The court referred to the very clear language in Section 13 of the Employment Standards Act that explains when an employer can withhold wages. Essentially, withholding wages can only be done if required by a statute or court order or if the employee has authorized the deduction. Since neither of those situations applied here, the employer was not permitted to withhold her wages. The fact the employer decided to be decent and to pay her wages during cancer treatment did not create an authorization to later reclaim that money by not paying her for hours actually worked.
On an employer’s right to withhold “vacation pay”: On a similar point, the employer claimed that it did not have to pay Altman her statutory vacation pay because in fact she had used that up while she was being paid during her absence for cancer treatment. The employer claimed that it was entitled to use up the employee’s accrued vacation pay during the employee’s sickness leave. Trouble was, the employee never agreed to that, nor did the employer tell the employee that it was applying her vacation pay to cover her wages during her cancer treatment. This was another application of Section 13. An employer cannot withhold “wages”, which includes vacation pay, unless a statute or court order requires it, or the employee agrees in writing to allow that deduction. Perhaps Steve’s could have asked Altman to agree to apply her vacation pay to her absence, and thereby obtained a Section 13 employee authorization. But it hadn’t done that. Therefore, Altman was entitled to her statutory vacation pay.
Moral of that part of the story: If an employer grants an employer a “gift”–wages not required by law or contract–it cannot later attempt to recoup the gift by withholding the employees’ statutory entitlements without the employee’s consent.
On whether the contract was frustrated due to Altman’s cancer: The employer argued it had not dismissed Altman, because the contract had become “frustrated”. This is a strange area of employment law. I was taught that frustration applies only when something completely unexpected happens, that could not have been anticipated by the parties and that effectively renders the contract impossible to perform. Like an “act of God” (tornado or fire) destroys the workplace, for example. The possibility of an employee becoming sick and unable to work, especially when the employment contract includes a “long term disability plan”, would not meet that definition. The disability plan shows that the parties did turn their mind the possibility of an employee becoming sick and unable to work, so how can that be frustration. Something completely predictable, that the parties have bargained about, should not give rise to a frustration. Nevertheless, some courts and tribunals have found that employee disability can constitute a frustration of an employee contract. In this case, though, there was not such frustration, because the medical evidence available at the time of the dismissal indicated that Altman was still capable of working, albeit on modified duties. Moreover, the employer made no attempt whatsoever to ask Altman if she was able to work before sending out the goon lawyers and the bailiffs. Since the contract was not frustrated, Altman was dismissed. Therefore, she was entitled to “reasonable notice” under the common law.
On how much notice is reasonable: This part of the decision is straight up Bardal v. Globe and Mail fare. Given her long service (30 years), management position, and age (59), the Court assessed notice at 22 months, near the top end of the scale.
On whether disability payments can be deducted from the notice damages: Altman had received insurance benefits for part of the time covered by the notice period. The employer argued those benefits should be deducted from the 22 months’ pay it was ordered to pay. The Court disagreed. Since the insurance premiums were paid for by the employees, and not the employer, the employer is not entitled to the benefit of the insurance payments. It may be different when the employer pays the insurance benefits or the premiums on the insurance policy.
On bad faith dismissal damages: There’s already a number of cases where courts had assessed “Wallace” extended notice damages when an employer dismissed employees by sending written notices by courier or taxi. In this case, the employer sent a bailiff with a coldly worded dismissal letter to a 30 year employee suffering from terminal cancer. Had Steve’s lawyers read any of these cases, they would have known that they were acting inappropriately in sending the nasty letter by bailiff. Perhaps this is a lesson in the need to consider retaining lawyers with expertise in employment law! As a result of Honda v. Keays, an employee now needs to prove damage suffered by the bad faith dismissal. Altman could do that. The medical evidence presented at trial was that the letters sent to her, completely unexpected and callous, were even more distressing to Altman than the news about the cancer. She felt the employer was part of her family, so she was completely shocked and betrayed by the manner in which she was treated. The psychiatrist analogized the situation to a “loyal and defenceless dog [that] is unpredictably whipped and abandoned to die by its owner.” Altman suffered depression as a result of her treatment, which was compensable under Honda Canada. She was awarded $35,000 for bad faith dismissal.
On punitive damages: The Court also ordered $20,000 in punitive damages. Punitive damages require behaviour “so harsh, vindictive, reprehensible, or malicious” that it offends the court’s “sense of decency”. They also require a “separate or independently actionable wrong” that caused her damage. That means a legal wrong other than the requirement to pay “reasonable notice” of dismissal. The judge finds that separate actionable wrong in a statute:
Steve’s violations of the Employment Standards Act amount to an independent actionable wrong, separate from its breach of the employment contract in not providing Ms. Altman reasonable notice of termination.
The judge noted the failure to pay notice, vacation pay, and improper withholding of wages. Is that correct, my employment law friends? Can the independently actionable breach be based on a breach of an employment statute? Moreover, the court’s orders here already compensated Altman for all of the ESA breaches. In Honda v. Keays (Para. 64), the Supreme Court ruled that an independently actionable breach could not be based on breach of human rights legislation. The Court wrote:
It is my view that the Code provides a comprehensive scheme for the treatment of claims of discrimination and Bhadauria established that a breach of the Code cannot constitute an actionable wrong; the legal requirement is not met.
Is a breach of the ESA (rather than the human rights code) sufficient as an “independently actionable wrong” to meet the test for punitive damages?
The Better, Alternative Independently Actionable Wrong
As I have argued on many occasions, there is an easier way to meet the “independently actionable wrong” requirement than trying to hook onto a statute. All the employee needs to claim is a breach of the “implied duty in all employment contracts” for the employer to treat employees with decency, respect, and civility. Many Canadian courts have recognized and applied this term over the past decade, finding that a breach of it amounts to a constructive dismissal. The October 2008 letter sent by lawyers by means of a bailiff to the cancer-stricken, long service, loyal employee telling her she will be dismissed unless she can work regular hours, and her subsequent callous treatment at the hands of the employer, almost certainly violates that contract term. Presto! Independently actionable wrong. There can’t be any doubt that breach of a separate term of the employment contract requiring decent and civil treatment is an actionable wrong distinct from the notice term. The Supreme Court told us that in Whiten v. Pilot Insurance:
An award of punitive damages in a contract case, though rare, is obtainable. It requires an “actionable wrong” in addition to the breach sued upon. Here, in addition to the contractual obligation to pay the claim, the respondent was under a distinct and separate obligation to deal with its policyholders in good faith. A breach of the contractual duty of good faith was thus independent of and in addition to the breach of contractual duty to pay the loss.
Whiten was an insurance case. But if breach of a good faith term in an insurance contract is an independently actionable wrong, then so must a breach of a good faith (implied civility and decency) in an employment contract. One day, some smart lawyer will finally recognize this argument. But I’m still waiting…