Vernon v. B.C. (Liquor Distribution): A Rare Case of Punitive Damages in Wrongful Dismissal Case

There was an interesting wrongful dismissal decision released recently by the B.C. Supreme Court called Vernon v. B.C. (Liquor Distribution Branch). It considers the issue of a verbally abusive supervisor who is never warned that her conduct is unacceptable, a flawed employer investigation, and the highly unusual awarding of punitive damages for breach of an employment contract.
Key Facts
Vernon had 30 years service, many as a senior manager of liquor stores in B.C. before she was fired in 2010.  She was dismissed for cause (without notice) for “gross misconduct, including bullying, harassing, and intimidating behaviour towards subordinates.  Vernon’s performance reviews where very good.  Vernon had what the court called a “no nonsense management style”, which is code for saying she was loud, and regularly swore at workers she believed were slacking off.  The dismissal occurred in response to a complaint by an employee (“C”), who alleged a series of bullying and offensive comments had been directed at her by Vernon.  Neither C nor her union asked for Vernon to be fired, but C wanted the abusive treatment to stop and for Vernon to be sent for some sensitivity training. The employer conducted an investigation of the complaints and, to make a long story short, concluded that dismissal was warranted. The employer told Vernon that it was going to dismiss her for cause, but gave her the option to resign instead.  Vernon refused, and the employer then placed her on leave while it took another month to decide to effect the dismissal.  After the dismissal, Vernon suffered from anxiety and panic attacks, and was placed on medication.
Issue:   Did the employer have cause to dismiss Vernon without notice?  If not, what is the appropriate period of notice, and is Vernon entitled to additional damages?
Reasons:
The Court rules in favour of Vernon, finding that there was no cause for dismissal and awards a period of notice set at __  months, based on her long length of service and her status as a manager.
The Court found that, while Vernon was “intimidating” and “loud and flamboyant” in her management style, there had never been any complaints against her until the 2010 complaint by C.  Vernon had never been told that her management style was unacceptable, and in fact her reviews had been consistently positive over the years.  Vernon admitted to swearing at employees, but almost everyone swore at this workplace, including Vernon’s superiors, and she had never been told it was unacceptable.  Vernon told management during the investigation stage that she would stop swearing now that she had been told it was not acceptable.
The Court found that there was not cause. The employer must establish just cause on a balance of probabilities, and it did not meet this standard.  The decision to dismiss was influenced by a misunderstanding of the facts.  In particular, the employer alleged that Vernon had denied all the allegations against her, when in fact she had admitted that she swore, but said she was not aware that she was offending anyone and would stop if that is the case.  The Court rules that the employer had an obligation to warn Vernon before firing her:

Ms. Vernon was a senior employee with an untarnished record. She was entitled to a warning that her conduct was not acceptable. If she had then continued with such conduct, it is possible the LDB would have had grounds to dismiss. They did not have such grounds in May 2010.

Damages
A statute applicable to public sector employees in B.C. set a cap on the  notice period at 18 months, which the Court orders given her long service, managerial position, and age (49).  She was also entitled to contributions to her pension plan for the period of notice, and to reimbursement for insurance premiums and medical bills that would have been covered by the employer during the notice period.
The Court also orders aggravated damages for bad faith in the manner of dismissal (Honda damages):

The court held that aggravated damages were recoverable for breach of contract if such damages were contemplated by the parties at the time they entered the contract….  The meeting of April 19, 2010, could not have been handled in a more insensitive manner. Ms. Vernon, a 30-year employee with an unblemished record, was summoned to a meeting where she was told her conduct was shameful and that she was an embarrassment to the LDB. When she asked for additional time to consider her position she was told she only had until noon on Friday because Mr. Branham was not prepared to wait around until 4:00 p.m. on a Friday to learn her decision. Having told Ms. Vernon that she was to be terminated, the LDB then suspended her without pay and left her in limbo from April 19 to May 31 when they finally got around to telling her she was fired.

The Court ordered Honda damages amounting to $35,000.  The Court also orders punitive damages, which is very unusual in employment contract cases.  Here is what the Court says:

On Punitive Damages: “Unlike aggravated damages (which are compensatory in nature), punitive damages are directed towards punishment….The three objects of punitive damages are retribution, deterrence and denunciation. The Supreme Court of Canada has directed trial courts to approach punitive damages with caution and restraint and to resort to them only in exceptional circumstances..An award of punitive damages is rational only when compensatory damages do not adequately achieve the objectives of retribution, deterrence and denunciation.

The Court finds that punitive damages in the amount of $50,000 are appropriate here because the employer made the sleazy proposal that it would provide a reference letter to Vernon if she resigned, rather than wait for the employer to fire her.

While an employer is under no obligation to give a reference letter (Shinn v. TBC Teletheatre B.C., 2001 BCCA 83 (CanLII), 2001 BCCA 83, 85 B.C.L.R. (3d) 75), to offer Ms. Vernon a reference letter, conditional on her resignation, was reprehensible and departed to a marked degree from ordinary standards of decent behaviour. If Ms. Vernon’s conduct was sufficiently serious that the LDB had the right to summarily dismiss her without notice, it would have been improper for the LDB to give her a reference letter. To offer a reference letter as a carrot to resign, is, in my opinion, conduct which is properly the subject matter of retribution, deterrence and denunciation.

Summary
There are a number of important lessons for employers in this case.  Firstly, this case follows several other recent decisions (see e.g. Bohay from Saskatchewan) in which Canadian courts have ruled that, at least in regards to long service employees, there is a duty to warn of inappropriate behaviour prior to dismissal for cause. This acts like a implied term of the contract–a failure to warn will result in the employer losing its claim that it had cause to dismiss, unless the conduct is so clearly reprehensible that the employee must have known it was unacceptable.  Secondly, the case emphasizes the need for employer investigations of misconduct to be objective and thorough.  Thirdly, dangling a reference letter as a carrot to pressure an employee into resigning is offensive and will be punished by a court.
Comments about this case?  How can an HR manager avoid a result like this?