Can a ‘little white lie’ about the reason for an employee’s termination of employment result in an award of aggravated damages? What if the employee is unable to demonstrate a diagnosable psychological injury?
In Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332, the Court of Appeal for Ontario held that mental distress is a broad concept; it includes a diagnosable psychological condition arising from the manner of dismissal but is not limited to that. In the Court of Appeal’s assessment, “There is a spectrum along which a person can suffer mental distress as a result of the manner of dismissal.”
It just got considerably easier for employees to obtain aggravated damages from the manner of dismissal.
Facts and Decision of the Ontario Superior Court
Mr Krmpotic, the “respondent” on the appeal, began work as a carpenter in 1976, and became a journeyman carpenter in 1983. In 1987, he began working in Thunder Bay, the maintenance department of Thunder Bay Electronics Limited and Hill Street Financial Services, together, the “appellants”.
Within 18 months of being hired, Mr. Krmpotic was made the Building Maintenance Supervisor, a position he held until his employment with the appellants ended. Later in his employment, Mr. Krmpotic also assumed responsibility for the ongoing maintenance of TBEL’s fleet of vehicles. There was no written employment agreement between the parties.
Since losing his employment with the appellants, Mr. Krmpotic has suffered back pain, knee pain, anxiety, depression, fear, mental distress, confused emotions, anger, disturbed sleep, worry, frustration, helplessness, and defeat.
At trial, direct evidence went in by way of affidavit, with cross-examination occurring through Zoom conferencing. Mr. Krmpotic provided affidavit evidence. So, too, did his wife and his son. The appellants’ sole witness provided an affidavit on which he was cross-examined.
The trial judge, the Honourable Justice John S. Fregeau of the Superior Court of Justice, found that Mr. Krmpotic was a “loyal, responsible and trusted employee” who was called on to perform a broad range of skilled tasks over his 29 years of employment with the appellants. Mr. Krmpotic’s job made significant physical demands on him. For example, at the appellants’ request, Mr. Krmpotic was trained to work at heights, in tower rescue, and in tower climbing, so that he could climb the appellants’ transmission towers to service and change equipment. He was often called on to do these things, including in inclement weather conditions. Other physical demands of his job included moving heavy objects, demolition and waste removal, and the ongoing maintenance of buildings, grounds, and equipment. Indeed, the trial judge found that in the course of his employment, Mr. Krmpotic did “everything necessary” for the appellants. Based on Mr. Krmpotic’s “exemplary loyalty and dedication” to his employers, the trial judge found he was entitled to a reasonable notice period of 24 months.
When Mr. Krmpotic’s employment was terminated he was 59 years of age, recovering from back surgery, and significantly limited in his ability to perform the physical labour that his occupation demanded. Based on the evidence of Mr. Krmpotic, his wife, and his son, the trial judge was satisfied that Mr. Krmpotic was “unable to perform any meaningful physical labour due to his physical condition” during the reasonable notice period.
The trial judge dismissed Mr. Krmpotic’s claim for mental distress damages because Mr. Krmpotic had not provided the court with medical or psychological evidence confirming that the manner in which his employment was terminated resulted in mental distress. He noted that Mr. Krmpotic, his wife, and son, had all provided evidence of Mr. Krmpotic’s mental health concerns, which included anxiety, depression, fear, poor sleep, frustration, and helplessness. However, the trial judge said that without further and better evidence, he was unable to conclude that those symptoms were not the result of Mr. Krmpotic’s physical disabilities and resultant inability, as a skilled labourer for his entire life, to engage in meaningful and productive employment.
Nonetheless, the trial judge awarded Mr. Krmpotic $50,000 for what he termed “aggravated/moral damages” (“aggravated damages”) because he found that the manner in which the appellants terminated Mr. Krmpotic’s employment was “the antithesis of an employer’s duty” to be candid, reasonable, honest and forthright, and to “refrain from engaging in conduct that is unfair or in bad faith by being untruthful, misleading or unduly insensitive”.
Decision of the Court of Appeal for Ontario
Before the Court of Appeal, the appellant employers argued three things: (1) Mr. Krmpotic had failed to mitigate his damages; (2) the trial judge erred in holding the appellants jointly and severally liable; and (3) the trial judge had erred in awarding aggravated damages.
While this post is primarily about aggravated damages, a consideration of what the Court of Appeal had to say about the appellant’s mitigation arguments likely animates the court’s decision on aggravated.
The Honourable Justice Eileen Gillese JA wrote the following on behalf of the court:
[18] The appellants assert here, as they did below, that the period of reasonable notice must be reduced based on the respondent’s failure to mitigate. They submit that the trial judge erred in concluding that the respondent was unable to mitigate during the reasonable notice period because of physical incapacity. They make a number of arguments in support of this submission, the most salient of which are that the trial judge: (1) found, in the “complete absence of any medical evidence”, that the respondent could not work during the notice period because of physical incapacity; and (2) ignored the medical evidence which indicated the respondent was capable of working.
[19] I do not accept this submission or the arguments advanced in support of it. Whether a terminated employee took reasonable steps to mitigate is largely a question of fact – absent an error in principle or a palpable and overriding error, a decision respecting mitigation is entitled to deference. The trial judge made no error in principle nor did he make any factual error, much less a palpable and overriding one.
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[21] In considering whether Mr. Krmpotic had fulfilled his duty to mitigate, the trial judge acknowledged that his attempts to find alternate employment in the period immediately following termination were “scant at best”. However, the trial judge was not persuaded that Mr. Krmpotic failed to make reasonable efforts to mitigate during the notice period because, at that time, Mr. Krmpotic was (1) 59 years old, (2) recovering from back surgery, and (3) “significantly limited in his ability to perform the physical labour which his occupation demands on a daily basis”.
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[24] The appellants assert that the trial judge’s finding of physical incapacity was an error in principle because it was made in the absence of medical evidence to that effect. They rely on two cases for this assertion: Lemesani v. Lowery’s Inc., 2017 ONSC 1808, aff’d on other grounds 2018 ONCA 270; and Sinnathamby v. The Chesterfield Shop Ltd., 2016 ONSC 6966.
[25] I do not see these cases as establishing the general principle that physical incapacity can only be established by expert medical evidence. In any event, Lemesani and Sinnathamby are readily distinguishable from the present case. In Lemesani and Sinnathamby, the claims related to non-physical injuries that were unsupported by any evidence. In the present case, the claims relate to physical injuries for which there was evidence. Mr. Krmpotic’s medical history included numerous back and knee problems, and four different back injuries sustained at work, ultimately resulting in the need for back surgery. Mr. Krmpotic’s evidence on his physical limitations was supported by the evidence of his wife and son. And all of this was buttressed by the evidence of Mr. Krmpotic’s attempt at re-employment in November 2017 which failed due to physical incapacity.
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[29] The appellants submit that the trial judge erred in awarding the respondent aggravated damages. They say that, following Honda Canada Inc. v. Keays, 2008 SCC 39, the trial judge could award aggravated damages only if there was evidence of both mental distress – that is, distress beyond the normal distress and hurt feelings resulting from dismissal – and that the mental distress was caused by the manner of dismissal. Accordingly, they contend, not only did the trial judge err in considering mental distress and the manner of dismissal separately, but also that, once he rejected the respondent’s claim for damages for mental distress, the trial judge was precluded in law from making an award for aggravated damages.
[30] I do not accept the appellants’ submission. In my view, it reflects an unduly narrow view of the employer’s duty of good faith during the termination process and the meaning of mental distress in that context. Further, I see no error in the trial judge’s determination that Mr. Caron’s conduct in the termination meeting breached that duty and caused Mr. Krmpotic harm deserving of compensation.
[31] The principles governing the employer’s obligations on termination are clearly articulated in a series of Supreme Court of Canada decisions that include Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), at para. 98; Keays, at para. 58; and Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, at paras. 40, 44. Those principles can be summarised as follows.
[32] The duty of honest performance applies to all contracts, including employment contracts. It encompasses the employer’s duty to exercise good faith during the course of dismissal from employment. Breach of the duty of good faith occurs through conduct that is unfair or made in bad faith, as for example, by being “untruthful, misleading or unduly insensitive”. Callous or insensitive conduct in the manner of dismissal is a breach of the duty to exercise good faith.
[33] While the normal distress and hurt feelings resulting from dismissal are not compensable, aggravated damages are available where the employer engages in conduct that is unfair or amounts to bad faith during the dismissal process by being untruthful, misleading, or unduly insensitive, and the employee suffers damages as a consequence. As the trial judge noted, in Boucher v. Wal-Mart Canada Corp., 2014 ONCA 419, at para. 66, this court confirmed that aggravated damages compensate an employee for the additional harm suffered because of the employer’s conduct.
[34] Mental distress is a broad concept. It includes a diagnosable psychological condition arising from the manner of dismissal but is not limited to that. There is a spectrum along which a person can suffer mental distress as a result of the manner of dismissal. At one end is the person who suffers the normal distress and hurt feelings resulting from dismissal, which are not compensable in damages. At the other end of the spectrum is the person who suffers from a diagnosable psychological condition as a result of the manner of dismissal. In between those two end points, there is a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury.
[35] In my view, on a full reading of his reasons, the trial judge approached the issue of mental distress in that fashion. The fact that Mr. Krmpotic had not established, through medical evidence, that he had suffered a diagnosable psychological injury, was not the end of a consideration of the issue of mental distress damages. As the trial judge correctly understood, he had to go further and determine whether (1) the appellants’ conduct, during the course of termination amounted to a breach of their duty of honest performance; and (2), if so, whether Mr. Krmpotic suffered harm – beyond the normal distress and hurt feelings arising from dismissal - as a result of that breach. The trial judge found in Mr. Krmpotic’s favour on both matters: the appellants had engaged in conduct that amounted to bad faith during the dismissal process; and, Mr. Krmpotic suffered harm beyond the normal distress and hurt feelings that result from dismissal. These findings were fully open to the trial judge.
[36] The trial judge found that Mr. Caron breached the duty of good faith in the manner of dismissal in a number of ways. Mr. Caron claimed that Mr. Krmpotic had been dismissed for financial reasons and that the appellants’ financial statements would support that claim. However, he refused to produce the financial statements. Further, while the trial judge found that Mr. Caron was not directly untruthful with Mr. Krmpotic during the termination meeting, he had “no hesitation” in finding that Mr. Caron was neither candid nor forthright. He found that Mr. Krmpotic’s employment was terminated because his physical limitations restricted him from continuing to perform the wide array of job duties and responsibilities that he had performed for the appellants over the previous 29 years. He described Mr. Caron’s conduct during the termination process as the antithesis of what is required by the duty of good faith in dismissal. Mr. Krmpotic was terminated within two hours of returning to work after his back surgery. During the termination meeting, instead of being candid, reasonable, honest, and forthright, Mr. Caron engaged in conduct that was untruthful, misleading, and unduly insensitive.
[37] Reading the trial judge’s reasons as a whole, it is clear that he accepted that as a result of the manner of dismissal, Mr. Krmpotic was plagued by anxiety, depression, fear, poor sleep, frustration, and feelings of helplessness. That is, he found that Mr. Krmpotic suffered harm beyond the normal distress and hurt feelings resulting from dismissal.
[38] Accordingly, I see no basis for appellate interference with the trial judge’s determination of this issue.
Commentary
I confess frustration with this decision. And I express that frustration for two reasons.
First, I am not entirely convinced as to what it is the employer in this case did that was so wrong. The employer did not allege cause for termination and, in fact, provided Mr Krmpotic with sixteen months pay in lieu of notice. Moreover, I note the absence of any claim that his disability was a factor in the decision to terminate his employment and any Human Rights claim, such that it’s not like his employment was terminated because he was unable to work – he was terminated after he returned from leave.
If the duty of good faith requires employers to disclose their motivations for without cause terminations, then a lot of employees are going to hear a lot of things that they may not wish – none of which is helpful. Moreover, I have to question the benefit of requiring an employer to enumerate its reasons for termination where cause is not alleged – such reasons are not relevant to the severance analysis and are simply an invitation for the employee to attempt to dispute the bona fides of the reasons for termination when the law is clear employers are permitted to terminate without cause.
For example, suppose that the employer in this case had told Mr Krmpotic that the reason he was being terminated was because the employer believed he was unable to perform the duties he had previously. Now what? Does Mr Krmpotic dispute that fact and say “watch this?” It doesn’t matter- he is not afforded the right to correct his employer’s belief. There’s no right to reinstatement. At Ontario law, if one’s employer wants you gone, then, subject to a very few prohibited reasons, the employer has the right to let the employee go.
Or take the far more common reason for termination: the employer does not believe that the employee is performing to the employer’s standards. I’ve never met an employee who has agreed with such assessment. But, absent an allegation of cause for termination, there is no reason to litigate such assessment. Even if the employee could convince the employer that he is, in fact, a great employee, that does not guarantee security of employment. And believe me, an employee who hears that his employment is being terminated because his employer believes he’s not a good employee is going to want to dispute that fact.
Why would the court insist on introducing such acrimony where there is no benefit?
In this case, the employer told the employee that he was being let go for “financial reasons.” Was that entirely honest? No. Apparently not. But, was it better than saying, “because we no longer like you”? It certainly sits better with me- and if I was looking for new work, I would much prefer my former employer’s party line to be that it had to let me go for its own financial reasons than because it believed I was no good at my job. I can tell you which one is the better reference.
In the employment-law realm, my understanding was always that where the employer did not allege cause for termination, and the employee did not allege that the reason for termination was, in fact, statutorily prohibited, then the employer’s actual motivation or reason for termination was somewhat irrelevant and therefore was not required to be disclosed to the employee. If the courts are now saying that all employees must be provided with the honest answer as to why their employment is being terminated, then there are going to be a lot of hurt feelings out there. Because sometimes it’s not me, it’s you- or at least my perception of you- that causes the breakup. But does everyone actually want to hear that?
And while I am not outright endorsing the use of “white lies” to protect employees’ egos, I am questioning the value in having employers excoriate employees terminated without cause when silence would often appear to be the better answer.
Second, and with respect to damages, I am having a hard time seeing how Mr Krmpotic’s reaction was not simply an extreme case of hurt feelings. The finding was clear that Mr Krmpotic had not established, through medical evidence, that he had suffered a diagnosable psychological injury.
If we start removing adjectives from that finding, we start to see one concern with the court’s decision:
- Mr Krmpotic had not established, through medical evidence, that he had suffered a diagnosable psychological injury.
- Mr Krmpotic had not established, through medical evidence, that he had suffered a diagnosable injury.
- Mr Krmpotic had not established, through medical evidence, that he had suffered an injury.
- Mr Krmpotic had not established that he had suffered an injury.
If Mr Krmpotic had not established that he had suffered an injury, then why is the court awarding him damages that, heretofore, were to be awarded for compensable injury?
If the court believed that the employers’ behaviour in this case was worthy of judicial punishment- and maybe it was- then perhaps punitive damages ought to have been awarded, but to characterize such damages as “aggravated/moral damages” and then say that such damages can lie on a spectrum appears, at least to me, to be a distortion of what the Supreme Court intended in Keays.
In the oft-cited paragraph 59 of the Court’s reasons for decision in Keays, the majority wrote the following:
[59] To be perfectly clear, I will conclude this analysis of our jurisprudence by saying that there is no reason to retain the distinction between “true aggravated damages” resulting from a separate cause of action and moral damages resulting from conduct in the manner of termination. Damages attributable to conduct in the manner of dismissal are always to be awarded under the Hadley principle. Moreover, in cases where damages are awarded, no extension of the notice period is to be used to determine the proper amount to be paid. The amount is to be fixed according to the same principles and in the same way as in all other cases dealing with moral damages. Thus, if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages. Examples of conduct in dismissal resulting in compensable damages are attacking the employee’s reputation by declarations made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right, permanent status for instance (see also the examples in Wallace, at paras. 99‑100).
Again, the basis for awarding such damages had to not only be simple dishonesty, but what I would describe as “malevolent dishonesty” where the employer misrepresents the reason for dismissal in an attempt to procure a benefit for itself. For example, alleging cause for termination so as to limit its severance exposure when it knows or ought to know that cause does not exist – that’s malevolent dishonesty, as compared to “benevolent dishonesty” where the employer declines to disclose to the employee that several people simply don’t like him.
Second, the whole point of Keays was to move away from awarding aggravated damages by extending notice periods, which served to disproportionately favour those with higher incomes, to awarding actual, compensable damages for injury.
The Court in Keays left the door open to awarding damages in the absence of injury through punitive damages awards, writing:
[62] In Vorvis, McIntyre J., for the majority, held that punitive damages are recoverable provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong”. This position stood until 2002 when my colleague Binnie J., writing for the majority, dealt comprehensively with the issue of punitive damages in the context of the Whiten case. He specified that an “actionable wrong” within the Vorvis rule does not require an independent tort and that a breach of the contractual duty of good faith can qualify as an independent wrong. Binnie J. concluded, at para. 82, that “[a]n independent actionable wrong is required, but it can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation.” In the case at hand, the trial judge and the Court of Appeal concluded that Honda’s “discriminatory conduct” amounted to an independent actionable wrong for the purposes of allocating punitive damages. This being said, there is no need to discuss the concept of “actionable wrong” here; this was done in Whiten. What matters here is that there was no basis for the judge’s decision on the facts. I will therefore examine the facts and determine why punitive damages were not well justified according to the criteria in Whiten. I will also discuss the need to avoid duplication in damage awards. Damages for conduct in the manner of dismissal are compensatory; punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. This distinction must guide judges in their analysis.
Correct. Aggravated damages are compensable damages for injury, and punitive damages are punishment for bad behaviour.
The Court further underlines this distinction where it writes, “when allocating punitive damages, must focus on the defendant’s misconduct, not on the plaintiff’s loss.”
My sense is that the trial judge erred by essentially squishing aggravated and punitive damages together and then awarding what may have more properly been described as punitive damages as aggravated damages, and then the Court of Appeal aggravated that error by not only endorsing the idea that such damages were compensable aggravated damages, but by expanding the category of cases in which such damages can be awarded to include cases where no diagnosable psychological injury exists.
Takeaways for Employers
The takeaway for employers from this case is to perhaps be more forthcoming in your termination letters, even where cause for termination is not alleged. At the very least, if you’re going to say anything about the reason for termination what you say must be truthful, even if a benevolent lie might be beneficial. Although, and at the same time, be careful not to be “unduly insensitive.”
Takeaways for Employees
This case is undoubtedly a win for employees and the lawyers that represent them. This case opens the door to an expanded category of cases in which one can claim aggravated damages. And the barrier to proving such damages has been lowered now that evidence from a treating health care professional may not be strictly necessary.
Contact Me
Regardless of which side of the termination on which you find yourself, I can assist.
Employers, I can assist you in assessing what a fair and proper severance package should look like and provide the necessary documentation to properly paper over the confirmation of termination. I can also provide scripts and templates for how to deliver the news.
Employees, if you have been terminated from your position, let’s discuss how to maximize your recovery and how this decision can be leveraged to obtain a more favourable severance package for you.
Because:
Sean Bawden is Experience. At Work.
I am an experienced employment lawyer and wrongful dismissal lawyer practicing with Kelly Santini LLP, which is based in Ottawa. I have appeared in courtrooms across Ontario from Stratford, to L’Orignal, to Thunder Bay.
For 2.5 years I was in-house legal counsel providing employment law advice to one of Canada’s largest corporations and appeared in labour courts and tribunals literally the world over.
I have also taught as a part-time professor at Algonquin College teaching Employment Law. I have previously also taught Trial Advocacy for Paralegals and Small Claims Court Practice.
I can be reached by email at sbawden@kellysantini.com or by phone at 613.238.6321 x233.
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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.
Hi Sean, Thanks for the informative post!
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