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Punitive Damages In Employment

Punitive damages are monetary compensation awarded to plaintiffs to deter potential wrongdoers from egregious conduct.  

Punitive Damages concern the defendant’s conduct, not the plaintiff’s loss. In other words, punitive damages awards are not “compensatory”. Instead, punitive damages are meant to punish the defendant in rare cases where the defendant’s conduct has been “malicious, oppressive and high-handed” (see McCabe v. Roman Catholic Episcopal Corporation, 2019 ONCA 213 (CanLII)).

On the contrary, normal damages, in the ordinary sense, are a remedy in the form of money paid to a plaintiff as compensation for a loss. For example, if you get fired from work without reasonable notice, you sue for damages to compensate you for your loss of income over the reasonable notice period. 

In exceptional cases, an individual can sue for normal damages and punitive damages. For instance, if you get fired from work without reasonable notice, and your boss treated you especially maliciously, you might sue for normal damages for your loss of income plus punitive damages for the misconduct in the way you were terminated.  

Still, it is important to stress that punitive damages are only awarded in rare cases where the defendant’s conduct was legitimately egregious. In my estimation, 99% of wrongful dismissal cases will award no punitive damages. 

Just because someone did something wrong does not mean punitive damages ought to be awarded. Punitive damages are only awarded if the defendant’s behaviour presents a “marked departure from the ordinary standards of decent behaviour”. For instance, if you were fired from work because you got in an argument with your boss, generally your only entitlements are compensation for the loss of your income over the notice period. Your former employer isn’t liable to pay you punitive damages just because there was a heated dispute unless it treated you especially insidiously. And even then, it is difficult to prove punitive damages.  

Courts only award punitive damages in remarkable cases. Punitive damages are an extraordinary remedy that are restricted to cases where an employer’s conduct is so malicious and outrageous that it is deserving of punishment.

Punitive damages are only to be awarded where normal compensatory damages are insufficient to accomplish the objective of retribution, deterrence and denunciation. 

Punitive Damages And Wrongful Dismissal

Many people think that all terminations can attract punitive damages. However, this is false. 

In Canada, individuals have no right to their job. They can be terminated by their employer for any reason (except discrimination). Generally, the only job-protection Canadians have is the right to some amount of notice of termination (i.e. severance). If the employer fails to provide a dismissed employee enough notice, it is a wrongful dismissal. It is not a wrongful dismissal if the employer is simply arbitrary in choosing to terminate an employee.

To that effect, in most terminations, an employer can “unfairly” terminate an employee so long as it provides them with an appropriate amount of severance. Yes, an employee can launch a wrongful dismissal lawsuit, suing for more severance, but they can’t (successfully) sue for punitive damages just because they think their termination was undeserved.

Nevertheless, the confusion between damages for wrongful dismissal and punitive damages in a wrongful dismissal case is unsurprising, given that both claims concern conduct at the time of dismissal. As discussed above, punitive damages are not awarded for wrongful dismissal (i.e. failure to pay enough severance) – they are awarded for grievous conduct in the dismissal. Here is an example to get the message across: 

If Widget Corp doesn’t like the colour of your hat, they can fire you. There is nothing wrongful about that. As long as Widget Corp goes about it with common decency, and provides you with a reasonable severance package, you cannot successfully sue Widget Corp for punitive damages. 

However, if Widget Corp makes up a lie that you stole from the cash register just so they can terminate you for cause so they don’t have to pay you a large severance, then you can sue Widget Corp for severance and punitive damages. Widget Corp’s deceit and high-handed decision to concoct a lie about you just to get out of paying your severance is egregious, and they should have to pay punitive damages. 

Thus, in summary, in employment law, normal damages are damages that are quantifiable by loss, like severance. Punitive damages, on the other hand, are some amount of money that doesn’t compensate an employee for a loss; instead, it is money to punish and deter egregious conduct in the way the employer treated the employee. 

How To Prove Punitive Damages

Peter M Neumann and Jeffrey Sack write in the eText on Wrongful Dismissal and Employment Law, 2012 CanLIIDocs 1 that to obtain an award of punitive damages in a wrongful dismissal lawsuit, a plaintiff must meet three requirements:

  1. The defendant’s conduct is reprehensible: in the words of Justice Binnie in Whiten v. Pilot Insurance Co., “malicious, oppressive and high-handed” and “a marked departure from ordinary standards of decent behaviour”;
  2. The defendant committed an “actionable wrong” independent of the underlying claim for damages for [wrongful dismissal]; and
  3. A punitive damages award, when added to any compensatory award, is rationally required to punish the defendant and to meet the objectives of retribution, deterrence and denunciation.

With respect to the second requirement, an employer’s failure to uphold the common law obligation of “good faith and fair dealing” in the manner of dismissal has been held to constitute an “actionable wrong”. This is the most common “actionable wrong” plaintiffs rely on when they sue for punitive damages in Ontario.

How To Calculate  

In Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), [2002] 1 SCR 595, the Supreme Court of Canada provided guidance on the formula for calculating punitive damages. The Court held that to determine the amount of punitive damages an employer is liable to pay, the key issue is the principle of proportionality.  

Punitive damages must be assessed in an amount reasonably proportionate to such factors as the harm caused, the size of the employer, the degree of the misconduct, the relative vulnerability of the plaintiff and any advantage or profit gained by the defendant. 

Punitive damages are to be awarded in an amount that is no greater than necessary to rationally accomplish their purpose of retribution, deterrence, and denunciation. To that effect, moderate awards of punitive damages, which inevitably carry a stigma in the broader community, are generally sufficient.  

Lastly, courts should review the jurisprudence for guidance on punitive damages in analogous cases. For example, if one case awarded $500,000 in an especially heinous case against a large multi-national employer, a court should award something far less if the facts are less serious case and it is a small company.

Examples of Punitive Damages

There is no exhaustive list of the types of employer conduct that attracts punitive damages. In Ontario, the Courts have awarded punitive damages in several cases, including: 

  1. Wal-Mart was ordered to pay punitive damages because of a manager’s bullying and harassment. The plaintiff’s manager had for months humiliated and abused her in an effort to get to her to resign.  Boucher v. Wal-Mart Canada Corp., 2014 ONCA 419 (CanLII).
  2. Wal-Mart was again ordered to pay punitive damages for deciding to terminate the employee but insensitively withholding that information for about ten months, leaving the plaintiff to drift in limbo all that time. Galea v. Wal-Mart Canada Corp., 2017 ONSC 245 (CanLII)
  3. A court awarded punitive damages where the defendant asserted just cause when there was no reasonable basis for such an assertion, delayed in providing the plaintiff with his record of employment (ROE) and significantly delayed in paying even the minimum amounts owing under the Employment Standards Act, 2000Morison v Ergo-Industrial Seating Systems Inc., 2016 ONSC 6725 (CanLII)
  4. The plaintiff suffered from workplace stress. The plaintiff lodged a workplace complaint, attributing some of his stress to his manager’s management style. In turn, the manager became vindictive, persisting in trying to concoct just cause for termination against the sick and much older plaintiff in retaliation. Finally, the manager created a bogus reason to fire the plaintiff for cause. In the result, the court awarded punitive damages based on the meritless allegations of cause for dismissal, which carried with them the shame of dishonesty against an employee who had shown long-term loyalty to the company at a time when he was the most vulnerable. Bailey v Service Corporation International (Canada) ULC, 2018 BCSC 235 (CanLII)
  5. The court awarded punitive damages where the employer threatened during the termination meeting that if the employee sued for severance, the employer would counter-sue for almost two million dollars based on a bogus allegation of fraud. Ruston v. Keddco MFG. (2011) Ltd., 2019 ONCA 125 (CanLII)
  6. The court held that punitive damages were warranted in the circumstances when the employer made very serious, but un-investigated and unfounded allegations of fraud, which were suspiciously only raised in response to the lawsuit being commenced. Budge v Dickie Moore Rental Inc, 2017 CanLII 468 (ON SCSM).
  7. A court awarded punitive damages after the employer fired an employee for cause following a botched workplace investigation. It was determined the outcome of the investigation was already planned: the termination of the employee’s employment. Barry v Certified Equipment Sales Services and Rental Ltd., 2017 CanLII 77433 (ON SCSM).

Mental Stress? 

Punitive Damages are not the same thing as damages for mental distress. Damages for mental distress are normal compensatory damages. The purpose of an award of mental distress damages is to compensate the plaintiff for his or her mental distress relating to the manner of dismissal. On the contrary, in awarding punitive damages, a court focuses on punishing the defendant’s wrongful acts “that are so malicious and outrageous that they are deserving of punishment on their own.”

Thus, an individual can sue an employer whose bad faith treatment caused them great stress for damages for mental distress and punitive damages. In addition, such an employee would likely be entitled to damages for constructive dismissal.