January 23, 2012

The Debate Over Moral Damages Continues

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Since Honda v. Keays, employment law and human resources practitioners have been watching how the law regarding bad faith dismissals has developed, in particular, the assessment of moral damages. A recently published decision from the Federal Court of Canada has added some further clarity to the moral damages question. Canada (Attorney General) v. Tipple (2011) dealt with the well known case of Douglas Tipple.

To summarize, Tipple was a successful private sector executive who was hired by the Federal Department of Public Works and Government Service Canada (PWGSC). Less than a year after Tipple was hired, he and one of his colleagues travelled to Britain to engage in a number of official meetings. They missed a number of the meetings, and the Globe and Mail published a series of articles that were critical of the trip, suggesting it was unnecessary, a waste of tax dollars and that Tipple and his colleague had not properly carried out their duties while on the trip.

An investigation by the department found that Tipple had done no wrong and that the missed meetings were the result of miscommunications between other departments. However officials at the PWGSC also refused to allow Tipple to correct the record. Shortly thereafter, Tipple was laid off, with PWGSC relying on a clause in his contract that allowed the department to lay him off if his work was “completed sooner than expected.” Tipple’s work was ahead of schedule.

However, the Parliamentary Secretary to the Public Works Minister later suggested that Tipple had been let go as a means of holding him accountable for the trip to Britain.

Tipple filed a grievance pursuant to the Public Service Labour Relations Act. The adjudicator who heard the case awarded Tipple approximately $960,000 (including interest) for lost wages, performance bonuses and benefits on the basis that official reasons given were intended to hide the real justification for the termination—reprisal.

Interestingly, the adjudicator also awarded further amounts pursuant to Honda. Tipple was awarded $125,000 because the termination had been conducted in a bad faith manner. The Adjudicator stated:

[The employer] acted in a disingenuous and callous manner in terminating Mr. Tipple’s employment.  The evidence shows that Mr. Marshall had lulled Mr. Tipple into a false sense of security.  I find that such conduct was unfair or was in bad faith by being untruthful, misleading and unduly insensitive to Mr. Tipple.

Tipple testified that the dismissal had caused him to suffer from “lack of confidence, hurt feelings, low self-esteem, humiliation, stress, anxiety and a feeling of betrayal.” The adjudicator found that these personal and mental health effects justified the award of moral damages.

The adjudicator also awarded damages in the amount of $250,000 for loss of reputation.

The Federal Government appealed both the awards for moral damages and for damage to reputation. The Federal Court did not completely eliminate the $125,000 award, but it did remit the matter back to the adjudicator to “reconsider and reduce” the amount.  The Court held that the amount was “significant” and was approximately triple previous awards for psychological injury relating to bad faith behaviour.

In particular, the Court found that the award was not reasonable based on the evidence presented. The adjudicator had failed to explain the basis for his arriving at $125,000; had relied solely on Tipple’s testimony with regard to the damage; and there was no indication in the decision that the psychological injury was “significant, long lasting, and ongoing.” As such, the Federal Court ruled that the amount was to be reduced and reconsidered by the adjudicator.

This ruling is significant in that it sets out some guidelines, and also clearly creates an implied range for the assessment of moral damages.

Based on the comments of the Federal Court, employers can conclude that a risk for moral damages will be present where bad faith behaviour is present, even if there is an absence of any long-lasting psychological injury. Further, it can be expected that such damages could fall in the range of $20,000–45,000.

However, this area of the law is still emerging and there will likely be much uncertainty associated with it until we have a sufficient number of cases from appeal courts in a majority of jurisdictions.

Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.