Experiments with ill-advised methods of dismissal can lead to six-figure damages
Exclusive to Canadian HR Reporter from Rudner Law.
In 2024, employers would be well advised to take notice that they are operating in a pro-employee era, and act accordingly.
Taylor Swift has some sage advice that employers need to keep in mind when dealing with employees, particularly in their approach to dismissals:
“The scandal was contained
The bullet had just grazed
At all costs, keep your good name.”
I could not help listening to these lyrics and imagining their application to a dismissal gone wrong. Even if the scandal was contained, what was the cost of dodging a bullet, both financially, and to the employer’s good name (or goodwill)?
We see countless situations where employers expose themselves to liability because they didn’t approach a termination strategically. Sometimes, they dodge a bullet with relatively little damage done, especially after we get involved; costs can be contained to legal fees, a confidential separation agreement, and a whole lot of stress.
Other times, employers do not dodge a bullet, and their experiments with ill-advised methods of dismissal create a monster in the form of six-figure wrongful dismissal damages. Thus, employers need to know: what is the cost of not dodging a bullet?
Scarrow v. Walkley decision
The Superior Court of Justice answers that question with a bang in their recent decision, Scarrow v. Walkey et al 2024 ONSC 3876. The Court ordered Walkey and his companies, all common employers of the plaintiff (collectively, “Walkey”), to pay Scarrow a total of $434,980 in damages for constructive dismissal. This sum represents damages for:
- reasonable notice
- unpaid wages
- a retirement allowance
- aggravated damages
- punitive damages.
In brief, Walkey unilaterally laid off Scarrow. While he was “laid off,” Walkey had Scarrow do unpaid work. He then suggested he accept illegal payment arrangements as a condition for his return. Scarrow declined the offer and sued for constructive dismissal. Since Walkey failed to defend the action, Scarrow’s allegations were accepted as admissions of fact.
Walkey made crucial mistakes throughout this case, creating a monster that bit back and exacted a heavy price. The first mistake was not implementing a written employment agreement, despite employing Scarrow since 1979. He also promised him a retirement allowance in exchange for no future salary increases and what amounted to a cut in pay (no more free housing), but failed to put that in writing and subject it to any terms that could have reduced the compensation owed during the notice period.
Instead, there was an oral agreement that Scarrow recorded in his diary, which the Court enforced. In that regard, the Court found an implied term that the allowance was payable upon termination without cause.
Bad faith with dismissal
Walkey acted in bad faith when dismissing Scarrow, another key mistake. He unlawfully laid him off, then had him work without pay before asking him to return on the condition that he accept illegal payment arrangements.
He also never provided proper notice, and refused to pay him his statutory entitlements, violating the Employment Standards Act, 2000 (ESA).
Lastly, Walkey refused to pay the retirement allowance, which was an inducement for Scarrow to work at very low pay for years. The Court found that this conduct also constituted grounds for punitive damages.
The Court found that Scarrow was entitled to:
- 24 months of pay in lieu of notice ($109,980)
- the retirement allowance of $250,000
- one month of unpaid wages ($5,000)
- $50,000 in aggravated damages
- $20,000 in punitive damages
- Costs to be determined.
Not only did Walkey cost himself and his companies almost half a million dollars, but he lost his good name; Scarrow testified that he used to look up to Walkey, but that he left him feeling betrayed. There is now a public record of this decision, including everything that Walkey did.
Don’t be a precedent: Keep your good name
HR counsel could have saved Walkey a lot of grief. Though it’s too late for him, HR counsel can help you draft employment agreements and incentive plans that limit employees’ entitlements upon dismissal, give you the right to place employees on temporary layoff, and make other changes to the terms and conditions of employment without triggering a constructive dismissal.
Perhaps just as importantly, counsel can help you avoid becoming a precedent. Some notable companies are forever linked to landmark employment law decisions addressing wrongful dismissals and employer misconduct, such as Honda Canada Inc v Keays, and Boucher v Wal-Mart Canada Corp.
Moreover, HR counsel can assist you in managing the employment relationship, which must always be approached as a legal relationship, and to approach any dismissal strategically. While the egregious acts in this cautionary tale are a bit unusual, employers often unwittingly act in bad faith, exposing themselves to reputational and financial harm.
For example, they may walk out a dismissed employee for no reason, or fail to pay the employee their ESA entitlements and provide a Record of Employment. On that point, it is a mistake to hold off on addressing those items while negotiations are ongoing.
By working with counsel, employers can rest assured knowing that they are approaching key aspects of the employment relationship, such as contracts and dismissals, in a way that will not create a proverbial monster. In an era in which wrongful dismissal and associated damages are going up, the importance of properly implementing employment agreements and terminations cannot be overstated.
David Gelles is an associate at Rudner Law in Toronto. He can be reached at (416) 864-8500 or [email protected].
