Canadian employers face increased risk of litigation for workplace discrimination and harassment

Introduction
Regulatory compliance and administrative proceedings in Canada
Civil litigation: workplace discrimination and harassment
Recent legal developments
Other factors contributing to an increase in employment litigation
Comment

Introduction

Alongside recent social and political developments relating to equity, diversity and inclusion – #MeToo, calls for racial justice and Indigenous reconciliation, an increasing focus on environmental, social and governance (ESG) – the legal landscape in Canada relating to workplace discrimination and harassment appears to be changing.

Historically, workplace protections relating to human rights have been established and enforced through legislation and government regulation. Employers had limited common law obligations to protect employees from harassment and other acts in the workplace that might cause mental suffering.(1) This compliance-based, administrative approach to human rights limited employers' exposure to significant damage awards, reputational harm and employee class actions.

In the past few years, wrongful dismissal actions, mental distress claims and class actions based on discrimination and harassment have become more common, and the damages recovered by employees have increased significantly.

This article focuses on this changing landscape, and in particular, on trends that increase employers' civil litigation risk. This legal development is important as organisations consider their approach to ESG standards relating to inclusion, equity and diversity. The potential for employment litigation significantly increases the operational, reputational and financial costs for employers who do not have effective systems to protect employees from discrimination and harassment.

Regulatory compliance and administrative proceedings in Canada

A brief history of Canadian discrimination and harassment laws is below.

Workplace human rights regulations were first introduced in Canada in the 1960s. Since then, an employer's duty to protect employees from discrimination and harassment, and make equitable workplace decisions, has been enforced primarily through statutory compliance and administrative proceedings, rather than civil litigation or class actions.

Human rights laws require employers to create and maintain a workplace environment free from discrimination and harassment. If an employer fails to comply with their statutory obligations, the human rights tribunal may order remedial measures, which includes monetary awards to individual employees for lost wages and injury to dignity. Individual damage awards in a human rights claim average about C$25,000. Some jurisdictions have legislated limitations on damages; for example, the federal Canadian Human Rights Act sets a maximum award of C$20,000 for pain and suffering.(2)

Since 2009, certain jurisdictions in Canada have amended occupational health and safety (OHS) laws to require employers to prevent and investigate workplace violence, bullying and harassment.(3) An employer's failure to comply carries serious financial and reputational consequences, including administrative fines, criminal prosecution and remedial orders. However, individual employees rarely receive monetary awards or damages through OHS proceedings. Their right to recover compensation is limited to filing a claim under workers' compensation legislation, which permits recovery for a mental disorder caused by bullying or harassment, or other substantial work-related stressors.

Investigations and complaints of workplace harassment addressed in OHS and human rights administrative processes are usually confidential until a final decision has been made. There are no searchable databases of complaints filed or ongoing investigations. If an employer reaches a confidential settlement, the fact that a harassment complaint was filed is not known to the public (one province, Prince Edward Island, became a notable exception in 2021).(4)

Civil litigation: workplace discrimination and harassment

Until recently, employees had limited recourse in court for workplace discrimination and harassment.

In 1981, the Supreme Court of Canada held that human rights legislation provides a comprehensive scheme for the treatment of claims of discrimination, and a breach of this legislation is not an actionable wrong.(5)

Canadian courts also declined to recognise a tort relating to workplace harassment. Employers do not have a general duty to shield employees from acts in the workplace that might cause mental suffering, including harassment.(6) In 2008, the court was asked to recognise a tort of harassment but declined to do so based on the facts of the case.(7)

Employees who experience workplace harassment can claim constructive dismissal. It is an implied term of every employment contract that an employer will treat an employee with civility, decency, respect and dignity. If the employer's conduct made employment intolerable, and the conduct demonstrated that the employer intended not to be bound by the contract, the employee could resign and seek damages for wrongful dismissal. The damages compensated the employee for pay in lieu of reasonable notice of termination, and additional damages for mental distress.(8)

The court's approach deterred class action lawsuits based on workplace discrimination and harassment. It also limited the remedies, to those available under human rights legislation (which, under some statutes, is capped), or contractual damages based on the length of reasonable notice of termination and the employee's ability to prove serious mental distress.(9)

There is now conflicting judicial authority on employees' rights to pursue workplace discrimination claims, detailed below. The magnitude of damages employees can recover for workplace harassment is increasing, which creates a greater incentive for employees to pursue litigation. In addition, a 2020 Supreme Court of Canada decision potentially opened the door to worker claims that reach beyond contract law and human rights legislation.

Recent legal developments

There are three notable developments in Canadian case law that increase employers' civil litigation risk relating to discrimination and harassment:

• The BC courts have recognised concurrent jurisdiction between the courts and human rights tribunals where there is an express contractual commitment to protect employees from discrimination and harassment.(10)

• The damages awarded to employees for workplace discrimination and harassment have increased.

• Workers have the right to enforce customary international human rights laws, which extends employers' liability for human rights beyond breach of contract or Canadian tort laws.

Any one of these developments would, on their own, be reason to anticipate an upward trend in employment litigation relating to discrimination and harassment.

Express contractual liability
The first development is the expansion of employees' right to pursue civil litigation for discrimination and harassment.

As noted above, the Supreme Court's 1981 Seneca College decision required employees to apply to the human rights tribunal to remedy workplace discrimination or harassment. A number of recent judicial decisions in British Columbia have opened the door for employees to pursue a claim based on contract law.

These cases have held that the Court has concurrent jurisdiction to adjudicate harassment and discrimination claims if the employer has an express contractual obligation to protect employees from discrimination and harassment.(11)

As the British Columbia Supreme Court recently concluded:

Allegations of harassment or sexually inappropriate conduct in the workplace could be the subject of a complaint before the Human Rights Tribunal. It does not necessarily follow, however, that those same facts could not also give rise to a claim before this court if the conduct complained of is also a breach of the employment contract. That is, a continuum of sexually inappropriate conduct that includes but goes beyond harassment could be both contrary to human rights legislation and a breach of the terms of the employment contract.(12)

These cases all involved preliminary applications, where the issue was whether the employees' allegations relating to discrimination and harassment could be struck. It remains to be seen whether the employees will succeed in demonstrating that the employers breached their obligations, and if so, what remedies are awarded to the employees. It is, however, important to take note of these decisions, because they potentially expand liability beyond compliance with human rights legislation.

These decisions potentially impact the liability of all Canadian employers. Creating policies and processes for addressing workplace harassment is not voluntary. As noted above, to comply with human rights and OHS laws, all employers in Canada are required to establish policies and systems for addressing workplace harassment.

These policies are referenced in employment agreements, so that employers can enforce them against managers and other employees who fail to respect workplace safety and human rights. The employer's ability to enforce these policies is necessary to demonstrate due diligence in complying with laws relating to workplace discrimination and harassment.

In recent years – in the wake of the pandemic, calls for social justice and ESG compliance – a number of organisations have increased their commitments to workplace mental health, wellness and equity. To improve employee retention and engagement, as well as assure investors and lenders of their ESG plans, many Canadian companies have committed to standards and processes that exceed basic regulatory compliance.(13)

Under the recent BC decisions, employees have a right to rely on and enforce these policies in court. It would be inconsistent for an employer to rely on contractual employment terms relating to discrimination and harassment to enforce discipline, sanction employees and justify cause for dismissal, and also argue that employees cannot rely on these terms.(14)

In light of these decisions, it is important for employers to ensure that they have adequate systems and processes in place to comply with their equity, diversity and inclusion policies to reduce the risk of individual litigation and class action lawsuits for breach of contract.

Damage awards are more significant
The second development is the increase in court-awarded damages for workplace harassment, which increases the likelihood that employees will commence civil litigation.

The monetary damages awarded in employment litigation have, historically, not been significantly greater than the monetary remedies granted by human rights tribunals. An employee's contract damages are for payment in lieu of notice, plus additional damages for mental distress caused by the employer's conduct at the time of dismissal. The employees' claim for pay in lieu of notice could be limited by a contractual limitation clause. Employees could seek the same or similar remedies from the human rights tribunal, including lost wages and general damages for injury to dignity.

Historically, the range of damages awarded was between C$500 and C$15,000 and between C$25,000 and C$40,000 in exceptional cases (15) Recently, the courts have been prepared to award more substantial damages to employees who experience harassment at work.

In 2021, the Ontario Court confirmed that contractual limitations on termination are unenforceable if the employee has been subject to harassment. The employer's conduct, including subjecting the employee to a toxic workplace, were of such a magnitude that the employer was disentitled from relying on a termination clause that limited the employees' damages for without cause termination.(16)

In addition, employees have been awarded increasingly significant aggravated and punitive damages. In one exceptional 2022 case, a jury awarded a former employee C$1.5 million in punitive damages – the largest punitive damages award in Canadian history – as well as C$40,000 in aggravated damages, for an insurer's denial of long-term disability benefits. This decision has the potential to increase employer liability for punitive damages, if employers conduct themselves in a bad faith manner during the investigation or follow up to a discrimination or harassment complaint.

Workers' rights under customary international human rights laws
Finally, it is worthwhile noting a 2020 landmark ruling of the Supreme Court of Canada which recognised a new cause of action for workplace human rights violations.(17)

The Court recognised that the workers had an independent claim for violations of customary international human rights laws. Failing to ensure the workplace complies with customary international human rights laws is, in and of itself, actionable.

It is not yet certain to what degree the case opens the door to further tort claims by employees of Canadian companies. The facts in this case were unique, and the workers had no legal recourse in contract law or under Canadian legislation.(18)

Nonetheless, the case signals a change in the Court's reasoning and approach to workplace human rights. The Court was reluctant to expand employees' right of action 25 years ago – for example, it considered the creation of a tort of good faith "overly intrusive and a "radical shift in the law" that required legislative action.(19) In contrast, the Court permitted a class action for alleged breaches of the international law norms as an "incremental first step in the development of this area of the law", which required no legislative action.(20)

The Court's expansion of the law increases the significance of addressing global standards relating to social responsibility and governance. Canadian companies are responsible for protecting workers' human rights, even in the absence of a statutory or formal contractual commitment. Freedom from discrimination and harassment have long been considered significant human rights in Canada. With the expansion of liability to international human rights norms, it is important for organisations to develop systems and processes that meet global ESG standards and commitments relating to equity, diversity and inclusion.

Other factors contributing to an increase in employment litigation

In addition to the changes in the law described above, recent shifts in the legal process and workplace may contribute to an increase in civil proceedings over human rights complaints.

First, until recently, it has been more cost effective and efficient for employees to seek relief through a human rights complaint, than resorting to litigation.

This may no longer be the case. Over the past two years, there has been a significant backlog in most human rights tribunals. Human rights agencies and employee-side human rights laws question whether the human rights tribunal process continues to be a viable option for individuals who experience discrimination or harassment.(21)

At the same time, the courts have taken steps to simplify and streamline employee remedies. Increasingly, the courts are permitting employment litigation to be resolved through summary processes. Wrongful dismissal cases are "particularly well suited to summary judgment" as they "assist the parties in obtaining affordable access to the justice system"(22)

Second, over the past two years, employee job mobility has increased. In a competitive labour market, employees have more power to walk away from workplace conditions that are discriminatory or inequitable. This is relevant in assessing the likelihood of constructive dismissal claims. In times of economic uncertainty, it is risky for an employee to resign, and weigh the prospect of prolonged unemployment against a successful claim for damages. In a tighter labour market, employees may be more willing to resign and seek damages relating to conduct at the workplace.

Comment

Complying with human rights and anti-harassment laws is not new to Canadian organisations. Most employers already have policies and practices to address discrimination and harassment, because of longstanding statutory requirements. So, why is the potential increase in civil litigation noteworthy?

Civil litigation has significantly higher financial and operational consequences. Even with simplified court proceedings, litigation requires significantly more operational resources to gather evidence, prepare witnesses and attend hearings. As noted, the potential damage awards are significant. Finally, there is increased reputational risk. In contrast to most regulatory processes, civil claims and other pleadings filed in court proceedings are accessible by the general public at the time they are filed. Workplace harassment complaints can attract significant media attention before any decision is made, and before the parties have an opportunity to settle.

Considering the increased risks, organisations should now ask – are their policies and practices working? Can the organisation flag misconduct early? Are there systems for reporting and addressing workplace conduct that could prevent harassment and discrimination? It is more critical that organisations make the necessary investments to ensure their policies, systems and processes adequately identify, address, and respond to workplace discrimination and harassment.

For further information on this topic please contact Jillian Frank or Qasid Iqbal at KPMG Law by telephone (+1 416 777 8000​) or email ([email protected] or [email protected]). The KPMG Law website can be accessed at www.kpmg.com.