The Alberta Court of Appeal recently reduced one of the highest awards of extraordinary damages for wrongful dismissal ever granted in Canada.  In Elgert v. Home Hardware, an employee was terminated without notice in a distressing and high-handed manner following a questionable investigation into sexual harassment complaints. The Court found that the manner of termination warranted punitive damages, but cut down the amount awarded by the jury from $300,000 to $75,000. The Court set aside $200,000 in aggravated damages entirely, because there was no evidence that the employee had suffered any loss due to the bad faith manner of termination, beyond the damage suffered from the termination itself. The decision offers some comfort that courts will intervene to rein in unreasonably high jury awards. Even so, the punitive damages in this case remained very high.

Mr. Elgert was terminated without notice from his position as supervisor at a large Home Hardware distribution centre.  His dismissal followed allegations of sexual harassment involving his supervisor’s daughter, Christa Bernier, and one of her friends. The evidence suggested that Ms. Bernier, who worked under Mr. Elgert’s supervision, resented him for personal reasons.  She told her father a story about Mr. Elgert assaulting her. She also repeated the story to coworkers, including a friend who described a similar incident with Mr. Elgert.  Neither Ms. Bernier nor the friend ever filed formal complaints.  However, word spread to two senior managers at Home Hardware, Don Kirck and Stew Gingrich, both close friends of Ms. Bernier’s father.

Mr. Kirck led the investigation, despite having limited experience investigating sexual harassment complaints. He suspended Mr. Elgert within a day, in a deeply upsetting meeting.  Mr. Elgert testified that he was crying and begging to know what he stood accused of doing.  Mr. Kirck refused to tell him and had him escorted from the building. The evidence suggested that Mr. Kirck had already made up his mind that Mr. Elgert was guilty.  Mr. Elgert was not informed of the allegations against him until ten days later, when Mr. Gingrich asked to meet with him.  Mr. Gingrich refused to let him bring a lawyer, in hopes of getting a confession. After Mr. Elgert turned down the meeting, he was terminated for cause.  He sued Home Hardware for wrongful dismissal, and Ms. Bernier and her friend for defamation.

At trial, the jury concluded that Mr. Elgert had been wrongfully dismissed and he was awarded 24 months’ salary in lieu of notice for wrongful dismissal, $200,000 in aggravated damages, and $300,000 in punitive damages.  The jury also awarded him $60,000 against Ms. Bernier and her friend for defamation.

The Alberta Court of Appeal’s Decision

The main questions before the Court was the appropriateness and the size of the jury award for aggravated and punitive damages.

In a 2-1 decision, the Court held that the question of aggravated damages should not have been left with the jury because such damages are only to be awarded to compensate for actual damages suffered from the manner rather than the fact of termination.  While there was evidence that Mr. Elgert had been dismissed in an unfair or bad faith manner, there was no proof of actual damage from the manner of his termination.  His distress and loss of income related to the fact of the termination alone.

In contrast, the Court noted that punitive damages are awarded to punish the employer’s misconduct rather than to compensate the employee.  As the Supreme Court of Canada has made clear, punitive damages are to be awarded only in exceptional cases, and only when the employer’s conduct amounts to an “independent actionable wrong” beyond the wrongful dismissal.  The majority of the Court cautioned that employers should not be punished for honestly believing an allegation of sexual harassment that turns out to be untrue, nor for carrying on a clumsy investigation. There is no specific standard that an employer must follow, and courts “must not require such a high standard of investigation that there is a chilling effect on employers’ manner of dealing with allegations of sexual harassment.”  That said, the majority still found that there was enough evidence of outrageous conduct to leave the question of punitive damages with the jury.

The $300,000 punitive damage award, however, was considered to be too high, and went beyond what was necessary to punish Home Hardware. The majority noted that “[a]ppellate courts can be more interventionist as regards punitive damages than other jury awards.” A review of punitive damages in other cases of wrongful dismissal showed that the awards were generally under $100,000.

In the result, the punitive damage award was lowered to $75,000, and the award of aggravated damages was set aside entirely.  Madam Justice Conrad, dissenting, would have lowered the jury award to $150,000 of punitive and $30,000 of aggravated damages. The Court also upheld the award against Ms. Bernier and her friend for defamation.  Ms. Bernier and her friend lied about the sexual harassment maliciously to coworkers and superiors, in a small town in which the rumours hurt Mr. Elgert’s prospects for re-employment.  The $60,000 award was considered to be high relative to awards in past cases, but was not seen as unreasonable.

Our Views

This case holds both good news and bad news for employers.

The good news is the Court’s willingness to interfere with a jury award of extraordinary damages, both to set it aside for being unsupported by evidence, and to bring an unreasonably high amount in line with past cases. This conservative approach provides some comfort that courts will not allow juries to award the extravagant punitive damages often seen in the United States.  The Court also stressed the need to give employers room for serious responses to sexual harassment complaints, without fear of facing extraordinary damages later.

The bad news is that the awards are still at the upper end of the range such that this case remains one of the highest awards of punitive damages for wrongful dismissal in Canada and may serve as a data point to nudge up the range of damages available in future cases.  Further, the Court’s decision does not provide any new guidance regarding the vague concept of conduct by an employer amounting to an “independent actionable wrong” that would warrant an award of punitive damages.  It is hoped that such clarification will be forthcoming in future decisions.