Wednesday, May 4, 2011

Altman v. Steve's Music: Moral and Punitive Damages Awarded in Ontario Wrongful Dismissal Action

A leading Canadian musical instrument retailer, Steve’s Music, has been ordered by the Ontario Superior Court to to pay more than $200,000.00 in damages, including $55,000 in moral and punitive damages, to a wrongfully terminated 59 year-old store manager with more than thirty years of service.

In Altman v. Steve's Music, a March 8, 2011 ruling by Madame Justice Katherine J. Corrick, Steve's was held liable for the wrongful dismissal of a long-term employee who had been diagnosed with lung cancer. In addition to the moral and punitive damages granted, the Plaintiff was awarded twenty-two months' salary in lieu of notice and all amounts that were outstanding under the Employment Standards Act.

After being diagnosed with lung cancer, the Plaintiff, Ms. Altman, was required to reduce her hours and to take two significant medical leaves, totalling approximately six months. Ms. Altman was terminated without reasonable notice, some 16 months following her diagnosis.

The Plaintiff was devastated by the termination and suffered a major depressive episode. The employer contended that Ms. Altman's employment had been frustrated by her illness and that she accordingly had no legal entitlement to compensation upon the termination.

The manner of the termination.

The Court took considerable exception to the manner in which the termination was conducted.

The employer did not directly communicate with Ms. Altman - rather, it outsourced the termination to its lawyers, whose handling of the matter was anything but delicate. Justice Corrick referenced pertinent passages from two letters sent by the employer's law firm to the Plaintiff for this purpose:
First Letter
We are the attorneys representing the interests of your employer Steve's Music....According to the information provided by our client, it appears that you have been remiss in your duties and obligations towards Steve's Music in failing to work minimum number of hours required by your employer from Monday to Friday . ... In view of the foregoing, we have as instructions to advise you that unless you fulfill your obligations toward your employer in full by working regular work days [sic] as stipulated by your employer's directives, Steve's Music will have no alternative but to advise you that your employment will be terminated, without further notice or delay.
Second Letter
We have as instructions from our client to advise you that in light of our correspondence addressed to both you and your attorney since October 2008 to date, as well as your application for long term disability and the fact that your position with Steve's Music, has since been abolished, Steve's Music has no obligation to reinstate you. . . . Steve's Music was full entitled to offset and deduct from your renumeration or for that matter any other sums due and owing to you, for your absenteeism, late arrivals and departures.
The first letter had caused the medically frail Ms. Altman to return to work the day immediately following receipt, for fear that if she did otherwise she would be terminated.

That would be the last day Ms. Altman worked at Steve's. Her medical needs would require her to begin a three-month medical leave immediately thereafter, which was followed by a further three-month medical leave. These leaves, apparently, were the last straws for Steve's Music.

Madame Justice Corrick's ruling addresses five issues:
  1. Does Steve's owe Ms. Altman any outstanding compensation for severance, wages, vacation, commission, bonus and deferred profit sharing plan?

  2. Was Ms. Altman's employment contract frustrated?

  3. If Ms. Altman's employment contract was not frustrated, what is the appropriate period of notice?

  4. Are moral damages for mental distress appropriate, and if so, what is the quantum?

  5. Are punitive damages appropriate, and if so, what is the quantum?
Outstanding Compensation

The Defendant took the position that it was entitled to withhold outstanding salary and substantial accumulated vacation pay from the Plaintiff, claiming set-off for overpayment. It had continued to pay Ms. Altman's full salary while she was receiving treatment for cancer and absent. It claimed a credit for these "gratuitous" payments.

Corrick J. flatly rejected the employer's position in this regard. She noted that the situations in which an employer can withhold outstanding salary and vacation pay are very narrow, indeed, and held that if Steve's genuinely believed that Ms. Altman was in arrears on account of salary, it should have cross-claimed or brought an action to recover these amounts.

Moreover, Corrick J. noted that Steve's had voluntarily made the decision to continue to pay salary to the Plaintiff while she was working at less than full-capacity; such arrangement was not contingent on Ms. Altman surrendering her other employee entitlements.

Employer's Defence of Frustration

In considering the defence of frustration put forward by Steve's Music, Corrick J. made a number of important points, each of which is worthy of specific note:
  1. Since the employer lacked medical evidence that Ms. Altman's condition was a "permanent disability" as at the date of termination (the relevant time at which the Plaintiff's disability is to be assessed) such that she would no longer be able to perform her duties at work, it could not rely on the doctrine of frustration to relieve it from its legal obligation on termination. The medical reports the Defendant sought to rely on were written more than a year after Steve's terminated Ms. Altman's employment, after Ms. Altman's cancer had spread to her brain and bones.

  2. Ms. Altman's application for long term disability benefits was not an admission by her that she had a "permanent disability" at law for the purposes of applying the doctrine of frustration of contract, even if she had met the definition of "permanent disability" as provided for in the Defendant company's Group Insurance Policy.

  3. Ms. Altman's job involved considerable paperwork. It was not a physical job entailing heavy lifting. Thus, the standard that had to be met by Steve's Music to show that Ms. Altman was physically incapable of performing her job was a high one, which it simply could not meet on the facts of the case.

  4. Despite the Defendant employer's bald assertion to the contrary, there was no evidence whatsoever that Ms. Altman had been remiss in her duties at work or that anyone was dissatisfied with her work. The fact that her cancer medically required her to work reduced hours clearly did not constitute neglect of duty.
The Period of Reasonable Notice

To determine the period of reasonable notice owed to Ms. Altman, Corrick J. turned to the oft-cited Bardal factors finding that Ms. Altman was entitled to 22 months of notice. The Court underscored that Ms. Altman's vulnerable medical state and age meant that her chances for reemployment into a comparable position were very low, and justified an extended period of notice.

Further, the long-term disability payments received by Ms. Altman during the notice period were not deductible because she, not Steve's Music, had paid the premiums, and the insurance company, not her employer, had paid the benefits.


Corrick J. found that Ms. Altman's modest job search efforts were enough to meet her duty at common law, and that Steve's has not discharged its onus of proving a failure to mitigate.

Moral Damages

In deciding whether Ms. Altman should be awarded moral damages, Corrick J. focused on the manner of termination and the actual damage that had been caused to the Plaintiff by the Defendant's misconduct in this regard.

She accepted medical evidence which demonstrated that Ms. Altman had suffered psychological distress consisting of a major depressive episode of moderate severity. The extent of the trauma suffered by Ms. Altman is revealed in Justice Corrick's reviews of the expert medical evidence adduced by the Plaintiff:
Dr. Li met Ms. Alman after she had undergone surgery, chemotherapy and radiation therapy. Dr. Brade referred Ms. Altman to Dr. Li as Ms. Altman was suffering from psychological distress. Dr. Li diagnosed her as suffering from a major depressive episode of moderate severity. In Dr. Li's opinion, this illness was precipitated by Ms. Altman's receipt by bailiff of October 7, 2008 letter from Kaufman Laramee informing her that she will be terminated if she does not work full-time hours. Dr. Li testified that this letter was more traumatic for Ms. Altman than being diagnosed with cancer or being told that her cancer could not be cured.
Dr. Li testified that Ms. Altman's depression required treatment because the presence of depression in cancer patients is very strongly co-related with poor survival, poor response to treatment, and higher mortality. . . .
Although Ms. Altman's depression remitted, her psychological distress has not abated, according to Dr. Li. Ms. Alman continues to be distressed over the conflicts she has had with her employer, which is activating her hormonal stress system and putting her health at further risk.
In deciding whether moral damages were warranted in Ms. Altman's case, Corrick J. emphasized that the employer's actions had to be viewed in the context of the employee's age, length of service, state of health and relationship with Steve's Music. The Court noted the following, justifying a significant award of moral damages:
  1. The letters, in particular the second letter, were highly insensitive and inappropriate, and did not accord with the way the law requires employers to treat employees

  2. If the correspondence was issued in error, why hadn't anyone from Steve's music contacted the Plaintiff to rectify the error?

  3. The Defendant employer could not have issued two aberrant letters in error; this defied coincidence.

  4. Given the Plaintiff's length of service and dedication to her job, which she had performed without incident, management of Steve's Music should have spoken with the Plaintiff about her termination personally, not pawned this off on their lawyers to deal with in a cavalier manner.

  5. The letters were replete with mistruths from the Defendant employer's lawyers and signified that the Defendant employer was engaged in a campaign of deceit, which campaign attempted to conceal the true reasons for the Plaintiff's termination: the fact that her health problems had made her too much of burden and liability for Steve's to bear. Her job performance and competence were beyond reproach.
Corrick J. awarded $35,000.00 under this head of damages, holding as follows:

[117] The Supreme Court of Canada’s decision in Honda Canada Inc. v. Keays,[37] confirmed its earlier ruling in Wallace v. United Grain Growers Ltd.[38] that damages resulting from the manner of dismissal will be available if the employer engages in conduct during the course of dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.”[39] The normal distress and hurt feelings resulting from dismissal from employment are not compensable.[40] The award of damages for mental distress caused by the manner of termination must reflect the actual damage caused and is meant to be compensatory in nature.

[118] In my view, Ms. Altman is entitled to moral damages...

[129] The manner of communicating termination has been held to justify damages for mental distress. In Bohemier v. Storwal International Inc. the Ontario Court of Appeal upheld an award of damages for mental distress in circumstances where an employee of 35 years was terminated by means of a cold and perfunctory letter delivered to his house by taxi on a Friday evening.

[130] Similarly, an employer’s harsh treatment of an employee known to be in difficult circumstances has been held to be the proper subject of damages for mental distress. In Rae v. Attrell Hyundai Subaru the employer sent notice of dismissal to an employee of four years by courier two weeks prior to the birth of her child. The Court of Appeal upheld the trial judge’s finding that this inexcusable conduct on the part of the employer merited a two-month increase in notice.

[131] Steve’s treatment of Ms. Altman was callous and insensitive. She was a 30-year employee who had been treated like family, and who worked for Steve’s as if she were a member of the family. She deserved to be treated better than twice having a bailiff deliver her a letter replete with mistruths from Steve’s lawyers – especially when Steve’s knew she was recovering from cancer treatment. No one in the management of Steve’s had the decency or courtesy to speak to her personally to express their dissatisfaction with the work arrangement to which they had previously agreed. I conclude that once Steve’s decided that Ms. Altman had become more of a liability than an asset to the organization because of her cancer, they abandoned her to be dealt with by their lawyers. These letters devastated Ms. Altman and caused her significant mental distress to the point of clinical depression. Ms. Altman’s mental distress has been long lasting and is ongoing.

[132] I award Ms. Altman damages in the amount of $35,000.00 as compensatory damages as a result of Steve’s breach of its duty to deal with Ms. Altman in good faith and with fairness in the manner in which they terminated her employment.

Punitive Damages

In finding that the Defendant's misconduct also called for punitive damages, Corrick J. noted the following:
  1. The employer had committed multiple violations of the Ontario Employment Standards Act, including withholding salary improperly and refusing to pay Ms. Altman's statutory minimum termination pay as set out in the Act. This constituted an independent, actionable wrong, a prerequisite for an award of punitive damages;

  2. The Defendant had roadblocked the Plaintiff's attempts to obtain long-term disability benefits long after her wrongful termination by failing to complete the Policyholder's Statement in the claim form, despite numerous attempts by Ms. Altman and others to get it to do so;

  3. The Plaintiff had to retain counsel to obtain her Record of Employment which would permit her to apply for and receive Employment Insurance Benefits; and

  4. The Defendant employer had chosen to fire Ms. Altman when her illness made her more of a liability to the business than an asset.
Corrick J. awarded $20,000.00 under this head of damages, citing the employer's "reprehensible and high-handed conduct:"
[139] Steve’s conduct must be viewed in the totality of Ms. Altman’s circumstances. In October 2008, Ms. Altman had just completed very intensive cancer treatment. Steve’s did not pay her during her medical leave, which began on October 17, 2008. In fact, Steve’s did not pay her for the hours she had worked that week. Ms. Altman had no source of income. Steve’s failure to honour its statutory obligations to pay her termination pay, to provide her with a Record of Employment to allow her to obtain Employment Insurance benefits, to comply with an order made by Conway J. to provide Ms. Altman with an accounting of her share of the deferred profit sharing plan, together with the other misconduct listed in paragraph 136 is reprehensible and high handed conduct that is deserving of this court’s denunciation.
Moral Damages: The New Wallace Damages?

This ruling follows closely on the heels of Brito v. Canac Kitchens, another recent Ontario wrongful termination decision in which punitive damages were awarded against an employer for its callous treatment of an employee. In the February 2011 Brito ruling, Mr. Justice Echlin similarly admonished an employer for its conduct upon termination:

[18] Having regard for Canac’s cavalier, harsh, malicious, reckless, outrageous and high-handed treatment of Mr. Luis Romero Olguin, I award a further $15,000.00 in damages relating to its “hardball approach”.

[19] Pursuant to the Supreme Court of Canada’s decision in Honda Canada Inc. v. Keays 2008 SCC 39 (CanLII), [2008] 2 S.C.R. 362, I might have considered awarding “moral damages”. However, as indicated in Natalie C. MacDonald, Extraordinary Damages In Canadian Employment Law, Toronto: Carswell, 2010 at pp. 33-168 and 812-815, the relatively new common law head of damages, in this post-Wallace world, requires considerable specificity in pleading and further evidence which was not presented at this trial.

While it may be premature to assert that these heads of damages will be awarded with increasing regularity by Ontario Courts, employers should take note that in genuine cases of misconduct in the course of termination, Ontario courts are not averse to awarding substantial damages, including significant amounts for moral and punitive damages.

Employers should proceed with caution, accordingly. Plaintiffs will certainly rely on these recent rulings to hold employers accountable for the consequences arising from bad faith in the conduct of termination.