Exemplary damages in employment law

Damages arising from bad faith during employment law are not the same as exemplary damages. Specifically, a Keays or Wallace claim can be dismissed while a claim for exemplary damages is allowed.

Today's decision in Boyd v. Wright Environmental Management Inc., 2008 ONCA 779 makes this clear:

[31]          At the hearing, the appellants submitted that the trial judge's award of exemplary damages of $25,000 should be set aside. They argued that the appropriate remedy, if one were warranted, would be an award of Wallace damages against WEMI by increasing the notice period. They asserted that the trial judge, by awarding exemplary damages, was punishing them for the manner in which their counsel conducted the trial. In addition, they argued that the award of exemplary damages against Jim could not stand as there was no finding of an actionable wrong independent of Ed's employment.

[32]          The trial judge stated he was not satisfied that the circumstances surrounding Ed's termination mandated the application of the Wallace principle. He made clear the exemplary damages he awarded were not compensatory in nature but punitive. He stated that he regarded the breach of the employment contract as "almost incidental" to the breach of the agreement to give shares in the business.

[33]          The premise of the appellants' argument that Wallace damages and not punitive damages might have been appropriate is that there was but one contract – an employment contract, a term of which entitled the employee to shares in the business. However, the trial judge took the view there were two separate contracts—one for a share of the business and the other for employment. The fact that the agreement to give Ed a share of the business was made years before he was employed by WEMI makes the trial judge's analysis justifiable. The breach of the employment agreement was incidental to the breach of the prior agreement to give Ed a share of the business.

[34]          The appellants are correct that exemplary damages are rarely awarded in a contract case and in any event, require an "actionable wrong" in addition to the breach sued upon. Here, this was the related breach of the employment contract.  WEMI fired Ed just before the meeting arranged by his counsel to deal with his contract for shares in the business. The circumstances of the breach were egregious and rightly offended the conscience of the court. The trial judge made it clear that this award of damages was not compensatory, but was intended to indicate the court's displeasure with the heinousness of the defendants' conduct.

[35]          I would not interfere with the award of exemplary damages against WEMI.
James Morton
1100 - 5255 Yonge Street
Toronto, Ontario
M2N 6P4