Recently Reviewed Law on Consequential and Punitive Damages in a Wrongful Dismissal Context

The British Columbia Court of Appeal recently reviewed the law on consequential and punitive damages in a wrongful dismissal context in Marchen v. Dams Ford Lincoln Sales Ltd.1

Facts

The Respondent (Plaintiff) Tyler Marchen entered into an apprenticeship agreement with the Appellant (Defendant) Dams Ford Lincoln Sales Ltd. The agreement provided for Mr. Marchen to apprentice in the Appellant’s body shop.

The Plaintiff’s brother Anthony worked in the Appellant’s parts department and, in 2004, confessed to stealing parts to support a drug habit. In November 2004, the RCMP advised the Appellant that Anthony was to be arrested for violating his parole due to a conviction for the possession of a stolen motor vehicle. The President of Dams was shocked because he understood Anthony had no previous difficulties with the law and because the stolen vehicle had been repainted in the Appellant’s body shop.

In January 2005, the Plaintiff was dismissed summarily and without explanation by the Appellant. At trial, the Appellant said that the Plaintiff was terminated because the Appellant was downsizing its body shop operation.

Trial Decision

The trial judge concluded that, in fact, the Plaintiff had been terminated because he was suspected of criminal activity in relation to his brother’s misconduct.

The trial judge found that the apprenticeship agreement between the parties was a contract of a fixed term, and awarded damages to the end of the term.

He also awarded $25,000 in consequential damages in respect of the loss of training and loss of status that had resulted from the Plaintiff’s termination.

Finally, the trial judge awarded $100,000 in punitive damages due to his finding that the Appellant had attempted throughout the litigation to "cover up" the real reason for the Plaintiff’s dismissal, i.e., by attempting to justify it on the grounds of downsizing.

The trial judge also awarded special costs, finding the Appellant had attempted to mislead the court as to the true reasons for termination.

The trial judge did not award moral damages, finding that the Appellant’s conduct at the time of termination was not unfair, unfaithful, misleading or unduly insensitive.

Court of Appeal

The Court of Appeal found that the trial judge had erred in finding the contract was a fixed-term contract, as the dates expressed in the contract were approximate only. They could not define a fixed term, as they were conditioned on the availability of work. The Court of Appeal remitted the matter to the trial court to determine the period at which work became unavailable, and the period of reasonable notice that Mr. Marchen was entitled to.

With respect to consequential damages, the Court of Appeal concluded that in Honda v. Keays,2 the Supreme Court of Canada had recognized that some employment contracts involve more than the provision of services for remuneration and that damages flowing from a wrongful dismissal may take that fact into account.

The task of the Court in assessing damages is to ask: "What did the contract promise?" and "What was in the reasonable contemplation of the parties if what was promised was not provided?"

In this case, the apprenticeship agreement contemplated Mr. Marchen completing an apprenticeship and becoming a journeyman. This did not happen due to his termination. The Court of Appeal found that Mr. Marchen’s loss of the opportunity to earn a journeyman’s wage, and the loss of the opportunity to obtain further education and training from the Appellant had he been employed for a longer period of time, were compensable. The trial judge’s award of damages of $25,000 was upheld.

Punitive Damages

The Court of Appeal overturned the trial judge’s award of punitive damages, noting that such damages are awarded to express approbation and to punish in circumstances where the global amount of damages awarded is insufficient. The trial judge found that the Appellant’s conduct was not unfair, unfaithful, misleading or unduly insensitive at the time of termination, and that Mr. Marchen did not suffer undue distress.

Special Costs

The Court of Appeal upheld the trial judge’s award of special costs. The trial judge concluded that the Appellant had sought to mislead the court and "drive Mr. Marchen from the judgment seat." No palpable and overriding error was shown in the judge’s findings.

Tips for Employers

This decision is a reminder for employers that, depending on the circumstances, damages for wrongful dismissal can exceed damages arising during the period of reasonable notice. The employer should:

  • consider whether there are any special circumstances at the time they enter into the contract that may result in additional consequential damages in the event of termination, and insert language in the agreement to protect themselves accordingly;
  • review the facts at the time of termination to consider whether liability could be reduced through a negotiated settlement or period of working notice; and
  • investigate suspected misconduct thoroughly to determine whether just cause may be a viable option.

  • 1 2010 B.C.C.A. 29.

    2 2008 S.C.C. 39.

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