Court of Appeal Provides Clarity on Aggravated Damages Flowing from Wrongful Dismissal

A recent case from our Court of Appeal articulates the standard required to establish an entitlement to aggravated damages resulting from a wrongful dismissal.

An employer is required to provide an employee with notice of termination or pay in lieu of notice. Employees may sue their former employers if they believe the notice or pay in lieu of notice is insufficient. Generally, damages allocated in wrongful dismissal actions are confined to the loss suffered as a result of the employer’s failure to provide notice. However, in limited circumstances, employees may be entitled to additional damages where the employer engages in conduct during the course of dismissal that is unfair or in bad faith. The latter damages – referred to as “aggravated damages” – compensate employees for the harm caused by the employer’s conduct (e.g., compensation for mental distress or loss or reputation arising from the manner of termination).

The test for establishing aggravated damages was outlined by the Supreme Court of Canada in Honda v. Keays, 2008 SCC 39. Since then, there has been some confusion as to whether expert medical evidence is required to establish loss arising from the manner of termination. Earlier this month, the British Columbia Court of Appeal confirmed that, although objective evidence of loss is necessary, expert medical evidence is not required.

In Lau v. Royal Bank of Canada, 2017 BCCA 253, the employer appealed the trial judge’s decision to award a dismissed employee $30,000 in aggravated damages. We previously summarized the trial judge’s decision here. The former employee was a mutual fund dealer who was terminated for just cause for dishonesty and allegedly fabricating bank records. The trial judge determined that the employer’s investigation into the alleged wrongdoing was flawed. The employer failed to establish just cause and Mr. Lau received nine months’ damages for lack of reasonable notice. Mr. Lau was also awarded aggravated damages for mental distress flowing from “a false accusation of failing to tell the truth” and the flawed workplace investigation. There was no evidence from family members, friends or third parties concerning the impact of the termination on Mr. Lau’s mental state. Despite this, the trial judge stated “I do not need medical evidence to prove that a false accusation of failing to tell the truth which is published can lead to mental distress.”

The employer did not challenge the finding that it did not have just cause to terminate Mr. Lau’s employment on appeal. However, it did appeal the award of aggravated damages submitting that there must be medical evidence of a psychological condition such as depression when claiming damages for mental distress. The Court of Appeal held that the case law does not go so far as to require expert testimony from a medical professional but there must be an evidentiary foundation for such an award. It concluded that “damages for mental distress beyond the ordinary upset that accompanie[s] termination of employment cannot be evidenced simply from the demeanor of the plaintiff in the witness stand.” The Court of Appeal found that the trial judge erred by injecting her opinion of the impact of the termination on Mr. Lau’s mental state absent objective evidence. As a result, the award of aggravated damages was overturned.

This case is an important one because it helps clarify the evidentiary standard required to establish an award of aggravated damages. As noted by our Court of Appeal, to receive aggravated damages based on mental distress, an employee is required to show that the manner of dismissal caused injury rising beyond the normal distress and hurt feelings that arise from the fact of dismissal. Expert medical evidence is not necessary in all circumstances but an employee is still required to adduce, at minimum, actual objective evidence in support of a claim for aggravated damages.

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