Punitive damages – when are they appropriate?

Following up on my last blog post regarding Chu v. China Southern Airlines and an award of $100,000 in punitive damages against an employer for their conduct during the course of litigation, reasons for judgment in Fanzone v. 516400 B.C. Ltd. 2022 BCSC 2089 have been released.  The decision in Fanzone cautions that the employer’s conduct during the course of the litigation should not be considered in a claim for punitive damages but rather should be addressed by an assessment as to whether special costs were appropriate.  On the face of it, this decision is very different than the than the direction given by the court in Chu.

Fanzone involved a claim of a 56 year old plaintiff who had worked for a pub as a manager for 23 years.  He was terminated in March 2020 following the COVID 19 pandemic health order which resulted in the closure of the pub.  When the pub terminated the plaintiff, they did not pay any severance but rather argued that as a result of the pandemic, the employment contract was frustrated.  The employer also claimed that the plaintiff had “fraudulently” overpaid himself for accumulated vacation to which he was not entitled and that this dishonesty provided a basis for a just cause dismissal.  The pub did not open on a limited basis when the public health orders were revised, rather the owner of the pub decided to not restart operations.  These factors led to the court rejecting the argument of frustration of contract and concluding that the plaintiff was entitled to damages for wrongful dismissal.  Given the plaintiff’s age, his length of employment and the senior nature of the employment, the court found that the plaintiff was entitled to a notice period of 20 months. 

In considering the plaintiff’s claim for punitive damages, the court considered the allegations of reprehensible conduct and agreed that the conduct during the course of the litigation had been reprehensible in several respects and is deserving of rebuke.  The conduct  considered included:

• The employer deliberately withheld statutory and common law severance pay to its employees even after all the other pubs in the area re opened
• The employer attempted to use the pandemic as an opportunity to retire without having to pay severance to any of its employees
• The employer fabricated allegations of vacation theft long after the termination and in circumstances where they clearly knew the allegations were false
• The employer led evidence at trial that was clearly false

The court reviewed the legal principles that are to be applied in a claim for punitive damages which were described in Hrynkiw v. Central City Brewers & Distillers Ltd., 2020 BCSC 1640.  The legal principles are as follows:

1. Consideration of whether punitive damages are awardable involves consideration of the conduct of the employer at the time of dismissal;
2. Punitive damages are not compensatory, rather the object of punitive damages is to punish an employer with the aim being to deter future unfair conduct;
3. Punitive damages are exceptional and may be awarded only where the employer’s conduct is deserving of punishment because it is harsh, vindictive, reprehensible and malicious;
4. The conduct complained of must be an independent actionable wrong, a requirement that is met where an employer fails to meet their implied obligation of good faith and fair dealing in the manner of dismissal;
5. Punitive damages should only be awarded where there is a heightened need to punish the wrongdoing because other remedies, including compensatory damages, are insufficient to serve the objectives of giving the defendant their just desert, deterring the defendant and others from similar misconduct in the future and marking the community’s collective condemnation of what has happened;
6. Punitive damages are awarded only if all other penalties have been taken into account and found to be inadequate to accomplish the objectives of retribution, deterrence and denunciation;
7. In considering an employer’s alleged bad faith conduct in the course of litigation, care must be taken not to conflate the analysis of punitive damages and special costs.  Generally speaking, reprehensible conduct of parties during the course of litigation should be addressed by way of an award of special costs, while punitive damages relate to an employer’s conduct at the time of termination;
8. An employer’s conduct in the course of litigation may be taken into account in an award of punitive damages where an employer’s bad faith conduct at the time of termination continues in an “unbroken course” throughout the legal proceeding.

While the court in Fanzone declined to award punitive damages on the basis that the reprehensible conduct at issue was more appropriately considered in an application for special costs, that does not mean that the employer will go unpunished for its behaviour.  The trial judge invited the parties to make submissions relating to costs and based on the decision it is likely that if an application were brought for special costs it would be granted.  Although not explicitly stated in Chu the award of punitive damages based on conduct during the course of the litigation itself may have been based on a finding that the employer’s conduct at the time of the litigation continued as an unbroken course throughout the legal proceeding.  Regardless, special costs is itself an extraordinary remedy.  Rather than the nominal compensation that our costs regime provides to successful litigants, special costs results in an award of between 80 and 100% of the parties actual legal fees.  Whether awarded as punitive damages or special costs, either remedy is a significant financial penalty to an employer who engages in conduct either at the time of termination or in the course of the litigation that is judged by the court to be deserving of punishment.

Have questions pertaining to punitive damages?  Contact Rose Keith, KC at rkeith@harpergrey.com or anyone else from our team listed on the Authors page.