Saturday, 31 July 2021

Court Awards Moral Damages for Employer’s Failure to Guarantee Minimum Statutory Entitlements on Termination

Does an employer’s failure to confirm that an employee will unconditionally receive their minimum statutory entitlements on termination, if that employee rejects the employer’s “without prejudice” offer to settle their severance claim, warrant an award of moral damages?

In Russell v. The Brick Warehouse LP, 2021 ONSC 4822 (CanLII), Justice Susan Vella of the Ontario Superior Court held that it did.

Facts

Tom Russell was a lifelong employee of The Brick Warehouse LP. The Brick was the only full-time employment Mr. Russell had ever had. He was hired by Trans Global Service, a wholly owned subsidiary of The Brick, on September 14, 1984.

Russell was terminated, without cause, by TGS effective July 21, 2020. He was 57 years old at the time of termination. He had worked at The Brick for just over 36 years.

At the time of his termination, Russell’s annual compensation was comprised of the following components: Base salary of $74,859.00; Group benefits consisting of health and dental coverage, long term disability, accidental death and dismemberment and life insurance coverage; Participation in the group RRSP and DPSP programs, pursuant to which he contributed 4% of his annual salary to the RRSP and The Brick contributed 2.8% to his DPSP; Six weeks of paid vacation; and An amount of $500 in 2019, which Russell called a bonus, but The Brick characterized as a onetime payment in lieu of a salary increase in 2020.

The Termination Letter

At the time of termination, Russell was provided with a termination letter dated July 21, 2020, which set out a “without prejudice” offer. The terms of that offer exceeded Russell’s minimum statutory entitlements, but would have provided Russell with less than that to which he was legally entitled at common law.

In the “without prejudice” termination letter, benefits were to be extended as follows:

a) health and dental benefits, if applicable, until July 20, 2021, but not Russell’s Long Term Disability, Accidental Death and Dismemberment coverage, or participation in the Group RRSP and DPSP programs;

b) life insurance coverage was to be extended for 31 days from the date of termination, and Russell would have the option of converting his Life Insurances from The Brick group plan to an individual plan also within 31 days from the date of termination.

Inexplicably, The Brick did not advise Russell that his benefits were actually continuing until its representative admitted this to be the fact in cross examination held on March 10, 2021. This is despite the fact that Russell’s lawyer had raised this issue prior to the cross examination but received no response to his queries. Such admission was seven months’ post-termination, and long past the time that many of the benefits expired.

Response to Offer and the Exchange of Cheques

On July 23, 2020, Russell provided a counter-proposal, and requested that the funds be paid into his RRSP without deductions or withholdings. He also requested that his vacation entitlement be accrued to September 12, 2020 and that The Brick provide him with a positive reference letter.

Through inadvertence, on July 31, 2020, The Brick provided Russell with double his statutory notice and severance entitlements, plus unpaid wages and vacation pay accrued to the date of termination, calculated in the gross sum of $104,055.05. After statutory deductions, Russell received the net payment of $66,464.26. The error was the result of calculating Russell’s pay based on 34 pay periods or 68 weeks’ pay instead of 34 weeks’ pay.

Russell retained a lawyer to represent him in negotiations with The Brick. On August 21, 2020, The Brick requested that Russell’s lawyer hold the overpayment in trust pending future discussions. However, The Brick advised that it did not object to Russell retaining his net entitlements under the ESA. Russell’s lawyer advised The Brick that he was not prepared to undertake holding the overpayment in trust.

Accordingly, on October 6, 2020, The Brick requested that Russell return the overpayment, being $48,946. In response, Russell returned the entirety of the funds to The Brick. On October 19, 2020, The Brick received a letter from Russell enclosing a cheque in the amount of $66,464.26 being the full net amount that had been paid by The Brick to Russell.

On November 12, 2020, The Brick wrote to Russell’s lawyer and enclosed a cheque in the amount of $28,207.72. The Brick advised that the delay in facilitating this payment was as a result of waiting for Russell’s cheque in the amount of $66,464.26 to clear. However, the amount that The Brick admits it should have paid was the statutory entitlement of $38,256.54. The Brick admits that it made an error in paying the lower amount and provided an explanation.

Russell’s lawyer’s response was that as the funds had not been directed to Russell’s RRSP, as Russell had requested on July 23, 2020, the cheque would be returned. The cheque was returned on November 18, 2020.

On December 22, 2020, The Brick issued a cheque in the amount of $10,048.82 representing the difference between the November 12, 2020 net payment of $28,207.72 and the amount that reflected the statutory entitlements of net $38,256.54. However as this amount was again not directed to Russell’s RRSP, it too was returned on January 6, 2021.

Through this series of missteps, Russell’s statutory entitlements to termination pay and severance pay was not paid into his RRSP until March 5, 2021, after he started his litigation claim against The Brick. March 5, 2021 was also the date that he received payment of his last week of wages. The amount ultimately deposited into Russell’s RRSP was $53,645.66. Russell was never provided with a letter of reference.

Russell sued for wrongful dismissal claiming damages equal to 30 months’ pay in lieu of reasonable notice, plus $50,000 in moral and punitive damages.

Decision of the Ontario Superior Court

The case was resolved via a motion for summary judgment heard April 8, 2021.

The Reasonable Notice Period is 24 Months

With respect to the reasonable notice period, Justice Vella started by referencing the factors included in the seminal decision of Bardal v Globe and Mail. Applying those factors to Mr. Russell’s case, Justice Vella found as follows:

a) Mr. Russell was 57 years old at date of termination which puts an employee towards the end of their working career;

b) Mr. Russell had just over 36 years’ tenure with the employer, which can be considered to be a long tenure;

c) He was in a senior supervisory position with 20 employees reporting to him, but he had to report to a manager who had ultimate decision-making authority.

Mr. Russell has challenging circumstances in terms of finding alternative work due, in part, to the COVID-19 pandemic. [See further comments, below.]

Applying those factors, Justice Vella held that, the appropriate notice period for Russell is 24 months at common law, without a consideration of extraordinary circumstances.

Exceptional Circumstance and the Effect of COVID-19

With respect to the impact of the COVID-19 pandemic, Justice Vella observed as follows:

Unlike the situation in Marazzato v. Dell Canada Inc., 2021 ONSC 248, I do have some evidence before me upon which to conclude that COVID-19 will likely adversely affect Russell’s attempts to find other comparable employment. This evidence arises from the fact that in the termination letter The Brick admitted that the economic downturn caused by COVID-19 was the reason why Russell, and several other employees, had been terminated in the first place:

As for the balance of claimed “exceptional circumstances”- Russell’s age, years of service, life time service to The Brick, his “limited” high school education, lack of a reference letter and relocation counselling and post termination conduct of The Brick, the Court held that same did not amount of “exceptional circumstances” at law.

Moral and Punitive Damages

In providing her reasons for awarding Mr. Russell an additional $25,000 in moral damages for the manner of dismissal, Justice Vella started by citing the Supreme Court’s decision in Honda Canada Inc. v. Keays, [2008] 2 S.C.R. 362, and then provided the following analysis:

[51] In considering the factors that inform an award for moral damages, the court is to look at the manner in which the dismissal was carried out. This can include conduct at the time of the dismissal and following the dismissal provided it is related to the dismissal: See Doyle at paras. 26 and 39.

[52] The termination letter provided to Russell, dated July 21, 2020, is the focus of this analysis. It provided a without prejudice offer to settle Russell’s termination and severance obligations by providing terms that were, generally, more generous than the statutory minimum entitlement, but less than his common law entitlement for other aspects of his compensation. Russell had three days to accept this offer and would have had to sign a Release in favour of the employer.

[53] The termination letter was not fully compliant with the minimum statutory entitlements of the ESA insofar as it did not reflect an extension of Russell’s employment related long term disability, accidental death and dismemberment coverage or ongoing participation in the Group RRSP and DPSP programs during the statutory notice period. Furthermore, the termination letter provided that vacation pay would only be paid accrued to the date of termination. Under the ESA, vacation pay continues to accrue over the statutory notice period, or eight weeks beyond termination in Russell’s case.

[54] More importantly, the termination letter did not advise that if Russell declined the offer, he would be immediately provided with his statutory entitlements under the ESA. I find this to be a serious defect with the termination letter, as it implies employees will know that they can demand their statutory entitlements forthwith upon rejection of these types of offers. This defect reflects a failure by The Brick to deal fairly with Russell. By failing to include this proviso in the termination letter, The Brick was not being honest and forthright with Russell.

[55] Furthermore, while The Brick’s failure to immediately transfer the correct amount of severance and termination pay into Russell’s RRSP was largely due to a series of “inadvertent” missteps on its conduct post termination, it nonetheless reasonably caused Russell distress beyond the “normal” hurt feelings that accompany termination without cause.

[56] There is some evidence in the record that supports the requisite degree of mental distress, recognizing that mental distress need not be proven by medical evidence: Groves v. UTS Consultants Inc., 2019 ONSC 5605 at para. 113.

[57] I recognize that an employee, like Russell, does not have a statutory entitlement to have his severance and termination pay directed to an RRSP. However, there is no suggestion by The Brick that it would not accommodate such requests from terminated employees and Russell made this request on July 23, 2020 – three days’ after receiving the termination letter – and this request was repeated by his lawyer. Eventually, The Brick did arrange for a direct deposit into Russell’s RRSP.

[58] Russell was without income or, to his knowledge, benefits for approximately seven and a half months post termination. His spouse was forced to go back to work full time and Russell had to use his savings to make ends meet for the family during this period. Russell has been receiving some medical treatment and medication for stress related issues according to his unchallenged evidence. There was no good reason for The Brick to have failed to advise Russell by at least July 23, 2020 (after receiving his counterproposal) or shortly thereafter that the majority of his benefits would be extended beyond termination, in compliance with the ESA. There was also no good reason for The Brick to have not immediately advised Russell that he would receive his statutory notice and severance pay in the event its without prejudice offer was rejected. This is no way to treat any employee, much less a long-term loyal employee of over 36 years.

[59] The fact that The Brick offered for Russell to keep the funds totalling the net ESA entitlements does not relieve it from its errors and lack of timeliness. The whole point was that Russell wanted the funds deposited into his RRSP so that there would be no personal tax withholdings from it. The Brick had already taken far too long to get the statutory entitlements right irrespective of the date when it was provided with the RRSP bank deposit information by Russell’s lawyer.

[60] Furthermore, The Brick used the same basic template termination letter, modified to the circumstances of each terminated employee, as was used for Russell. While no direct evidence was led on the issue of how the “template” termination letters were modified, the inference is either none of the termination letters reflected the advice to employees terminated at around the same time as Russell that if The Brick’s offer to settle was rejected, they would receive the statutory minimum entitlements, or the other letters did reflect that advice and it was omitted from Russell’s termination letter. Either way, this factor supports an award of moral or aggravated damages, in combination with the other factors reviewed.

[61] Russell asks for an award of $50,000 as moral or aggravated damages.

[62] In the circumstances of this case and having regard to awards made by this Court in other cases featuring similar types of unfair dealings during the course of termination, I am awarding $25,000.00 as moral damages for the following reasons:

a) A lack of transparency and fair dealing by The Brick in the termination process by failing to advise that Russell would be provided with his full statutory (ESA) entitlements in the event he rejected the offer reflected in the termination letter;

b) A lack of transparency and fair dealing by failing to advise Russell that his benefits would be extended consistent with his statutory notice period irrespective of whether he accepted The Brick’s offer;

c) The failure of the offer to meet all of the statutory entitlements, including vacation pay accrued over the course of the statutory notice period; and

d) Mental distress Russell suffered beyond the usual hurt feelings and distress of being dismissed, and which was reasonably foreseeable to The Brick arising from its lack of transparency and fair dealing in the manner of terminating his employment.

Commentary

I would be remiss if I did not begin my commentary with my thanks to Littler for posting not only their commentary on the case, but a link to the court’s reasons for decision as well.

With respect to the effect of COVID, good on the Court for finding actual evidence of the effect of the pandemic on the reasonable notice period. While one could intuit that the forced closure of retail stores for an uncertain period of time would likely result in it being harder for Mr. Russell to secure new employment in the retail sector, one has to credit the Court for also citing The Brick’s own letter as evidence of that fact.

Does the decision stand for the proposition the (retail) employees terminated during the COVID-19 pandemic are automatically entitled to greater notice periods? No. That’s too far a leap. What the case shows is that if there is evidence of the fact that the pandemic, or, better said governmental responses to same, has lessened the availability of alternative employment, then the notice period should be longer than it might be under other circumstances.

As for the moral damages, what a hot mess on the back and forth on the cheques. While I appreciate why Mr. Russell wanted his severance payment directed directly into his RRSP, where it eventually landed, I query how the Court can reconcile the fact that it took so long for that deposit to be made and its admonishment of the fact that Mr. Russell was “without income for approximately seven and a half months post termination” with the fact that, had the deposit been made directly into Mr. Russell’s RRSP sooner, Mr. Russell would nonetheless almost assuredly not have drawn down from the RRSP contribution right away. Indeed, the whole reason one makes a contribution to his RRSP is to defer the payment of taxes until years later. It defies common sense that if Mr. Russell truly needed the money (and I am not saying he didn’t,) that he would have also insisted that such funds be deposited into a tax-deferred vehicle, in which such funds could be locked for years to come.

As for The Brick failing to expressly confirm that even if he rejected The Brick’s initial “without prejudice” offer he would still, unconditionally, receive his minimum statutory entitlements (being 34 weeks of pay, plus the continuation of benefits for a period of 8 weeks,) well, that’s simply inexcusable, especially for an organization as large as The Brick. $25,000 in damages might serve as an appropriate motivation for the company’s HR department to ask its in-house legal team to review their termination templates- perhaps with the assistance of experienced outside legal counsel.

On the whole, a tidy, tight, useful decision on the perils of overreliance on (bad) precedents and templates and the stubborn refusal to make things right and treat people fairly.

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As always, everyone’s situation is different. The above is not intended to be legal advice for any particular situation. It is always prudent to seek professional legal advice before making any decisions with respect to your own case.

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