Perils of the Aggressive Employer

The Supreme Court of Canada has routinely recognized that the master-servant relationship - that is, the contractual relationship between an employer and an employee - is typically marked by an imbalance of power that favours the employer.  This reality has driven a number of employment law doctrines, including the conclusion that employers owe their employees a duty of good faith and fair dealing.

The available scope of remedies for this breach has shifted over the years.  For over a decade, courts awarded a Wallace extension - additional damages to reflect the gravity of the employer's misconduct.  Since Honda v. Keays, however, breaches of the duty of good faith and fair dealing are treated as any other breach of contract - requiring the employee to establish compensable losses flowing from the breach, or that the conduct was so reprehensible as to justify an award of punitive damages.

These are both high thresholds, and have been met only in a handful of cases.

Nonetheless, employment lawyers have still cautioned employers against taking oppressive or heavy-handed approaches to their employees.  Using counterclaims (or preemptive claims) and allegations of misconduct as strategic litigation tools is common in many litigation fields, but is discouraged for employers.  Even employment lawyers known for their aggressive pro-management philosophies will tend to agree on this point.

Driving in the point is the recent Hampton Securities Limited v. Dean case, out of Ontario.  Ms. Dean was employed as a trader for a period of a little over a year.  Following a dispute regarding trading losses, and in which the employer demanded that she provide the sum of $50,000 to increase her reserve to cover trading losses, the employment relationship came to an end.  (This is a very rare case of a dispute where both parties claim to have terminated the relationship.  Ms. Dean claimed to have submitted a letter of resignation, and that she was constructively dismissed.  The employer took the position that it terminated her employment for cause.  Notwithstanding the dramatic television and movie instances of employees shouting, "You can't fire me; I quit!", the opposite is far more common in employment law.)

The employer proceeded to sue Ms. Dean, claiming an entitlement to be reimbursed for $34,917 in trading losses.  In addition, the employer filed a Notice of Termination (the "NOT") with the Investment Industry Regulatory Organization of Canada ("IIROC"), claiming that Ms. Dean was terminated for cause because of "unauthorized trading resulting in losses" - a very serious allegation which would seriously limit Ms. Dean's subsequent employability in the industry.  Ms. Dean counterclaimed in wrongful/constructive dismissal and defamation.

The Ontario Superior Court of Justice dismissed Hampton's claim, allowed Dean's counterclaim, and awarded wrongful dismissal damages, as well as 'at large' defamation damages, and punitive damages, as well as full indemnity costs of nearly $250,000.  The Ontario Court of Appeal, in a decision last week, dismissed Hampton's appeal in its entirety, awarding costs of the appeal in the amount of $35,500.

The wrongful dismissal damages, themselves, were approximately $60,000.  Following the appellate decision, the overall amount the employer is required to pay Ms. Dean is in the ballpark of $400,000 - without accounting for its own legal bills.

This is the risk associated with trying to deal with a departed employee in too harsh a manner.  The Court was not pleased with the way that the employer had conducted itself, in the course of its dealings with Ms. Dean or in the course of litigation afterward.

Defamation and Other Legal Issues

There are a variety of interesting legal issues to consider in this case.  For example, there was what appeared to be an 'employment standards only' termination clause in the written employment agreement, but on a very close reading of the language, it appeared to exclude continuation of benefit plans, and accordingly the entire termination clause was void.  (In Ontario, the Employment Standards Act, 2000 requires an employer to continue to make contributions to benefit plans through the statutory notice period.  This express requirement does not exist in other Provinces, but whether or not a termination clause is void by virtue of its failure to appropriately deal with benefits is a frequently litigated issue in Ontario.)

However, quite possibly the most curious legal issue deals with the 'qualified privilege' defence to defamation.

Defamation law in Canada is complicated.  A plaintiff in defamation only needs to show that the defendant said something that would damage her reputation (in this case, the NOT), and then the onus shifts to the defendant to show that there was some basis to do so.  There are many defences to defamation, including 'qualified privilege', which includes that the statement was made in a good faith attempt to comply with some obligation to disclose.

So, in this case, the employer pointed out that it had an obligation to file a NOT with IIROC.  However, there are two ways that a plaintiff can circumvent a qualified privilege defence:  Firstly, by showing that the defamatory remarks were made with 'malice' (though 'malice' means something a bit broader than we might expect; it is enough, as the Court found here, that the remarks were made despite knowing that they were false, or with reckless disregard to their accuracy); secondly, by showing that the defamatory remarks exceeded the scope of any obligation the defendant owed.

The trial judge's finding on the malice issue is entitled to appellate deference, and would, in and of itself, be enough to dispose of the issue of qualified privilege.

But the Court of Appeal chose to dispose of the issue on the second basis, instead:

In our view, leaving aside the issue of malice, the trial judge was correct to find that the defence of qualified privilege did not apply on the basis that Hampton’s statement exceeded the legitimate purposes of the duty to report all internal discipline matters to IIROC. The trial judge, relying on ample evidence, found that the information submitted in the NOT was untrue and wholly unsubstantiated. Providing misleading statements to IIROC clearly exceeded the scope of the duty to report all internal discipline matters or the duty to warn of potential risks that registered individuals may create.

This is a somewhat troubling legal contention.  To be fair, the reporting obligation to IIROC included a positive duty to take reasonable steps to ensure that the contents of the NOT were accurate, and this appeared to inform the trial judge's analysis.  But the analysis, on the whole, appears to destroy the qualified privilege defence in its entirety, at least in the context of IIROC filings (and arguably in a much broader way).

A statement which is 'true' has a different defence available:  Justification.  If you're into the qualified privilege defence in the first place, it's usually because something about the statement was untrue or misleading.  Yet if the fact that a statement is untrue or misleading renders it outside the proper scope of an obligation that might otherwise trigger a qualified privilege defence, then any statement that fails the 'justification' test will also fail the 'qualified privilege' test.

A slightly softer reading of the trial judge's decision (though this doesn't really make it into the appellate reasons) would be that a defendant must show reasonable good faith efforts to ensure the accuracy of the statement.  However, the onus is traditionally on the plaintiff to prove malice, and this test would effectively reverse that onus.

Still, there's something potentially persuasive about this analysis, when blended with the 'duty to investigate' which has woven its way into the case law in recent years.  In a defamation case (and especially in a qualified privilege case where the employer has a positive obligation to ensure that its report to IIROC is accurate), a conclusion that an employer has a positive duty to conduct a fair investigation before making defamatory remarks about a former employee would be in keeping with its duty of good faith and fair dealing.  This conclusion would be broadly consistent with the principles of employment law, would preserve the qualified privilege defence for an employer who conducted an appropriate investigation, and would protect employees from reckless defamatory remarks.

The only problem is that it's difficult to reconcile this perspective with the plain language of the Court of Appeal's reasons.

The 'scope' exception to qualified privilege makes sense when dealing with extraneous defamatory remarks which, even if true, would not need to form part of the obligatory report.  But in a scenario where a defendant can say that it had a good faith (albeit incorrect) belief that x is true, and that x, if true, would trigger an obligation to disclose that to certain third parties, this case leaves open a question as whether liability for defamation may still attach.

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Dennis Buchanan is a lawyer practicing labour and employment law and civil litigation in Edmonton, Alberta.

This post does not contain legal advice, but only general legal information.  It does not create a solicitor-client relationship with any readers.  If you have a legal issue or potential issue, please consult a lawyer.