In 1997, the Supreme Court of Canada told employers they must be honest, forthright and candid with employees during the dismissal process. The law has been refined since then but the principle remains the same. The obligation also requires an employer to be honest about the reasons for dismissal with others and during any subsequent litigation.

A recent decision of the BC Supreme Court highlights the consequences of an employer not being honest about the reasons for an employee’s termination. In Marchen v. Dams Ford Lincoln Sales Ltd., 2009 BCSC 400, the court awarded $100,000 in punitive damages. The court found that the employer had tried to cover up the reasons for dismissing an apprentice mechanic in order to defeat the employee’s claim for damages for wrongful dismissal.

The employee was hired in November 2002 as an apprentice mechanic by Dams Ford Lincoln Sales Ltd. (“Dams”). The employer agreed to sponsor the employee’s apprenticeship for the full four years subject to the right of the employer to terminate the employment without notice for a shortage of work. The employee’s brother had also been employed by Dams, but had been dismissed for thefts committed to support a drug addiction. The thefts resulted in a police investigation.

In January 2005, the employee was dismissed, and given his record of employment and two weeks of salary as severance pay. The employee’s manager told him the reasons were not up for discussion, and the manager had tried to stop the termination but the decision had “come right from the top”. Another manager told the employee that the employee was no longer welcome on company property. A day later, Dams’ owner told the employee’s father that the employee had been fired because charges of theft might be laid against both the employee and his brother.

The employee’s manager confirmed to an investigator from Human Resources and Skills Development Canada (in response to the reasons for termination given on the Record of Employment) that the employee was dismissed because of a suspicion that he could have been involved with the thefts committed by the brother.

The employee commenced litigation in June 2005 for damages for termination of the employment before the conclusion of the four year apprenticeship program. A week later, Dams’ owner called the investigator and told the investigator that the employee was dismissed because Dams had downsized its body shop operation and there was a shortage of work for the employee.

The matter went to trial in September 2008 and in March 2009. The court’s decision was issued on March 26, 2009.

The owner and the two managers testified at the trial for Dams. All acknowledged that the employee was a good employee and all denied that the employee was dismissed because of the criminal activities of his brother. Their evidence was that the employee was dismissed because Dams had decided to downsize its body shop operations.

The court rejected their evidence, even though Dams did ultimately downsize. The court found that the employee was dismissed because of unfounded suspicions that he was involved in his brother’s criminal activities. The court found that there was no evidence whatsoever to support that suspicion, and that the employee at all times was a loyal and faithful employee.

The court found that the apprenticeship agreement had a four year fixed term and was terminated wrongfully. The court awarded damages of twenty-two months of wages, less what the employee had earned in mitigation. The damages award was around $18,000.

The court also found that the wrongful termination of the apprenticeship agreement had significantly set back the employee’s career. He was unable to complete his apprenticeship and his wages remained well below what he would have earned as a journeyman. The court awarded additional damages of $25,000 in respect of the loss of training and loss of status which had resulted, and special damages of around $2,000.

Significantly, the court went on to award punitive damages of $100,000 against Dams. The court noted that the basis of the award was not the employee’s dismissal, or even the fact that the dismissal was based on unfounded suspicions of criminal activity.

The court found that the attempt to justify the employee’s dismissal on the ground of downsizing was a “planned and deliberate attempt to mislead this court as to its true motives”. The court made the following comments on an employer’s obligations:

I find that Dams’ actions are reprehensible and a substantial departure from the conduct and practices reasonably to be expected from an employer such as the defendant. It beached its obligation to Tyler to act fairly and in good faith. It is particularly reprehensible that Dams acted in this manner in regard to a young apprentice whom it wrongfully terminated from his first full-time job because of unfounded suspicions. Tyler was a hard working, loyal employee. He deserved better. While I have found that the method of termination did not warrant moral damages, I find that Dams’ attempt to cover up the true reasons for the termination merit an award of punitive damages.

Finally, the court found awarded the employee special costs of the litigation, which are fixed as a percentage of the employee’s legal fees (usually between 60% and 90% of actual legal fees).

The decision represents a strong rebuke to the employer for the way it handled the litigation. In an attempt to save $18,000 in damages, Dams became liable for $145,000, its own legal fees and the “special costs” of the employee.

While the decision is likely to be appealed, it nevertheless provides a reminder to employers who are considering terminating employees, to:

• consider carefully the reasons for terminating an employee, before the termination;
• ensure that employers send a consistent message to the employee and others, with respect to the reasons for the termination;
• keep in mind an employers’ obligations to be honest and forthright; and
• seek legal advice before you terminate an employee if considering terminating an employee for cause, or if in doubt as to the statutory and common law obligations regarding notice, pay in lieu of notice arising from termination without cause.