Aggravated damages can be awarded to terminated employees if there has been a breach of the employer’s duty of good faith during the dismissal process. Recently, in Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332, the Court of Appeal for Ontario awarded an employee $50,000 in aggravated damages because the dismissal process was not carried out in an honest manner.

Facts

Mr. Krmpotic began his career with his employer in 1987. After nearly 30 years of service his employment with the company ended two hours after returning from a medical leave.

The employer offered Mr. Krmpotic a severance package totaling 16 months’ salary which he refused. Mr. Krmpotic then initiated a wrongful dismissal lawsuit against his former employer. In his lawsuit he claimed both damages for mental distress and aggravated/moral damages. It is important to note that Mr. Krmpotic did not present any medical evidence at his initial trial to support his argument that the manner of dismissal had caused him mental distress.

Mr. Krmpotic was awarded 24 months of notice and $50,000 as aggravated/moral damages. The trial judge did not award damages for mental distress because of the lack of medical or psychological evidence.

The employer appealed the aggravated damages award, among other things, to the Court of Appeal for Ontario.

Court of Appeal’s decision

The Court of Appeal found that the finding that Mr. Krmpotic was plagued by anxiety, depression, poor sleep, and feelings of helplessness was open to the judge, despite the lack of medical proof. This evidence was introduced at the trial by way of affidavits from Mr. Krmpotic, his wife, and his son.

Secondly, the court rejected the employer’s argument that the trial judge erred by considering damages for mental distress and aggravated damages separately. The employer tried to argue that the trial judge could only award damages for mental distress if there was evidence of both mental distress (beyond the normal distress resulting from dismissal), and that the mental distress was caused by the manner of dismissal.

However, the court rejected this argument as being too narrow. The court reminded the parties that mental distress is a broad concept that exists on a spectrum, from a diagnosable psychological condition on one end, to the normal distress resulting from dismissal on the other end. In between these two end points, there is a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury.

Therefore, the fact that Mr. Krmpotic had not established causation through medical evidence did not preclude him from being awarded aggravated damages. The court found that the employer’s conduct nevertheless did result in a breach of its duty of honest performance because the employer was not candid or forthwith during the termination process. For example, the employer claimed that Mr. Krmpotic had been dismissed for financial reasons, but at trial, refused to produce financial statements to support this claim. The court found that Mr. Krmpotic was terminated mainly for his physical limitations resulting from his back injury. Also, the employer’s conduct was unduly insensitive, terminating him two hours after returning to work from his back surgery.

Takeaways

1. Employers need to be aware that claims for mental distress will not be quashed due to lack of medical evidence and should be prepared to respond to an employee’s evidence.
   
2. An employee can still succeed in being awarded aggravated damages even if they are not awarded mental distress damages.
   
3. When awarding these damages, a court will scrutinize an employer’s conduct during the dismissal process – employers should strive to be honest, forthwith and candid with employees during the process in order to avoid these types of awards.