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The $412,000 lesson: Poor conduct during, after termination of workers can be costly for employers

Griffon Integrated Security Technologies et al v Valley Associates Inc. et al, 2023 ONSC 2200 is a recent Ontario Superior Court of Justice decision that serves as a warning that the court is able and willing to punish employers who engage in bad faith conduct such as making baseless and unsubstantiated accusations against an employee during, and after, the employee is terminated.

Background

The plaintiff, Randall Sheppard, was employed as the vice-president and general manager for Valley Associates for more than 12 years. Payment for Sheppard’s services was made through the plaintiff’s personal services corporation, Griffon Integrated Security Technologies.

In August of 2018, Sheppard was diagnosed with colon cancer and began various treatments while continuing to work.  On or about Jan. 15, 2019, Valley Associates terminated Sheppard’s employment without cause and without notice while he was between chemotherapy treatments.

Sheppard filed a wrongful dismissal claim on or about March 26, 2019.

Subsequently, Valley Associates engaged in what the court described as “scorched earth” tactics.  As a defence, Valley Associates accused Sheppard of financial irregularities and argued after-acquired cause for the termination. They also initiated a counterclaim for breach of contract, fraud, and defamation.

Based on the information disclosed at discoveries (a formal step in the lawsuit to obtain information before a trial) and the subsequent conduct of Valley Associates during litigation, there was never any substance to, or basis for, their counterclaim or defence. Further, Valley Associates also continuously failed to honour obligations, such as production and discovery obligations, throughout the litigation process.

Eventually, Valley Associates’ statement of defence was struck, and their counterclaim was dismissed.

The court’s decision

When a defendant is noted in default, they are deemed to admit all of the allegations in the statement of claim.  However, the court does not simply award the Plaintiff everything they have asked for — rather the court must still assess what relief the law permits.

First, despite payments being made to Sheppard through Griffon, the court determined that Sheppard was an employee entitled to reasonable notice of termination.

Next, the court accepted and awarded Sheppard’s claim for 20 months’ reasonable notice, amounting to $290,932.40. In making this award, the court considered Sheppard’s age, his executive position with Valley Associates, his ongoing medical treatments, the defendant’s failure to pay him owed bonuses and commissions, his lack of intent to retire, and his limited prospects in obtaining similar alternative employment — including the fact that Valley Associates accused Sheppard of financial irregularities and fraud, which would have increased the difficulty for him to find alternative employment.

Further, the court also awarded an additional $75,000 in punitive damages as well as costs on a substantial indemnity basis (amounting to $34,570.66) due to the conduct of the employer both during and after the termination, such as the “scorched earth” tactics of making baseless accusations against Sheppard.

After adding prejudgement interest on the reasonable notice damages (amounting to $12,000.00) and the unspecified post-judgement interest, the award against Valley Associates in this case was over $412,000.00.

Finally, the court also decided to “pierce the corporate veil” and permit the individual defendant, Michael Martin, who was at all times the owner, director, CEO, and directing mind of Valley Associates, to be held jointly and severally liable for the Judgment.

Lesssons for employers

This decision demonstrates that a court has the ability to, and will, punish employers for bad faith conduct during the termination of employees and during any subsequent litigation by awarding punitive damages and/or substantial indemnity of legal costs against the employer.

Employers are certainly entitled to vigorously defend themselves during litigation, however, there must be a basis for, and some substance to, any defences or counterclaims that the employer wishes to make.  Making baseless accusations, or engaging in other bad faith conduct during a termination or subsequent litigation can vastly increase the potential liability of the company. As we have seen in this case, individuals such as owners and directors may also be liable if the circumstances lead the Court to pierce the corporate veil.

Further, this case also serves as a reminder of the dangers of misclassifying an employee as an independent contractor and failing to have an enforceable termination provision in place with that worker. As demonstrated by the reasonable notice of 20 months awarded by the court, this can be a costly mistake for the company.

John Hyde is the managing partner at Hyde HR Law in Toronto. He advises management on all aspects of employment and labour law, including representation before administrative tribunals, collective agreement negotiation, arbitrations, wrongful dismissal defence and human rights.