Employers Tread Carefully – The Manner of Dismissing an Employee Can Cost You Close to A Million Dollars
Employers beware – this decision suggests that both pre-termination and post-termination conduct by an employer, including conduct in the course of litigation, can support an award of moral and punitive damages.
BACKGROUND
Ms. Galea was hired by Wal-Mart Canada in August 2002 as a District Manager-in-Training. By January 2010, she had been promoted numerous times, received prestigious recognitions for her contributions to the company, and carried the title of Vice President, General Merchandising. By all accounts, Ms. Galea was a rising star being groomed to become the Chief Merchandising Officer for Wal-Mart Canada.
Her upward trajectory came to an abrupt end in January 2010, when Ms. Galea was advised that the role of Vice President, General Merchandising was being eliminated. She was assured by David Cheesewright, the President and CEO of Wal-Mart Canada, that all efforts would be made to find Ms. Galea a comparable role within the international family of Wal-Mart companies. Despite much effort on Ms. Galea’s part to secure an international role, by November 9, 2010, no position had been offered to her. Instead, Mr. Cheesewright then presented Ms. Galea with the choice between a new role, and clear demotion, or a severance package. Before allowing Ms. Galea the opportunity to make a final decision, Mr. Cheesewright terminated her without cause on November 19, 2010.
In accordance with a Covenant Not to Compete Agreement (“NCA”) that Ms. Galea signed in 2005 when she was promoted to General Merchandise Manager, Ms. Galea was to be compensated for two years following any termination without cause. Wal-Mart ceased payments to Ms. Galea 11.5 months after her termination without notice, without any explanation.
At trial, the only issue was damages. Ms. Galea was successful on her claim for termination pay for the remainder of the two-year period set out in the NCA. In addition, she was awarded moral damages and punitive damages on the following basis:
MORAL DAMAGES
Justice Emery awarded Ms. Galea $250,000 in moral damages, finding that Wal-Mart breached its implied duty of good faith in dismissing Ms. Galea which caused her mental distress in excess of the stress and hurt feelings that normally accompany a dismissal.
Specifically, Justice Emery found that:
- Mr. Cheesewright decided by January 29, 2010 to “dismiss or denigrate” Ms. Galea to the point where she might resign;
- Instead of being terminated at the outset, Wal-Mart was unduly insensitive to Ms. Galea by keeping her in suspended animation for 10 months by moving her to an ad-hoc position in February 2010 that was essentially an international job search;
- Mr. Cheesewright made representations that he would assist Ms. Galea in finding a role among Wal-Mart’s international companies, but failed to follow through on these representations which Justice Emery characterized as amounting to a good faith promise to assist;
Employers Tread Carefully – The Manner of Dismissing an Employee Can Cost You Close to A Million Dollars
- After dismissing Ms. Galea, Wal-Mart decided to stop salary payments and health and dental coverage under the NCA 12.5 months early; and
- During the course of litigation, Wal-Mart’s purposeful delay or indifference in answering undertakings and providing the necessary disclosure to Ms. Galea caused her mental distress that exceeded the normal stress and hurt feelings that accompany a dismissal.
Overall, Justice Emery found that Wal-Mart’s conduct was misleading at best, and dishonest at worst in the way it treated Ms. Galea.
It is of note that in awarding $50,000 in moral damages for post-termination conduct, Justice Emery carves out an exception to the general rule, that matters relating to litigation conduct are dealt with by way of costs at the end of the litigation process.
In this case, Justice Emery also concluded that moral damages may properly be awarded for litigation conduct where the evidence proves that the employer has acted in bad faith such that the employer or counsel acting on instructions from the employer are engaging in conduct to frustrate or deny the rights of an employee.
PUNITIVE DAMAGES
In this decision, Justice Emery also found that Wal-Mart’s conduct in dealing with Ms. Galea between January and November 2010 was callous, highhanded, insensitive, and reprehensible – deserving of an award of punitive damages. In awarding Ms. Galea $500,000 in punitive damages, Justice Emery found that:
- Wal-Mart built Ms. Galea up only to let her down by making representations about her career prospects, while concurrently making decisions that detracted from or defeated that purpose;
- There was a clear power imbalance between Wal-Mart and Ms. Galea demonstrated by Mr. Cheesewright arbitrarily altering Ms. Galea’s rating making her “non-promotable”, and finally giving Ms. Galea an unfair ultimatum in November 2010; and
- The decisions and conduct played out at such a high level within the executive offices and with such visibility that a higher damage award was necessary to “chastise” Wal-Mart.
It is of note that Justice Emery stated that all of Wal-Mart’s conduct giving rise to the award of punitive damages occurred between January and November 2010 but went further and commented on WalMart’s post-termination conduct, including its litigation strategy to “starve [Ms. Galea] into a trial”.
This decision currently stands as a high-water mark for both moral and punitive damage awards in employment law in Ontario. As always, we recommend that employers reach out for legal advice before terminating any employee as the manner of dismissal can be an important factor in assessing an employer’s potential liability.
Given the amounts at issue, this decision is likely to be appealed. Stay tuned for future updates.