Thursday, July 19, 2012

Ancillary Damages and the Sword of Damocles

I recently referred in passing the concept of ancillary damages, from Justice Echlin's decision in Brito v. Canac Kitchens, which I discussed here and here.

The essential facts are these:  Mr. Olguin (the plaintiff in Brito) was dismissed, and offered a modest package, which was less than his common law entitlements.  He didn't agree to the package, and his benefits and remuneration were cut off after his statutory minimums were satisfied.  He obtained new employment relatively quickly, but without benefits.  So when he began to undergo cancer treatments during what would have been the reasonable notice period, he incurred significant losses.

The issues included the length of the notice period, but by the point of trial, even the employer wasn't seriously arguing for a notice period which would have allowed them to terminate Mr. Olguin's benefits before he was diagnosed.  So the main issue was the scale of damages for their termination of his disability benefits; they argued unsuccessfully that he should have mitigated his loss by purchasing replacement benefits.  Instead, they were hit with the full amount his disability insurance would have had to pay out.  Pretty major.

But another head of damages awarded by Justice Echlin was "ancillary" damages, for cutting off his benefits and wages after only the statutory minimum notice period.  Looking at the description of his reasons for awarding them, they appeared to me to be in the nature of punitive damages, which traditionally have a very high bar in wrongful dismissal suits, including a separate actionable wrong and exceptionally bad conduct on the employer's part.  I couldn't see how this case would meet the traditional test for punitive damages.  But that doesn't mean it can't succeed - the law is always changing.

The Court of Appeal agreed that they looked like punitive damages, and found that, because punitive damages weren't pleaded by the plaintiff, the award couldn't stand.  Highly unsatisfactory.  Canac's approach to this matter is not an uncommon one:  Put an initial offer to the employee which satisfies his statutory entitlements and offers to continue wages and benefits past the stat minimums in exchange for a release.  Few employers are willing to continue wages or benefits - and especially LTD benefits - past the stat minimum notice period without a signed release.  That's the deal they're trying to make.  "Let's agree on how much we owe you before we pay you anything."  And in a case where the employee finds new employment, an employer would normally take money off the table.  Canac's actions, which Justice Echlin found to be so high-handed and oppressive as to justify additional damages, were essentially common practice.  So employers need a little something more from the Court of Appeal than "it wasn't pleaded".  A singular decision in exceptional circumstances, even from Justice Echlin, is unlikely to change the industry practice.

This was Justice Echlin's last reported decision, to my knowledge, before he passed, and it was a big one.  His analysis on LTD benefits are likely to become fairly well-entrenched in the law.  The ancillary damages leave a big question mark, however.

Right now, it's an outlier.  But outlier decisions which run against the grain of established law, when made by esteemed judges in the field, often plant seeds which can result in legal change down the road.  It's hard to completely ignore Justice Echlin, though two decisions (Asselin v. Gazarek and Day v. JCB Excavators Ltd.) that I know of have distinguished the case, calling it a "fact-specific" decision.

So, for now, the existing practice continues to involve the provision of only the stat minimums without a signed release, but I can't help but think that Justice Echlin has left us with a dark threat, that employers could land in trouble doing so, at least in the wrong circumstances.  We don't know if or when the sword of Damocles will fall, but employers have reason to be somewhat nervous about this.

(Incidentally, Justice Echlin himself evoked the image of the sword of Damocles in his decision in Carscallen, in a constructive dismissal context.)

*****

This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer. 

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