McKinley v. BC Tel, [2001] 2 S.C.R. 161, 2001 SCC 38

Martin Richard McKinley Appellant

v.

BC Tel, British Columbia Telephone Company, BC Telecom Inc., BC Tel Services Inc., BC Tel Systems Support Inc., B.C. Mobile Ltd., BC Tel Properties Inc., Canadian Telephones and Supplies Ltd., and TSI Telecommunications Services International Inc. Respondents

Indexed as: McKinley v. BC Tel

Neutral citation: 2001 SCC 38.

File No.: 27410.

2001: January 24; 2001: June 28.

Present: McLachlin C.J. and L’Heureux‑Dubé, Iacobucci, Major, Bastarache, Binnie and Arbour JJ.

on appeal from the court of appeal for british columbia

Employment law – Wrongful dismissal – Dishonest conduct – Whether employee’s dishonesty, in and of itself, necessarily gives rise to just cause for summary dismissal – Whether nature and context of such dishonesty must be considered – Whether trial judge erred in instructing jury that employee’s dishonesty would merit termination only if it was of “a degree that was incompatible with the employment relationship” – Applicable standard for assessing whether and in what circumstances dishonesty provides just cause.

Employment law – Wrongful dismissal – Jury’s verdict – Dishonest conduct – Jury finding that just cause for summary dismissal did not exist – Whether jury’s verdict reasonable.

Damages – Wrongful dismissal – Extended period of notice – Whether trial judge erred by putting issue of extended notice period before jury – Whether jury award for damages representing extended notice period reasonable.

Damages – Wrongful dismissal – Aggravated damages – Whether criteria for allowing issue of aggravated damages to go to jury met.

Damages – Wrongful dismissal – Punitive damages – Whether issue of punitive damages should have been put to jury.

The appellant is a chartered accountant who was employed by the respondents (“BC Tel”). In 1993, he began to experience high blood pressure as a result of hypertension. By June 1994 his blood pressure was rising on a daily basis and following his physician’s advice he took a leave of absence from work. The appellant had indicated to his employer that he wished to return to work, but in a position that carried less responsibility. He was advised that BC Tel would attempt to find another suitable position for him within its corporate structure. On August 31, 1994 BC Tel terminated the appellant’s employment. By that time, the appellant had worked for BC Tel for almost 17 years and was 48 years of age. The appellant rejected BC Tel’s severance offer and took the position that his employment was terminated without just cause and without reasonable notice or pay in lieu of reasonable notice. He brought a wrongful dismissal action in the British Columbia Supreme Court. B.C. Tel took the position that they had just cause for the appellant’s summary dismissal, alleging that he had been dishonest about his medical condition, and the treatments available for it.

The trial judge held that there was sufficient evidence to put the question of just cause for dismissal to the jury. In instructing the jury on this point, he stated that in order for just cause to exist, the jury must find (a) that the appellant’s conduct was dishonest in fact, and (b) that “the dishonesty was of a degree that was incompatible with the employment relationship”. The trial judge also held that the jury could consider whether aggravated damages as well as damages for bad faith in the conduct or manner of the dismissal were warranted. On the other hand, he held that there was no evidence upon which a claim for punitive damages could be based, and thus, this question was not put to the jury. The jury found in favour of the appellant, awarding him general damages, special damages, aggravated damages, and pension contributions. The Court of Appeal set aside the jury award and ordered a new trial, finding that the trial judge committed a reversible error in instructing the jury that the appellant’s dishonesty would merit termination only if it was of a degree that was “incompatible with the employment relationship”. The appellant appealed to this Court and BC Tel cross‑appealed, submitting that, if the Court dismissed the appeal, it ought to dismiss the appellant’s wrongful dismissal action outright rather than order a new trial.

Held: The appeal should be allowed. The cross‑appeal should be dismissed.

Whether an employer is justified in dismissing an employee on the grounds of dishonesty is a question that requires an assessment of the context of the alleged misconduct. More specifically, the test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. Just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer. In accordance with this test, a trial judge must instruct the jury to determine: (1) whether the evidence established the employee’s deceitful conduct on a balance of probabilities; and (2) if so, whether the nature and degree of the dishonesty warranted dismissal. The second branch of the test does not blend questions of fact and law. Rather, assessing the seriousness of the misconduct requires the facts established at trial to be carefully considered and balanced. As such, it is a factual inquiry for the jury to undertake. In certain contexts, the contextual approach might lead to a strict outcome: cause for termination exists where theft, misappropriation or serious fraud is found. However, lesser sanctions may be applied for less serious types of misconduct. An effective balance must be struck between the severity of an employee’s misconduct and the sanction imposed.

The approach endorsed by the Court of Appeal would entitle an employer to dismiss an employee for just cause for a single act of dishonesty, however minor. The consequences of dishonesty would remain the same, irrespective of whether the impugned behaviour was sufficiently egregious to violate or undermine the obligations and faith inherent to the employment relationship. Such an approach could foster results that are both unreasonable and unjust. Absent an analysis of the surrounding circumstances of the alleged misconduct, its level of seriousness, and the extent to which it impacted upon the employment relationship, dismissal on a ground as morally disreputable as “dishonesty” might well have an overly harsh and far‑reaching impact for employees. In addition, allowing termination for cause wherever an employee’s conduct can be labelled “dishonest” would further unjustly augment the power employers wield within the employment relationship. An analytical framework that examines each case on its own particular facts and circumstances, and considers the nature and seriousness of the dishonesty in order to assess whether it is reconcilable with sustaining the employment relationship, is favoured. The trial judge’s instructions were entirely consistent with the contextual approach and cannot serve as a basis for setting aside the jury verdict.

An appellate court is entitled to set aside a jury’s verdict where it is found that the evidence did not permit a jury acting judicially to reach the conclusion that it did. In the present case, while there may not have been a full disclosure of all material facts by the appellant concerning his treatment and medication, an analysis of the record as a whole leads to the conclusion that the jury could have reasonably and judicially found that the appellant did not engage in dishonest conduct of a degree incompatible with his employment relationship. There is therefore no basis upon which to interfere with the jury’s verdict that B.C. Tel had not proven just cause warranting dismissal.

There is also no basis for interfering with the trial decision on the issue of the extended notice period. Where a dismissal is accompanied by bad faith or unfair dealing on the part of the employer, Wallace establishes that such conduct merits compensation by way of an extension to the notice period. This remedy is not triggered by the dismissal itself, but by the exacerbating factors that, in and of themselves, inflict injury upon the employee. The trial judge’s analysis and jury charge adhered to the principles set out by this Court in Wallace, and the jury could, based on the evidence, reasonably find that the notice period should be extended. Although the appellant may have agreed to terminate his employment contract, this did not necessarily imply a waiver of his right to be treated fairly and in good faith by his employer, nor did it preclude the protection that Wallace intended to confer by recognizing an award for extended notice.

The order for aggravated damages must be set aside since the criteria for allowing the question of aggravated damages to go to the jury were not met. The proper threshold for allowing the issue of aggravated damages to be determined by a jury is whether sufficient evidence exists. The standard set out by the trial judge fell short of that test by suggesting, in effect, that any evidence, even a mere scintilla thereof, would suffice to put the matter of aggravated damages to the jury for its consideration. Applying the correct standard to the present case, there was not sufficient evidence before the trial judge to allow the jury to deliberate on the question of aggravated damages.

Finally, the trial judge’s ruling that the question of punitive damages should be withheld from the jury was sound and should be left undisturbed. The evidence did not support a finding of an “independent wrong”, including discrimination, and B.C. Tel’s conduct was not sufficiently harsh, vindictive, reprehensible, malicious or extreme in nature to warrant punishment.

Cases Cited

Applied: Wallace v. United Grain Growers Ltd., 1997 332 (SCC), [1997] 3 S.C.R. 701; referred to: McPhillips v. British Columbia Ferry Corp. (1994), 1994 6416 (BC CA), 94 B.C.L.R. (2d) 1; Vancouver‑Fraser Park District v. Olmstead, 1974 196 (SCC), [1975] 2 S.C.R. 831; Clouston & Co. v. Corry, [1906] A.C. 122; Laws v. London Chronicle, Ltd., [1959] 2 All E.R. 285; R. v. Arthurs, Ex parte Port Arthur Shipbuilding Co. (1967), 1967 30 (ON CA), 62 D.L.R. (2d) 342; Blackburn v. Victory Credit Union Ltd. (1998), 1998 6089 (NS CA), 36 C.C.E.L. (2d) 94; Jewitt v. Prism Resources Ltd. (1981), 1981 535 (BC CA), 30 B.C.L.R. 43; Hill v. Dow Chemical Canada Inc. (1993), 1993 7097 (AB KB), 11 Alta. L.R. (3d) 66; MacNaughton v. Sears Canada Inc. (1997), 1997 9530 (NB CA), 186 N.B.R. (2d) 384; Dougherty v. Bathurst Golf Association Ltd. (1997), 1997 9515 (NB CA), 189 N.B.R. (2d) 230; Butler v. Canadian National Railways, 1939 124 (SK CA), [1939] 3 W.W.R. 625; Holloway v. Encor Energy Corp. (1991), 1991 7936 (SK CA), 93 Sask. R. 226; Epoch v. Beaver Lumber Co. (1997), 1997 12344 (ON SC), 45 C.C.E.L. (2d) 135; Thompson v. Boise Cascade Canada Ltd. (1994), 1994 7385 (ON SC), 7 C.C.E.L. (2d) 17; Justason v. Cox Radio & T.V. Ltd. (1997), 1997 23268 (NB QB), 190 N.B.R. (2d) 228; McCluskey v. Lawtons Drug Stores Ltd. (1998), 1998 28457 (NB QB), 204 N.B.R. (2d) 137, aff’d (1999), 1999 32960 (NB CA), 210 N.B.R. (2d) 198; Boston Deep Sea Fishing and Ice Co. v. Ansell (1888), 39 Ch. D. 339; Federal Supply and Cold Storage Co. of South Africa v. Angehrn & Piel (1910), 80 L.J.P.C. 1; Real Canadian Superstore (Saskatchewan) v. United Food and Commercial Workers, Local 1400 (1998), 1998 13910 (SK QB), 173 Sask. R. 203; Reade v. Newfoundland Co‑Ordinating Council on Deafness (1987), 1987 5171 (NL SC), 63 Nfld. & P.E.I.R. 194; Smith v. Dawson Memorial Hospital and Flood (1978), 1978 3804 (NS SC), 29 N.S.R. (2d) 277; Evans v. Sobeys Capital Inc. (1995), 1995 9886 (NL CA), 15 C.C.E.L. (2d) 197; Lake Ontario Portland Cement Co. v. Groner, 1961 1 (SCC), [1961] S.C.R. 553; Reference Re Public Service Employee Relations Act (Alta.), 1987 88 (SCC), [1987] 1 S.C.R. 313; Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986; McCannell v. McLean, 1937 1 (SCC), [1937] S.C.R. 341; Gray Coach Lines Ltd. v. Payne, 1945 6 (SCC), [1945] S.C.R. 614; Scotland v. Canadian Cartridge Co. (1919), 1919 12 (SCC), 59 S.C.R. 471; Vorvis v. Insurance Corp. of British Columbia, 1989 93 (SCC), [1989] 1 S.C.R. 1085; Horton v. Niagara (Regional Municipality) (1987), 1987 8548 (ON HRT), 9 C.H.R.R. D/4611; Wamboldt v. Department of National Defence (1983), 1983 4695 (CHRT), 4 C.H.R.R. D/1479; British Columbia (Public Service Employee Relations Commission) v. BCGSEU, 1999 652 (SCC), [1999] 3 S.C.R. 3; British Columbia (Superintendent of Motor Vehicles) v. British Columbia (Council of Human Rights), 1999 646 (SCC), [1999] 3 S.C.R. 868; Collinson v. William E. Coutts Co., [1995] B.C.J. No. 2766 (QL).

Statutes and Regulations Cited

Canadian Human Rights Act, R.S.C. 1985, c. H‑6.

Rules of the Supreme Court of Canada, SOR/83‑74, Rule 29 [mod. SOR/95‑325, s. 2].

Authors Cited

Levitt, Howard A. The Law of Dismissal in Canada, 2nd ed. Aurora, Ont.: Canada Law Book, 1992.

APPEAL and CROSS-APPEAL from a judgment of the British Columbia Court of Appeal (1999), 1999 BCCA 308, 123 B.C.A.C. 295, 67 B.C.L.R. (3d) 337, 42 C.C.E.L. (2d) 168, [1999] B.C.J. No. 1075 (QL), allowing an appeal and dismissing a cross-appeal from a decision of Paris J. Appeal allowed. Cross‑appeal dismissed.

D. Murray Tevlin, Geoffrey J. Litherland and Jennifer A. Lamont, for the appellant/respondent on the cross‑appeal.

Jack Giles, Q.C., and Karen Shirley‑Paterson, for the respondents/appellants on the cross‑appeal.

The judgment of the Court was delivered by

Iacobucci J. --

I. Introduction

[1] This appeal arises out of a wrongful dismissal action. It calls upon the Court to elaborate the circumstances in which an employer would be justified in summarily dismissing an employee as a result of the latter’s dishonest conduct. More specifically, the question is whether any dishonesty, in and of itself, suffices to warrant an employee’s termination, or whether the nature and context of such dishonesty must be considered in assessing whether just cause for dismissal exists.

[2] The appeal also raises ancillary questions relating to the propriety of the trial judge’s decision to put to the jury questions related to awards for an extended notice period, aggravated damages, and punitive damages. In addition, the parties sought a review of the reasonableness of the jury verdict on various matters decided at trial. A cross-appeal also has been brought, wherein the respondents submitted that, if the Court dismissed the appeal, it ought to dismiss the appellant’s wrongful dismissal action outright rather than order a new trial.

[3] For the reasons that follow, I am of the view that this appeal should be allowed and that the jury’s verdict should be restored on all questions except that related to aggravated damages. As I would allow the appeal, the cross-appeal must per force be dismissed.

II. Factual Background

[4] The appellant, Martin Richard McKinley, is a chartered accountant who was employed by the respondents, the BC Tel group of companies (“BC Tel”). While working for BC Tel, he held various positions, earned promotions, and received salary increases. In 1991, he became Controller, Treasurer and Assistant Secretary to certain BC Tel companies. But in 1993, the appellant began to experience high blood pressure as a result of hypertension. Initially, this condition was brought under control through medication, and by taking some time away from work. However, by May of 1994, the appellant’s health took a turn for the worse. His blood pressure had begun to rise again, and by June of that year, it was rising on a daily basis. Following his physician’s advice, the appellant took a leave of absence from work.

[5] By July 1994, the appellant’s superior, Ian Mansfield (“Mansfield”), raised the issue of the appellant’s termination from his employment. During discussions with his employers, the appellant indicated that he wished to return to work, but in a position that carried less responsibility. He was advised that BC Tel would attempt to find another suitable position for him within its corporate structure. However, alternative employment was never offered to the appellant. Although at least two positions for which the appellant qualified opened during the period in question, these were filled by other employees.

[6] While the appellant was still on leave from work owing to his health condition, Mansfield telephoned him and instructed him to report to the respondents’ offices on August 31, 1994. The appellant complied, and on that day, the respondents terminated his employment. By that time, the appellant had worked for BC Tel for almost 17 years and was 48 years of age.

[7] Although the respondents made the appellant a severance offer, this was rejected. According to the appellant, his employment was terminated without just cause and without reasonable notice or pay in lieu of reasonable notice. He thus brought a wrongful dismissal action in the Supreme Court of British Columbia, arguing that his termination was an arbitrary and wilful breach of his employment contract, which was conducted in a high-handed and flagrant manner. The appellant maintained that the respondents’ actions amounted to an intentional infliction of mental suffering. He alleged that, as a result of the wrongful dismissal, he lost his employment income and benefits, as well as the short-term disability benefits he was then receiving. He also argued that the dismissal prevented him from qualifying for, or receiving, any long-term disability benefits, and caused him to lose his future pension benefits. As such, the appellant sought an order for general compensatory damages, special damages for the expenses incurred in attempting to find new employment, aggravated damages, and damages for mental distress and the intentional infliction of mental suffering, as well as punitive damages.

[8] Aside from his wrongful dismissal action, the appellant filed an information with the Canadian Human Rights Commission, based on the same allegations of fact. He argued that his dismissal contravened the Canadian Human Rights Act, R.S.C. 1985, c. H‑6. At the time of trial, he had not yet filed a formal complaint.

[9] The respondents admitted to having terminated the appellant’s employment on August 31, 1994. However, their initial defence rested on the ground that, in dismissing the appellant, they offered him a compensation package of salary and benefits in lieu of reasonable notice. Moreover, the respondents maintained that throughout the months of July and August 1994, they used their best efforts, to the appellant’s knowledge, to locate an alternate suitable position for him within BC Tel. Finally, the respondents denied the appellant’s allegations with respect to the flagrant nature of the dismissal, and submitted that the termination actually occurred in a professional manner, and in consultation with the appellant.

[10] In a Further Amended Statement of Defence (October 6, 1997), the respondents maintained that the appellant’s illness “frustrated the object of the [appellant’s] employment”. They thus claimed that they were justified in treating the employment contract as at an end, and in terminating it as they did on August 31, 1994. The respondents submitted that in dismissing the appellant, they offered him a compensation package in lieu of reasonable notice.

[11] However, on November 20, 1997, three days into the trial of this case, the respondents obtained permission from the court to amend their pleadings once again. They abandoned the defence of frustration, and instead argued that just cause for the appellant’s summary dismissal existed. Specifically, the respondents alleged that the appellant had been dishonest about his medical condition, and the treatments available for it. This argument was based on the respondents’ recent discovery of a letter (dated December 12, 1994) written by the appellant to Dr. Peter Graff, an internal medicine and cardiac specialist, who was one of the appellant’s attending physicians. In this letter, the appellant wrote to Dr. Graff acknowledging that, during a previous medical appointment, Dr. Graff had recommended a certain medication – the “beta blocker” – as the next method of treatment for the appellant’s hypertension. Although beta blockers were not prescribed at that time, the letter indicated that Dr. Graff had advised the appellant that such treatment should begin upon the latter’s return to work, if his blood pressure remained high.

[12] The respondents claimed that the appellant deliberately withheld the truth as to Dr. Graff’s recommendations regarding the use of beta blockers and their ability to enable him to return to his job without incurring any health risks. However, the appellant’s evidence at trial revealed that, insofar as he was concerned, he had not lied to the respondents.

[13] At trial, the appellant’s wrongful dismissal action was heard before a judge and jury. Paris J. held that there was sufficient evidence to put the question of just cause for dismissal to the jury. In instructing the jury on this point, Paris J. stated that, in order for just cause to exist, it must find (a) that the appellant’s conduct was dishonest in fact, and (b) that “the dishonesty was of a degree that was incompatible with the employment relationship”. Paris J. also held that the jury could consider whether aggravated damages, as well as damages for bad faith in the conduct or manner of the dismissal were warranted. On the other hand, he held that there was no evidence upon which a claim for punitive damages could be based, and thus, this question was not put to the jury.

[14] The jury found in favour of the appellant, awarding him the following amounts: $108,793 in general damages; $1,233 in special damages; $100,000 in aggravated damages; $6,091 in pension contributions; prejudgment interest; and costs. Paris J. refused to make an order for special costs, and for increased costs.

[15] The Court of Appeal for British Columbia set the jury award aside and ordered a new trial. The appellant’s cross-appeal on the question of punitive damages was dismissed. According to the Court of Appeal, dishonesty is always cause for dismissal. Thus, by instructing jurors that the appellant’s dishonesty would merit termination only if it was of a degree that was “incompatible with the employment relationship”, Paris J. committed a reversible error.

III. Judicial History

A. Supreme Court of British Columbia (Paris J.), November 27, 1997

[16] Paris J. made several observations regarding the instructions and questions he would put to the jury. First, with respect to the question of just cause for dismissal, he stated that – without making any comments as to its weight – he was bound to note that there was some evidence of a lack of frankness by the appellant regarding his ability to return to his previous position. But, it was to be left to the jury to decide whether the evidence amounted to proof of “dishonesty of a degree incompatible with the employment relationship”.

[17] Paris J. held further that questions regarding damages related to bad faith in the conduct or manner of dismissal were to be put to the jury. In this regard, it was to determine whether the evidence revealed that there was bad faith or unfair conduct by the respondents, as contemplated by this Court in Wallace v. United Grain Growers Ltd., 1997 332 (SCC), [1997] 3 S.C.R. 701. If so, it was to decide by how many months the notice period should be extended beyond that which would be considered as the “reasonable” period of notice in this case.

[18] The trial judge also found that the question of aggravated damages should be decided by the jury. In his view, there was some evidence to support the appellant’s contention that, within the context of the dismissal, the respondents engaged in a wilful or deliberate infliction of mental distress amounting to tortious conduct. Whether the appellant actually suffered such mental distress, and whether there existed an intention to inflict such distress was to be inferred from the evidence, and was for the jury to decide.

[19] However, Paris J. held that there was no evidence upon which the appellant’s claim for punitive damages could be based. He found that human rights legislation did not add anything to this dimension of the case, and there was no evidence of discrimination on the basis of disability. Moreover, Paris J. stated that there was no proof of harsh, vindictive, and malicious conduct on the respondents’ part.

[20] In charging the jury on the issue of dismissal for just cause on the basis of an employee’s dishonesty, Paris J.’s instructions were as follows:

Now in this case, the defendant puts forward the defence that it had just cause for dismissal of the plaintiff. If just cause existed at the time of the dismissal, the defendant had the right to terminate the employment contract without giving any notice. That is because conduct amounting to just cause for dismissal constitutes a breach of the contract. Now the burden of proving just cause is on the defendant. Now what constitutes just cause for dismissal may vary depending upon the circumstances of the case which must be assessed by you the jury. Generally speaking, however, examples of just cause would be an employee’s serious misconduct, habitual neglect of duty, incompetence, repeated willful [sic] disobedience, or dishonesty of a degree incompatible with the employment relationship. The conduct must be such as to undermine or seriously impair the trust and confidence the employer is entitled to place in the employee in the circumstances of their particular relationship. Something less than that is not sufficient cause for dismissal without reasonable notice. Perhaps I should repeat that for you. As to just cause for dismissal the conduct of the employee must be such as to undermine or seriously impair the trust and confidence the employer is entitled to place on the employee in the circumstances of their particular relationship. In the case of dishonesty it must be of a degree incompatible with the employment relationship. Something less than that is not sufficient cause for dismissal without reasonable notice.

Remember that as I have told you to find cause for dismissal you would have to find not only that the plaintiff was deceitful as the defendant contends but that the dishonesty was of a degree that was incompatible with the employment relationship. [Emphasis added.]

The question put to the jury on this point asked simply:

Have the Defendants proven that (unknown to them at the time), cause for dismissal existed when they terminated the Plaintiff on August 31, 1994?

The jury responded to this question in the negative.

B. Court of Appeal for British Columbia (Hollinrake J.A. for the Court) (1999), 1999 BCCA 308, 67 B.C.L.R. (3d) 337

[21] On appeal, the respondents argued that the trial judge’s jury instructions were incorrect in law. They maintained that an employee’s dishonest conduct, irrespective of its degree, is always cause for dismissal. In this respect, the respondents relied on McPhillips v. British Columbia Ferry Corp. (1994), 1994 6416 (BC CA), 94 B.C.L.R. (2d) 1 (C.A.); leave to S.C.C. refused, [1995] 1 S.C.R. ix.

[22] The Court of Appeal held that the dishonesty asserted by the respondents was not as clear as in McPhillips, where an employee billed his employer for unauthorized personal expenses. However, it found that Paris J. invited the jury to consider the extent of the dishonesty alleged, and to determine whether this “was of a degree that was incompatible with the employment relationship,” and thus “sufficient to warrant dismissal”. According to the Court of Appeal, such instructions were incorrect as a matter of law. In this regard, Hollinrake J.A. stated at para. 25:

Dishonesty within the contract of employment, as is the case alleged here, is cause and that cause is not founded on the basis of the “degree” of the dishonesty.

Considering the evidence before the jury and the question that had been put to it in regard to the existence of just cause, Hollinrake J.A. held that it was not possible to discern the jury’s exact findings. It may have found that, on the basis of the evidence as a whole, there was no dishonesty. However, the jury also may have concluded that there was dishonesty related to the employment contract, but that such dishonesty was not of the requisite “degree” to provide just cause for dismissal, as articulated by the trial judge. If the second scenario were true, a miscarriage of justice had resulted in this case.

[23] In considering the specific nature of the flaw within the jury charge, Hollinrake J.A. stated at paras. 27 and 28:

In my opinion, this jury should have been instructed that if it found dishonesty on the evidence as asserted by the [respondents] it must, as a matter of law, conclude that there existed cause for dismissal. The only finding of fact for the jury to make was dishonesty or no dishonesty and if the former was found by the jury the judge would then have been bound as a matter of law to conclude that there was cause for dismissal. That conclusion is mandated by the McPhillips case.

I am unable to see any difference in substance from the charge before us and that in McPhillips. In my opinion, they both suffer from the identical fatal flaw. That being, it cannot be determined on appeal whether or not the jury had found there was no dishonesty or there was dishonesty found but in the collective mind of the jury that dishonesty did not “justify the firing” (McPhillips) or was not “of a degree incompatible with the employment relationship” (the instant case).

[24] The court thus stated that the jury charge in this case – which referred to the “degree of dishonesty” incompatible with the employment relationship – put a mixed question of fact and law to the jury. Whether the appellant had been dishonest with his employers was a question of fact for the jury to decide. However, the jury should not have been permitted to determine whether the “degree” of dishonesty sufficed to warrant dismissal, since as a matter of law, all dishonesty within an employment relationship provides just cause.

[25] Before the Court of Appeal, the respondents, referring to the case of Vancouver-Fraser Park District v. Olmstead, 1974 196 (SCC), [1975] 2 S.C.R. 831, submitted that the appellant’s wrongful dismissal claim should be dismissed in preference to ordering a new trial. They argued that it would be impossible for any jury acting judicially to reach the conclusion that the appellant was honest with his employers about his ability to return to work. The Court of Appeal declined to dismiss the action. It held that, given the evidence, there was some measure of confusion in the mind of the appellant as to the availability of a different job, the medical advice he received, and what future steps he should take for his own health and well-being. Thus, while the evidence could allow a jury to arrive at a finding of dishonesty justifying dismissal without notice, it also would be open to the trier of fact to conclude that there was no dishonest conduct on the part of the appellant. As such, the appellant’s action against his former employers could not be dismissed.

[26] Accordingly, the appeal was allowed, the order of the British Columbia Supreme Court set aside, and a new trial was ordered on all issues. The appellant’s cross-appeal on the issue of whether the trial judge erred by failing to put the question of punitive damages to the jury was unnecessary to deal with, given the order for a new trial on all issues. As such, the cross-appeal was dismissed without reasons.

IV. Issues

[27] This appeal raises the following issues:

A. Did the trial judge err by instructing the jury that, to find just cause for dismissal, it would have to find not only that the plaintiff was deceitful, but that the dishonesty was “of a degree that was incompatible with the employment relationship”?

B. Based on the evidence before it, could the jury, acting judicially, have reasonably found that the appellant’s conduct was not dishonest and thus, that just cause for summary dismissal did not exist?

C. Was the jury award for damages representing an extended notice period reasonable?

D. Should the question of aggravated damages have been put to the jury in this case?

E. Should the question of punitive damages have been put to the jury in this case?

V. Analysis

A. The Standard for Dishonest Conduct in the Employment Relationship

[28] Although this Court has yet to consider the question of whether an employee’s dishonesty, in and of itself, necessarily gives rise to just cause for summary dismissal, this issue has been examined by the English courts, as well as appellate and lower courts in Canada. From an analysis of this jurisprudence, no clear principle or standard emerges. Rather, while one line of authority suggests that the nature of the dishonesty and the circumstances surrounding its occurrence must be considered, another seems to indicate that dishonest conduct alone – regardless of its degree – creates just cause for dismissal. A brief review of these two strands of jurisprudence would be useful before determining which should guide this Court’s analysis in the present case.

1. Authority Indicating that Context Must Be Considered when Assessing Whether Dishonesty Amounts to Just Cause for Dismissal

[29] When examining whether an employee’s misconduct – including dishonest misconduct – justifies his or her dismissal, courts have often considered the context of the alleged insubordination. Within this analysis, a finding of misconduct does not, by itself, give rise to just cause. Rather, the question to be addressed is whether, in the circumstances, the behaviour was such that the employment relationship could no longer viably subsist.

[30] The Privy Council’s decision in Clouston & Co. v. Corry, [1906] A.C. 122, adopted this analytical framework. The question arising in that case was whether an employee’s public drunkenness and disobedient conduct warranted his dismissal. The Privy Council’s ruling spoke generally to the concept of “misconduct” and held that there was no fixed rule of law to define when termination would be warranted. The question is one of degree. The trial judge must first determine whether there is any evidence to submit to the jury in support of the allegation of justifiable dismissal. He or she also may direct jurors by informing them of the nature of the acts which, as a matter of law, will justify dismissal. However, the ultimate question of whether just cause for such dismissal exists is one of fact that the jury must decide. Thus, the Privy Council indicated that it is not sufficient that the jury find misconduct alone, since this will not necessarily provide a basis for dismissal. Rather, the jury must determine that the misconduct is impossible to reconcile with the employee’s obligations under the employment contract. In this regard, Lord James of Hereford stated at p. 129:

In the present case the tribunal to try all issues of fact was a jury. Now the sufficiency of the justification depended upon the extent of misconduct. There is no fixed rule of law defining the degree of misconduct which will justify dismissal. Of course there may be misconduct in a servant which will not justify the determination of the contract of service by one of the parties to it against the will of the other. On the other hand, misconduct inconsistent with the fulfilment of the express or implied conditions of service will justify dismissal. [Emphasis added.]

[31] A similar analysis was undertaken in subsequent decisions dealing with this issue. For instance, in Laws v. London Chronicle, Ltd., [1959] 2 All E.R. 285, the English Court of Appeal stated the following at p. 287:

[S]ince a contract of service is but an example of contracts in general, so that the general law of contract will be applicable, it follows that, if summary dismissal is claimed to be justifiable, the question must be whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. [Emphasis added.]

As such, Lord Evershed, M.R., held that a single act of disobedience justified dismissal only if it demonstrated that the servant had repudiated the contract or one of its essential conditions. In this way, the ruling in Laws indicated that an analysis of whether an employee’s misconduct warrants dismissal requires an assessment of its degree and surrounding circumstances.

[32] This contextual approach also has been adopted in several decisions by Canadian appellate courts. For example, in R. v. Arthurs, Ex parte Port Arthur Shipbuilding Co. (1967), 1967 30 (ON CA), 62 D.L.R. (2d) 342, at p. 348, the Ontario Court of Appeal stated that an employer’s right to summarily dismiss an employee is triggered by “serious misconduct”, which was recognized as including habitual neglect of duty, incompetence, wilful disobedience or “conduct incompatible with his duties, or prejudicial to the employer's business.”

[33] More recently, the Nova Scotia Court of Appeal in Blackburn v. Victory Credit Union Ltd. (1998), 1998 6089 (NS CA), 36 C.C.E.L. (2d) 94, adopted a contextual analysis for assessing whether misconduct – and in particular, dishonest misconduct – warranted summary dismissal. On this point, Flinn J.A., writing for the court at p. 110, held:

The difficulty which I have with the position of counsel for the employer is that, in dealing with this aspect of his first ground of appeal, he treats the acts of misconduct in isolation. The courts do not consider an act of misconduct, in and of itself, to be grounds for dismissal without notice, unless it is so grievous that it gives rise to the inference that the employee intends no longer to be bound by the contract of service.

There is no definition which sets out, precisely, what conduct, or misconduct, justifies dismissal without notice, and rightly so. Each case must be determined on its own facts. . . .

Thus, according to this reasoning, an employee’s misconduct does not inherently justify dismissal without notice unless it is “so grievous” that it intimates the employee’s abandonment of the intention to remain part of the employment relationship. In drawing this conclusion, the Nova Scotia Court of Appeal relied on the following passage in H. A. Levitt’s The Law of Dismissal in Canada (2nd ed. 1992), at p. 124:

What constitutes just cause in a specific situation is particularly difficult to enumerate because it depends not only on the category and possible consequences of the misconduct, but also on both the nature of the employment and the status of the employee . . . .

The existence of misconduct sufficient to justify cause cannot be looked at in isolation. Whether misconduct constitutes just cause has to be analyzed in the circumstances of each case. Misconduct must be more serious in order to justify the termination of a more senior, longer‑service employee who has made contributions to the company.

[34] The jurisprudence also reveals that an application of a contextual approach – which examines both the circumstances surrounding the conduct as well as its nature or degree – leaves the trier of fact with discretion as to whether a dishonest act gives rise to just cause. For example, in Jewitt v. Prism Resources Ltd. (1981), 1981 535 (BC CA), 30 B.C.L.R. 43 (C.A.), Taggart J.A. held that an analysis of the employee’s misconduct “in the circumstances” of that case did constitute cause for dismissal. Jewitt involved an employee who allowed a co-director’s signature to be traced on a balance sheet. In contrast, an examination of the surrounding circumstances in Hill v. Dow Chemical Canada Inc. (1993), 1993 7097 (AB KB), 11 Alta. L.R. (3d) 66 led the Alberta Court of Queen’s Bench to conclude that the misconduct in question merely reflected a single incident of “poor judgment”. This finding, along with the conclusion that the employee lacked an intention to deceive, caused the court to conclude that the impugned behaviour did not warrant summary dismissal. At issue in Hill was an employee’s unauthorized donation of bandages and ice packs owned by his employer to a local hockey team, in breach of company procedure. Similarly, in MacNaughton v. Sears Canada Inc. (1997), 1997 9530 (NB CA), 186 N.B.R. (2d) 384 (C.A.), Bastarache J.A., as he then was, found that the impugned conduct of the employee was not sufficiently serious to justify his dismissal, as it did not repudiate an essential condition of the employment contract. Although the employee had been subject to prior reprimands, these reprimands must also be taken in context, and do not eliminate the need for the misconduct “to be of some importance” (p. 394). This same court affirmed, in Dougherty v. Bathurst Golf Association Ltd. (1997), 1997 9515 (NB CA), 189 N.B.R. (2d) 230, that just cause exists where the misconduct in question is “clearly inconsistent” with the employee’s duties under the employment contract.

[35] Cases in which courts have explicitly ruled that the issue of just cause is one of fact to be put to a jury lend further support to an approach that considers the particular circumstances surrounding the alleged employee misconduct. Rather than viewing cause for dismissal as a legal conclusion that must be drawn in any case where disobedience (including dishonesty) is proven, these cases indicate that just cause can only be determined through an inquiry by the trier of fact into (a) whether the evidence demonstrated employee misconduct and (b) whether, in the circumstances, such misconduct sufficed to justify the employee’s termination without notice.

[36] This approach was adopted in Butler v. Canadian National Railways, 1939 124 (SK CA), [1939] 3 W.W.R. 625 (Sask. C.A.), a case in which an employee was dismissed from his position based on evidence that CNR property was missing from a department that he was charged with overseeing. In the appeal from the verdict finding insufficient cause for dismissal, Turgeon C.J.S., citing Clouston, supra, held that the issue of cause was unquestionably one of fact to be put to the jury. In a concurring judgment, Gordon J.A. also cited Clouston to reject the employer’s argument that the question of whether it had sufficient cause for dismissal was an issue of law. In this regard, Gordon J.A. made the following comments at p. 631:

I think, therefore, with deference, that the learned trial Judge was right in submitting the question to the jury. It was only necessary for the plaintiff to establish that he was employed for an indefinite time and that he was dismissed without notice. The onus then shifted to the defendant to prove that such dismissal was justified. . . . With deference therefore, I think that the learned trial Judge was right in submitting the question to the jury. The plaintiff has a statutory right to have the issues in the action decided by the jury. A Judge can intervene and say that there is no evidence to go to a jury so far as the plaintiff is concerned but I know of no authority which gives the Judge power to say that the defendant had given sufficient evidence to satisfy the onus thrown upon him and that therefore he will not submit the case to the jury. [Emphasis added.]

[37] This reasoning was endorsed by the Saskatchewan Court of Appeal in Holloway v. Encor Energy Corp. (1991), 1991 7936 (SK CA), 93 Sask. R. 226. Referring explicitly to Butler and Clouston, Gerwing J.A. held at p. 228 that “[i]t was not open to the trial judge to reserve to himself the question of just cause”. Rather, this issue was considered to be one of fact, to be left for the jury to decide.

[38] In addition to the appellate decisions mentioned above, the contextual approach to assessing employee misconduct also has been followed in several trial judgments in Canada. See for example: Epoch v. Beaver Lumber Co. (1997), 1997 12344 (ON SC), 45 C.C.E.L. (2d) 135 (Ont. Ct. (Gen. Div.)), at p. 143; Thompson v. Boise Cascade Canada Ltd. (1994), 1994 7385 (ON SC), 7 C.C.E.L. (2d) 17 (Ont. Ct. (Gen. Div.)), at p. 34. Further in Justason v. Cox Radio & T.V. Ltd. (1997), 1997 23268 (NB QB), 190 N.B.R. (2d) 228 (Q.B.), and McCluskey v. Lawtons Drug Stores Ltd. (1998), 1998 28457 (NB QB), 204 N.B.R. (2d) 137 (Q.B.), aff’d (1999), 1999 32960 (NB CA), 210 N.B.R. (2d) 198 (C.A.), the court examined the nature and extent of the misconduct, as well as the surrounding circumstances, in order to determine whether the employment relationship could be sustained.

[39] To summarize, this first line of case law establishes that the question whether dishonesty provides just cause for summary dismissal is a matter to be decided by the trier of fact, and to be addressed through an analysis of the particular circumstances surrounding the employee’s behaviour. In this respect, courts have held that factors such as the nature and degree of the misconduct, and whether it violates the “essential conditions” of the employment contract or breaches an employer’s faith in an employee, must be considered in drawing factual conclusions as to the existence of just cause.

[40] But a second branch of jurisprudence sets out a separate analytical structure for this issue, and suggests that the only question for a trier of fact is whether employee dishonesty exists. Once this is established, the conclusion that must be reached as a matter of law is that the employer had the right to dismiss its employee. It is to this second line of authority that I now turn.

2. Authority Indicating that Dishonesty In and Of Itself Warrants Dismissal Without Notice

[41] The broad language used in a second line of decisions indicates that dishonesty, in and of itself, provides just cause, irrespective of the factors and circumstances surrounding the conduct, the nature or degree of such dishonesty, or whether it breached the essential conditions of the employment relationship.

[42] This approach was articulated by the English Court of Appeal in Boston Deep Sea Fishing and Ice Co. v. Ansell (1888), 39 Ch. D. 339. In that case, an agent had been instructed to arrange for several fishing boats to be built for his employer. The agent then received a secret commission from the boat builder, which the company learned of approximately one year later. The employee’s conduct was found to be fraudulent, and this was held to provide ample justification for dismissal without notice. In reaching this conclusion, Bowen L.J. discussed the standard applicable for determining when dishonesty suffices as cause for terminating the employment relationship. At p. 363 he stated:

[I]n cases where the character of the isolated act is such as of itself to be beyond all dispute a violation of the confidential relation, and a breach of faith towards the master, the rights of the master do not depend on the caprice of the jury, or of the tribunal which tries the question. Once the tribunal has found the fact – has found that there is a fraud and breach of faith – then the rights of the master to determine the contract follow as matter of law.

This passage indicates that once the confidence inherent to the master-servant relationship is breached, just cause for dismissal – as a matter of law – is automatically triggered, and must not depend on whether the trier of fact finds that such cause exists. Although Bowen L.J. spoke primarily to fraud, he also indicated that “breach of faith” in general may warrant dismissal. Such broad language suggests that any dishonest conduct which ruptures the trust inherent to the employer-employee relationship provides just cause.

[43] A similar view was adopted by the Privy Council in Federal Supply and Cold Storage Co. of South Africa v. Angehrn & Piel (1910), 80 L.J.P.C. 1. This case made plain that an employee who engages in a fraudulent act of a serious nature (in that case, taking a secret commission) intimates that he or she has forfeited the right to be continued in the employer’s service. In this respect, it was stated at p. 3:

An agent who takes a secret commission does a dishonest act, and that act shews he is unfit for a position of trust and confidence. It is the revelation of character which justifies dismissal. . . .

Although the dishonest act alone served as a basis for cause, it is also important to note that the misconduct was fraudulent in character, a point that was emphasized by the Privy Council. This suggests an awareness and consideration of the “nature” of the misconduct in rendering judgment.

[44] In British Columbia, the leading case on the matter in issue – and the authority that the Court of Appeal relied on in the instant case – is McPhillips, supra. The judicial history underlying that case is quite similar to that in the present appeal. In McPhillips, an employee billed unauthorized personal items ordered from one of his employer’s suppliers to his employer. Upon discovering this, the employer terminated the employee for just cause, which was then challenged by the employee before the courts. In a recharge to the jury, the trial judge provided the following instructions on the issue of cause (at pp. 5-6):

The defendant must convince you in this case that the plaintiff was dishonest, that he breached a trust imposed on him. And as I said whether there is a cause to dismiss is a finding of fact. If you are convinced that the plaintiff was dishonest, you must be convinced that that fact, in all the circumstances of the relationship between the plaintiff and the defendant, justified the firing. [Emphasis added by Hollinrake J.A.]

In reviewing this jury charge, the Court of Appeal in McPhillips held that the trial judge erred by leaving it to the jury to decide whether the employee’s dishonesty was, “in all the circumstances” of the employment relationship, sufficient to warrant dismissal. Rather, relying on Boston Deep Sea Fishing, supra, the court held at p. 6 that “[d]ishonesty is always cause for dismissal because it is a breach of the condition of faithful service” (emphasis added).

[45] Writing for the Court of Appeal in McPhillips, Hollinrake J.A. went on to distinguish that case from Clouston by indicating that the contextual approach for assessing whether misconduct amounts to just cause could not be extended to cases in which such misconduct was rooted in dishonest behaviour. He thus concluded that the law on this issue required that the jury be instructed that, if dishonesty on the part of the employee was found, cause was thereby established as a matter of law, and thus, the employer was justified in terminating employment.

[46] The strict approach reflected in McPhillips resonates in several other decisions rendered by Canadian courts, which have held that a finding of dishonesty, in and of itself, creates just cause for summary dismissal. In each of these cases, however, the courts dealt with forms of dishonesty that, as in McPhillips, bordered on theft, misappropriation, forgery or a fraudulent sham. In that connection, the courts drew parallels between dishonesty and fraud, either by noting their common ingredients (see Real Canadian Superstore (Saskatchewan) v. United Food and Commercial Workers, Local 1400 (1998), 1998 13910 (SK QB), 173 Sask. R. 203 (Q.B.), per Klebuc J.), or by characterizing both as equal causes for dismissal (see Reade v. Newfoundland Co-Ordinating Council on Deafness (1987), 1987 5171 (NL SC), 63 Nfld. & P.E.I.R. 194 (Nfld. S.C.T.D.), at p. 198, per Wells J.; and Smith v. Dawson Memorial Hospital and Flood (1978), 1978 3804 (NS SC), 29 N.S.R. (2d) 277 (S.C.), per Morrison J.). In this vein, courts also emphasized that, for dishonesty to amount to cause, the employer must prove intent on the employee’s part to engage in deceitful conduct (see Evans v. Sobeys Capital Inc. (1995), 1995 9886 (NL CA), 15 C.C.E.L. (2d) 197 (Nfld. C.A.), per Cameron J.A.).

[47] This line of jurisprudence seems to indicate that a finding of dishonesty gives rise to just cause as a matter of law. However, I am struck by the fact that, in all of the cases considered here, where cause was found to exist, courts were confronted with very serious forms of employee dishonesty. This point is instructive for determining the proper analytical approach to be adopted in the case at bar.

3. Applicable Standard for Assessing Whether and in What Circumstances Dishonesty Provides Just Cause

[48] In light of the foregoing analysis, I am of the view that whether an employer is justified in dismissing an employee on the grounds of dishonesty is a question that requires an assessment of the context of the alleged misconduct. More specifically, the test is whether the employee’s dishonesty gave rise to a breakdown in the employment relationship. This test can be expressed in different ways. One could say, for example, that just cause for dismissal exists where the dishonesty violates an essential condition of the employment contract, breaches the faith inherent to the work relationship, or is fundamentally or directly inconsistent with the employee’s obligations to his or her employer.

[49] In accordance with this test, a trial judge must instruct the jury to determine: (1) whether the evidence established the employee’s deceitful conduct on a balance of probabilities; and (2) if so, whether the nature and degree of the dishonesty warranted dismissal. In my view, the second branch of this test does not blend questions of fact and law. Rather, assessing the seriousness of the misconduct requires the facts established at trial to be carefully considered and balanced. As such, it is a factual inquiry for the jury to undertake.

[50] While ample case law supports this position, as discussed above, a second line of jurisprudence seems to run counter to it, suggesting that dishonest conduct always, irrespective of its surrounding circumstances, amounts to cause for dismissal. However, a closer inspection of these cases reveals that they actually support a contextual approach. As noted, these judgments involved dishonesty that was symptomatic of an overarching, and very serious misconduct. In most cases, the courts were faced with allegations to the effect that an employee had intentionally devised to extract some financial gain or profit to which he or she was not entitled, at his or her employer’s expense. Such conduct was frequently tantamount to a serious form of fraud, and explicitly characterized by the courts as such.

[51] This being the case, I conclude that a contextual approach to assessing whether an employee’s dishonesty provides just cause for dismissal emerges from the case law on point. In certain contexts, applying this approach might lead to a strict outcome. Where theft, misappropriation or serious fraud is found, the decisions considered here establish that cause for termination exists. This is consistent with this Court’s reasoning in Lake Ontario Portland Cement Co. v. Groner, 1961 1 (SCC), [1961] S.C.R. 553, where this Court found that cause for dismissal on the basis of dishonesty exists where an employee acts fraudulently with respect to his employer. This principle necessarily rests on an examination of the nature and circumstances of the misconduct. Absent such an analysis, it would be impossible for a court to conclude that the dishonesty was severely fraudulent in nature and thus, that it sufficed to justify dismissal without notice.

[52] This is not to say that there cannot be lesser sanctions for less serious types of misconduct. For example, an employer may be justified in docking an employee’s pay for any loss incurred by a minor misuse of company property. This is one of several disciplinary measures an employer may take in these circumstances.

[53] Underlying the approach I propose is the principle of proportionality. An effective balance must be struck between the severity of an employee’s misconduct and the sanction imposed. The importance of this balance is better understood by considering the sense of identity and self-worth individuals frequently derive from their employment, a concept that was explored in Reference Re Public Service Employee Relations Act (Alta.), 1987 88 (SCC), [1987] 1 S.C.R. 313, where Dickson C.J. (writing in dissent) stated at p. 368:

Work is one of the most fundamental aspects in a person's life, providing the individual with a means of financial support and, as importantly, a contributory role in society. A person's employment is an essential component of his or her sense of identity, self‑worth and emotional well‑being.

This passage was subsequently cited with approval by this Court in Machtinger v. HOJ Industries Ltd., 1992 102 (SCC), [1992] 1 S.C.R. 986, at p. 1002, and in Wallace, supra, at para. 95. In Wallace, the majority added to this notion by stating that not only is work itself fundamental to an individual's identity, but “the manner in which employment can be terminated is equally important”.

[54] Given this recognition of the integral nature of work to the lives and identities of individuals in our society, care must be taken in fashioning rules and principles of law which would enable the employment relationship to be terminated without notice. The importance of this is underscored by the power imbalance that this Court has recognized as ingrained in most facets of the employment relationship. In Wallace, both the majority and dissenting opinions recognized that such relationships are typically characterized by unequal bargaining power, which places employees in a vulnerable position vis-à-vis their employers. It was further acknowledged that such vulnerability remains in place, and becomes especially acute, at the time of dismissal.

[55] In light of these considerations, I have serious difficulty with the absolute, unqualified rule that the Court of Appeal endorsed in this case. Pursuant to its reasoning, an employer would be entitled to dismiss an employee for just cause for a single act of dishonesty, however minor. As a result, the consequences of dishonesty would remain the same, irrespective of whether the impugned behaviour was sufficiently egregious to violate or undermine the obligations and faith inherent to the employment relationship.

[56] Such an approach could foster results that are both unreasonable and unjust. Absent an analysis of the surrounding circumstances of the alleged misconduct, its level of seriousness, and the extent to which it impacted upon the employment relationship, dismissal on a ground as morally disreputable as “dishonesty” might well have an overly harsh and far-reaching impact for employees. In addition, allowing termination for cause wherever an employee’s conduct can be labelled “dishonest” would further unjustly augment the power employers wield within the employment relationship.

[57] Based on the foregoing considerations, I favour an analytical framework that examines each case on its own particular facts and circumstances, and considers the nature and seriousness of the dishonesty in order to assess whether it is reconcilable with sustaining the employment relationship. Such an approach mitigates the possibility that an employee will be unduly punished by the strict application of an unequivocal rule that equates all forms of dishonest behaviour with just cause for dismissal. At the same time, it would properly emphasize that dishonesty going to the core of the employment relationship carries the potential to warrant dismissal for just cause.

4. Application to Paris J.’s Jury Instructions

[58] Applying the foregoing analysis to this case, unlike the Court of Appeal, I see no reason to interfere with the trial decision on the basis of Paris J.’s instructions to the jury. This charge – to the effect that the appellant’s dishonesty had to be “of a degree incompatible with the employment relationship” – properly advised jurors to consider the circumstances surrounding the appellant’s conduct with a view to appreciating whether the extent of the alleged dishonesty undermined his essential obligations to his employers. Paris J.’s instructions therefore were entirely consistent with the contextual approach discussed above, and thus do not serve as a basis for setting the jury verdict aside.

B. Reasonableness of the Jury Verdict

[59] The respondents maintain that, even if Paris J. did not err in charging the jury, the jury’s verdict was unreasonable and unjust, and thus should be overturned. This Court has repeatedly used a test of “reasonableness” when considering whether to set aside a jury’s verdict. In Vancouver-Fraser Park District, supra, at p. 839, de Grandpré J. held that while jury verdicts must be treated with considerable respect and be accorded great weight, they should not be regarded with awe. Rather, where it is found that the evidence “did not permit a jury acting judicially to reach the conclusion” that it did, an appellate court is entitled to set it aside.

[60] Similarly, in McCannell v. McLean, 1937 1 (SCC), [1937] S.C.R. 341, Duff C.J. stated the reasonableness test as follows at p. 343:

[T]he verdict of a jury will not be set aside as against the weight of evidence unless it is so plainly unreasonable and unjust as to satisfy the Court that no jury reviewing the evidence as a whole and acting judicially could have reached it.

In addition, an appellate court that finds there was “no evidence” supporting a particular verdict has “the right and the duty” to set aside that verdict (see Gray Coach Lines Ltd. v. Payne, 1945 6 (SCC), [1945] S.C.R. 614, at p. 618). Although these two tests are distinct, in neither case may the appellate court set aside a verdict on “mere doubts [it] may entertain” or on its “reaching on the reading of the evidence a conclusion different from that the jury reached” (see Scotland v. Canadian Cartridge Co. (1919), 1919 12 (SCC), 59 S.C.R. 471, at p. 477, per Davies C.J.).

[61] In the present case, given the variance in the evidence before the jury, I must conclude that it could have reasonably and judicially found that the appellant did not engage in dishonest conduct of a degree incompatible with his employment relationship. Therefore, the requisite standard for setting aside the verdict was not met, as I now will discuss.

[62] The December 12, 1994 letter from the appellant to Dr. Graff, an internal medicine and cardiac specialist and one of his treating physicians, provides an instructive starting point for the analysis of this issue. In this letter, the appellant requested that Dr. Graff clarify his recollection of the treatment recommended during a medical appointment that had taken place on July 20, 1994. The most relevant passage of this letter for the purposes of the present appeal states the following:

The only issue that concerns me is that while I agree that you recommended a “beta blocker” as the next method of treatment on July 20, 1994, it is my understanding that you did not want me to start treatment until I returned to work. I remember telling you that BCTEL did not want me back at work until my blood pressure was fully controlled - a concept that bothered you at the time. . . . My recollection is that you said that if I was not returning to the stressfull [sic] job that causing [sic] my elevated blood pressure, then I should remain on Adalat until I was in my new job. If my blood pressure remained elevated in my new job, I was to return to see you to begin a “beta blocker” treatment. You did not issue me a prescription or give me any “beta blocker” samples on July 20.

. . . It does not make sense to me that I would refuse to try “beta blockers” as it also does not make sense that you would prescibe [sic] medication where the apparent cause or trigger was removed!

According to the respondents, this letter revealed the appellant’s knowledge of the availability of a medication, namely, the beta blocker, which one of his physicians believed could effectively enable him to return to his former position without any risk to his health. Moreover, the respondents pointed out that, on cross-examination, the appellant testified that Dr. Graff did not discuss any of the adverse side effects of this medication with him. The appellant further testified that Dr. Graff was of the view that, while this medication should not be prescribed at that time, if the appellant returned to work in his former position and his blood pressure continued to rise, there would be a reason to consider administering the beta blockers.

[63] The respondents also argued that this letter indicated that Dr. Graff had implied during the July 20, 1994 appointment that the appellant could return to work, in which case beta blockers might eventually become necessary. However, in voice mail messages left for his immediate superior just after that appointment (on July 20th and 27th, 1994), the appellant stressed that both his family doctor and Dr. Graff were of the view that “a new job, a new change of environment” was what he truly needed. While the appellant alluded to the possibility of trying a “new medication”, he indicated that Dr. Graff was of the view that it should not be attempted – given its adverse side effects – if his health could be improved by “a job change in a different kind of environment”.

[64] From this evidence, a certain degree of inconsistency can be identified between what the appellant appears to have been told by Dr. Graff, and the information he subsequently conveyed to his employers. The evidence suggests that Dr. Graff believed that the appellant could return to work, even in his former position as Controller, and, if his hypertension became more acute at that point, it could be controlled through the use of beta blockers. However, the voice mail messages of July 20th and July 27th indicate that the appellant did not put this information forward as fully and clearly as he might have. Rather than mention the possibility of returning to his former position if beta blockers were administered, he instead stressed that his physicians were of the view that a change in jobs would in fact be the most beneficial form of “treatment”. At trial, however, the appellant admitted on cross-examination that this advice had not in fact been given by his specialist.

[65] This contradiction could raise some suspicion in the minds of jurors as to the trustworthiness of the appellant’s character. But, does the evidence lead unquestionably and unequivocally to the conclusion that the appellant’s conduct was sufficiently dishonest to provide just cause for summary dismissal? A review of the evidence in its entirety leads me to answer this question in the negative. To my mind, the material in the record provides a sufficient basis for a jury to conclude that the appellant reasonably and truly believed that his physicians, including Dr. Graff, were of the view that beta blockers should be considered only as a “last resort” treatment, and that they were not yet required at that point in time. The soundness of this interpretation is reinforced by Dr. Graff’s assessment of the appellant on July 6, 1994, in which he stated that he “would be reluctant to change the medications [the appellant] is on at this point in time”, and instead “suggested that he return to work, and closely monitor his blood pressure at the office and at home”. If the appellant’s blood pressure continued to rise, Dr. Graff was of the view that another form of medication (Hytrin) should be used. He indicated that beta blockers should be considered only if this proved unsuccessful. Given that the appellant testified to being under the impression that his employers were seeking out alternate positions for him within BC Tel, a rational and logical inference to draw from the evidence is that he believed, on his physician’s advice, that beta blockers would be administered only if he returned to work in his original job.

[66] The respondents claimed in oral argument that the appellant’s falsehood lay in giving Dr. Graff’s imprimatur to the notion that beta blockers carried adverse side effects. However, a review of the evidence that attested to the potential risks of this medication suggests that the appellant’s physicians would have been reluctant to prescribe it unless it was required to bring the appellant’s hypertension under control. At trial, Dr. Charles R. Brasfield, a medical doctor and psychiatrist who treated the appellant on an intermittent basis between 1993 and 1996, testified that the side effects of beta blockers could include an increase in depression, as well as specific sexual side effects, congestive heart failure, and respiratory arrest. Moreover, the evidence suggests the appellant’s awareness of these side effects. In a document entitled “History of High Blood Pressure and BC Tel Involvement”, which was introduced as an exhibit at trial, the appellant stated that another one of his physicians (Dr. Andersen) refused to prescribe beta blockers because of their “unacceptable side effects”.

[67] Despite these potential risks, the evidence also suggests that the appellant would have been willing to accept treatment through beta blockers had he believed this would be necessary for enabling him to return to work at BC Tel. In the December 12, 1994 letter, the appellant told Dr. Graff that “[i]t does not make sense” that he would refuse to try beta blockers. Furthermore, the appellant testified that he kept his employers aware of his medical issues, and even explained the potential for beta blockers to be used as treatment. According to this evidence, the appellant asked his employers whether he should return to Dr. Graff to try beta blockers; yet, his superior indicated that this would not be necessary, since he would likely be placed in another, less stressful position. The appellant’s testimony in regard to his willingness to attempt beta blockers is corroborated by a note handwritten by BC Tel’s Human Resources Manager on September 1, 1994, the day following the appellant’s dismissal. This document indicates that in a telephone conversation that morning, the appellant told the Human Resource Manager that “if he had known the only job was his old one the Doctor would have changed his medication and he could have returned to work”.

[68] The respondents claimed that this evidence revealed that the appellant truly did not believe beta blockers to be unsafe. To my mind, however, it provided a sufficient basis upon which the jury could reasonably conclude that the appellant was willing, as a “last resort”, to take a risky medication if this became necessary to return to BC Tel.

[69] Thus, while there may not have been a full disclosure of all material facts by the appellant, this was not required of him. Rather, the question is whether he engaged in dishonesty in a manner that undermined, or was incompatible with his employment relationship. An analysis of the record as a whole leads me to conclude that the jury, acting judicially, could have reasonably found that this was not the case. For this reason, there is no basis upon which to interfere with the jury’s verdict that the respondents had not proven just cause warranting dismissal.

C. Extended Notice Period

[70] At the outset, it should be noted that the reasonableness of the extended notice period, as well as the question of aggravated damages (discussed below), were not called into question by the appellant, but by the respondents. Normally, a respondent seeking to raise an issue on appeal must do so by applying for leave to cross-appeal, pursuant to Rule 29 of the Rules of the Supreme Court of Canada, SOR/83-74. However, this was unnecessary in this case. Rule 29 indicates that “[a] respondent who seeks to set aside or vary the whole or any part of the disposition of the judgment appealed from shall apply for leave to cross-appeal within 30 clear days after the service of the application for leave” (emphasis added). In the present case, the Court of Appeal for British Columbia allowed the respondents’ appeal and ordered a new trial on all issues. The respondents do not seek to have any part of this disposition set aside or varied. Rather, they have raised the issues of the extended notice period and aggravated damages as alternative arguments, stating that if the trial judgment is restored, the awards under these heads should be struck. The respondents never reached these alternative arguments before the Court of Appeal, since that court accepted their main position that the trial judgment should be set aside in its entirety. Consequently, the Court of Appeal never ruled on the propriety of the jury’s awards for an extended notice period and aggravated damages.

[71] Before this Court, the respondents again raised these issues in the alternative. I thus begin by examining the extended notice award, and will proceed to consider the question of aggravated damages in the discussion that follows.

[72] At trial, Paris J., referring to this Court’s decision in Wallace, supra, ruled that whether damages representing an extended period of notice should be awarded in this case was a question for the jury to decide. He stated that it would be for jurors to determine whether such a remedy was warranted, based on “whether the matters pointed to by counsel in submissions, if proven by the evidence, constitute such bad faith or unfair conduct as contemplated by the Wallace case”. Pursuant to its deliberations, the jury concluded that a reasonable notice period in this case was 22 months. Having found that the respondents acted in a manner that was unfair or in bad faith in conducting the dismissal, the jury extended this notice period by an additional four months to represent the damage caused by these exacerbating factors.

[73] In Wallace, this Court recognized that the parties to an employment contract are subject to obligations of good faith and fair dealing. These obligations subsist throughout the relationship up until, and including its termination. In the context of dismissal from employment, the majority in Wallace described the employer’s duties at para. 98 as follows:

[A]t a minimum, I believe that in the course of dismissal employers ought to be candid, reasonable, honest and forthright with their employees and should refrain from engaging in conduct that is unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive.

[74] Where a dismissal is accompanied by bad faith or unfair dealing on the part of the employer, Wallace establishes that such conduct merits compensation by way of an extension to the notice period. This remedy is not triggered by the dismissal itself, but by the exacerbating factors that, in and of themselves, inflict injury upon the employee. The nature of this remedy thus was described in Wallace, at para. 103, as follows:

[W]here an employee can establish that an employer engaged in bad faith conduct or unfair dealing in the course of dismissal, injuries such as humiliation, embarrassment and damage to one's sense of self‑worth and self‑esteem might all be worthy of compensation depending upon the circumstances of the case. In these situations, compensation does not flow from the fact of dismissal itself, but rather from the manner in which the dismissal was effected by the employer.

Wallace also made clear that the extent by which a notice period should be extended for bad faith or unfair dealing in the conduct of a dismissal will depend, in each case, on the degree of injury that an employee sustains. While recognizing that tactics that affect the employee’s ability to find new employment is particularly deserving of such a remedy and may merit more compensation, the majority also ruled that “intangible injuries”, which give rise to emotional damage, also may suffice to attract an award in the form of an extended notice period (para. 104).

[75] In the present case, the respondents argued that Paris J. erred by putting the question of an extended notice period before the jury. They maintained that because the appellant agreed to his termination pending an acceptable severance package, he should not be entitled to complain about the “manner” of this dismissal once it actually occurred. I respectfully disagree. Although the appellant may have agreed to terminate his employment contract, it certainly cannot be said that this necessarily implied a waiver of his right to be treated fairly and in good faith by his employers, nor that it precluded the protection that Wallace intended to confer by recognizing an award for extended notice.

[76] In putting the question of extended notice to the jury, Paris J.’s reasoning was entirely consistent with the decision in Wallace. An examination of his charge to jurors reveals that, in his view, there was sufficient evidence that the respondents engaged in bad faith or unfair dealing in dismissing the appellant. In this respect, Paris J. pointed to the fact that the appellant submitted that he was dismissed while on short-term disability and suffering from hypertension and depression, and that the respondents took this route rather than find him another position within the company. The trial judge further noted the evidence pointed to by the appellant, which related to the difficulty the appellant experienced in obtaining a copy of his long-term disability plan from his employers, and the fact that the respondents reduced their severance offer during negotiations over the appellant’s termination. Paris J. then properly instructed the jury that it was to decide, based on this Court’s decision in Wallace, whether, in light of this evidence, bad faith conduct or unfair dealing on the part of the respondents had been proven. If so, Paris J. explained that the length of the notice period was to be extended by “such further period that [was thought to be] reasonable in the circumstances”.

[77] Considering that Paris J.’s analysis and jury charge adhered to the principles set out in Wallace, and because the jury could, based on the evidence before it, reasonably find that the notice period should be extended by four months, I see no basis for interfering with the trial decision on this point.

D. Aggravated Damages

[78] The key principles for establishing the circumstances in which aggravated damages in wrongful dismissal actions may be awarded were set out by this Court in Wallace and in Vorvis v. Insurance Corp. of British Columbia, 1989 93 (SCC), [1989] 1 S.C.R. 1085. In Vorvis, McIntyre J. (writing for the majority) highlighted that unlike punitive damages, aggravated damages serve the purpose of compensation for intangible injuries. He stated that such damages could be awarded where: (1) an employer’s conduct was “independently actionable”, (2) it amounted to a wrong that was separate from the breach of contract for failure to give reasonable notice of termination, and (3) it arises from the dismissal itself, rather than the employer’s conduct before or after the dismissal (pp. 1103-4).

[79] These criteria were considered in Wallace, where the majority also recognized that aggravated damages could be awarded for mental distress flowing from a wrongful dismissal. However, in Vorvis and Wallace alike, aggravated damages were denied to the plaintiff.

[80] In the present case, Paris J. noted that the standard to apply in assessing the issue of aggravated damages is that set out in Wallace. While he properly recognized that such damages require “an independent cause of action”, he then articulated the applicable threshold in the following way:

It seems to me that, speaking at least in a general way, the evidence pointed to by counsel as the manner of the conduct of dismissal has to be considered as some evidence of willfull [sic] or deliberate infliction of mental distress which would be tortious conduct. Whether the plaintiff suffered such mental distress and whether an intention to inflict any such mental distress can be inferred from the evidence is for the jury to say. I cannot say there is no evidence of such things. [Emphasis added.]

On this basis, Paris J. allowed the jury to consider the issue of aggravated damages. The jury decided that the appellant was entitled to damages under this head in the amount of $100,000.

[81] The respondents disputed the trial decision on this point, stating that Paris J. employed an incorrect standard in allowing the jury to consider the question of aggravated damages. I am also of that opinion. According to Wallace, the proper threshold for allowing this issue to be determined by a jury is whether or not sufficient evidence exists. It was found on the facts of that case that there was no basis upon which to interfere with the finding that “there was insufficient evidence” of a separately actionable wrong (emphasis added). The standard set out by Paris J. fell short of the Wallace test by suggesting, in effect, that any evidence, even a mere scintilla thereof, would suffice to put the matter of aggravated damages to the jury for its consideration.

[82] Applying the correct standard to the present case, I would conclude that there was not sufficient evidence before Paris J. to allow the jury to deliberate on the question of aggravated damages. More specifically, a fair reading of the evidence does not, in my view, suggest that the respondents acted with an intention to harm the appellant either by deliberately inflicting mental distress or by acting in a discriminatory manner. It is true that, as the appellant noted, the illness from which he suffered, namely hypertension, has been considered a disability in human rights jurisprudence (see Horton v. Niagara (Regional Municipality) (1987), 1987 8548 (ON HRT), 9 C.H.R.R. D/4611 (Ont. Bd. Inq.), and Wamboldt v. Department of National Defence (1983), 1983 4695 (CHRT), 4 C.H.R.R. D/1479 (Can. Trib.)). Yet, while the appellant was never offered an alternate position within BC Tel to accommodate his health needs, the evidence is far from clear that the respondents did not make a bona fide effort to find other viable work for him. This is evidence negating any wilful intention to harm, as was argued by the appellant. In this connection, the record indicates that the appellant was aware that the respondents were in the process of downsizing during the time in question, and it thus would be difficult to find a suitable alternate position. Moreover, although two positions for which the appellant was qualified did become available while he was on disability leave, the evidence does not establish that he was the victim of discrimination, and denied such work on the basis of his illness. Rather, legitimate explanations were offered to clarify why the respondents decided that the appellant should not fill these positions.

[83] Thus, despite the allegations raised by the appellant, the evidence fails to establish any separate actionable wrong on the respondents’ part. In this respect, I would emphasize that the conduct of the parties must be assessed in light of the context in which it was undertaken. Here, the impugned behaviour occurred during negotiations between the parties over the appellant’s termination from BC Tel. Within this bargaining relationship, both sides were entitled to put their strongest case forward. Consequently, in this setting, clear evidence is required to substantiate a claim that the employer’s conduct rises to the level of an intentional infliction of harm.

[84] Having considered all of this, I find that the criteria for allowing the question of aggravated damages to go to the jury were not met in the instant case. Therefore, the order for aggravated damages must be set aside.

E. Punitive Damages

[85] As is the case for aggravated damages, the starting point for assessing the propriety of an award for punitive damages in the context of a wrongful dismissal action begins with this Court’s decisions in Vorvis and Wallace. As alluded to earlier, in Vorvis, McIntyre J. recognized the confusion that sometimes exists between aggravated and punitive damages, and explained that these two heads of damages are distinguishable by their different purposes. While aggravated damages aim to compensate for intangible injury, punitive damages are penal and exemplary in nature, and may be awarded only where the conduct giving rise to the complaint is found to merit punishment.

[86] In Vorvis, the Court sought to determine whether punitive damages may be awarded in an action for breach of contract based on the wrongful dismissal of an employee, and if so, whether the circumstances of that case called for such an award. Pursuant to a review of the relevant common law authorities on this issue, McIntyre J. held that although punitive damages will very rarely be appropriate in breach of contract cases, there are some situations in which such an award would be warranted. More specifically, such damages may be awarded where the defendant’s conduct constituted a separate, actionable wrong, independent of the dismissal itself. Furthermore, the conduct must be deserving of punishment because of its extreme and injurious character. In this respect, McIntyre J. stated, at pp. 1107-8:

[P]unitive damages may only be awarded in respect of conduct which is of such nature as to be deserving of punishment because of its harsh, vindictive, reprehensible and malicious nature. I do not suggest that I have exhausted the adjectives which could describe the conduct capable of characterizing a punitive award, but in any case where such an award is made the conduct must be extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment.

Within the particular circumstances of Vorvis, the employer’s conduct, standing alone, was not considered sufficiently offensive to constitute an actionable wrong, nor of a nature that would justify the imposition of a punitive damages award.

[87] This analysis was adopted in Wallace, where it was held that an award for damages beyond compensation for breach of an employment contract "must be founded on a separately actionable course of conduct" (para. 73). This criterion applies to both aggravated and punitive damages. However, punitive damages were distinguished in Wallace, at para. 79, as follows:

Punitive damages are an exception to the general rule that damages are meant to compensate the plaintiff. The purpose of such an award is the punishment of the defendant: S. M. Waddams, The Law of Damages (3rd ed. 1997), at p. 483. The appellant argued that the trial judge and the Court of Appeal erred in refusing to award punitive damages. I do not agree. Relying on Vorvis, supra, Lockwood J. found that UGG did not engage in sufficiently “harsh, vindictive, reprehensible and malicious” conduct to merit condemnation by such an award. He also noted the absence of an actionable wrong. The Court of Appeal concurred. Again, there is no reason to interfere with these findings. Consequently, I agree with the courts below that there is no foundation for an award of punitive damages.

[88] In the present appeal, the trial judge held that the appellant had not adduced evidence upon which to base a viable claim for punitive damages. In his view, the proof was not indicative of harsh, vindictive and malicious conduct by the respondents, nor of contempt for the appellant’s rights. Paris J. further held that human rights legislation did not add anything to this dimension of the case, as there was no evidence to substantiate an argument that the appellant suffered discrimination on the basis of disability in the sense contemplated by such legislation. The appellant’s cross-appeal from this holding before the Court of Appeal for British Columbia was dismissed without reasons.

[89] Paris J.’s reasoning on this issue was consistent with the principles and analytical framework set out in Vorvis and Wallace. First, as discussed in regard to the propriety of the aggravated damages award, there is insufficient evidence to establish an actionable wrong, separate and apart from the dismissal, on the respondents’ part. As discussed, the appellant was correct to state that his hypertension constituted a disability in law. Thus, the failure to find him another position may create a prima facie case of discrimination, given the employer’s duty to accommodate disabled employees to the point of undue hardship. See British Columbia (Public Service Employee Relations Commission) v. BCGSEU, 1999 652 (SCC), [1999] 3 S.C.R. 3, and British Columbia (Superintendent of Motor Vehicles) v. British Columbia (Council of Human Rights), 1999 646 (SCC), [1999] 3 S.C.R. 868. Moreover, this discrimination may in turn give rise to a punitive damages award. See Collinson v. William E. Coutts Co., [1995] B.C.J. No. 2766 (S.C.) (QL). But, for the reasons set out above, I am of the view that there is no basis for interfering with Paris J.’s conclusion that the evidence did not support a finding of an “independent wrong”, including discrimination. Furthermore, based on my review of the evidence, I cannot say that Paris J. erred in concluding that the respondents’ conduct was not of a character contemplated by McIntyre J. in Vorvis. In other words, it was not sufficiently harsh, vindictive, reprehensible, malicious or extreme in nature to warrant punishment. As such, Paris J.’s ruling that the question of punitive damages should be withheld from the jury was sound, and should be left undisturbed.

VI. Disposition

[90] For the foregoing reasons, the appeal is allowed, the judgment of the British Columbia Court of Appeal is set aside, and the order of Paris J. is restored, with the exception of the award for aggravated damages, which is struck. Having allowed the appeal, it is unnecessary for this Court to deal with the cross-appeal, which is therefore dismissed. Because of the appellant’s substantial success, I would grant him costs here and in the courts below.

Appeal allowed with costs. Cross‑appeal dismissed.

Solicitors for the appellant/respondent on the cross‑appeal: Tevlin, Gleadle, Vancouver.

Solicitors for the respondents/appellants on the cross‑appeal: Farris, Vaughan, Wills & Murphy, Vancouver.