SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-11-421049-0000
DATE: 20120518

RE: Steven D. Sklar v. PCL Constructors Canada Inc.

BEFORE: Master Glustein

COUNSEL:
Elisa C. Giacomelli for the plaintiff
Anne K. Gallop for the defendant

HEARD: May 16, 2012

REASONS FOR DECISION

Nature of motion and overview

[ 1 ] The plaintiff Steven K. Sklar (“Sklar”) brings this motion under Rule 26.01 of the Rules of Civil Procedure , R.R.O. 1990, Reg. 194 (the “ Rules ”) to amend the statement of claim issued on February 28, 2011 (the “Initial Claim”) to add a claim for “moral damages or alternatively punitive damages in the amount of $100,000 due to the termination of [Sklar’s] employment in bad faith by the Defendant” (the “Bad Faith/Punitive Damages Claim”). The defendant PCL Constructors Canada Inc. (“PCL”) opposes the relief sought on the basis that the Bad Faith/Punitive Damages Claim is not tenable. [1]

[ 2 ] For the reasons discussed below I dismiss the motion. In brief, I find that:

(i) The allegations pleaded in the Bad Faith/Punitive Damages Claim cannot be relevant to the claim for wrongful dismissal because the reasons for dismissal are not relevant to damages claimed for dismissal;

(ii) The allegations pleaded in the Bad Faith/Punitive Damages Claim do not establish actual damage or harm from PCL’s alleged bad faith or improper reasons for terminating Sklar’s employment. Sklar submits that his loss of his rights as a shareholder when terminated constitute the actual damage arising from the alleged bad faith conduct. However, that loss arises from the termination without cause, and any bad faith reasons for termination are irrelevant to that loss. Sklar claimed the same loss (i.e. “damages for … breach of an employment contract”) as part of his initial claim for wrongful dismissal.

There is no claim for any actual loss arising from the manner in which Sklar was dismissed. He was told that there was insufficient work and the proposed allegations do not plead that he was terminated in a way to cause psychological harm. Finally, even if a bad faith claim could extend beyond the manner of dismissal to include bad faith conduct which was intended to cause damage that could not be compensated through a claim for reasonable notice, there are no such allegations in the proposed amendments. Consequently, the bad faith damages claim is not tenable; and

(iii) A punitive damages claim requires an independent actionable wrong. There is no implied contractual obligation to have a good faith reason for a dismissal, so any alleged breach of an implied obligation to act in good faith with respect to the dismissal cannot constitute an independent actionable wrong. Consequently, the punitive damages claim is not tenable.

The Initial Claim and the Proposed Claim

[ 3 ] On August 28, 2010, PCL terminated Sklar’s employment with PCL. In the Initial Claim, Sklar sought “damages for wrongful dismissal, unpaid wages and breach of an employment contract in the sum of One Hundred Thousand Dollars ($100,000)”.

[ 4 ] In the proposed amended statement of claim (the “Proposed Claim”), Sklar now seeks to add the Bad Faith/Punitive Damages Claim. Sklar pleads that the bad faith damages claim is based on:

(i) PCL’s alleged breach of its duty “not to subject or allow [Sklar] to be subjected to adverse employment consequences for abiding by the PCL Code of Conduct” (paragraph 22 of the Proposed Claim); and

(ii) PCL’s alleged failure “to avail itself of [Sklar’s] knowledge and information with respect to the breaches [of the PCL Code of Conduct], to conduct a proper investigation of [Sklar’s] allegations and to consider such information in the context of [Sklar’s] allegation that his employment was terminated to [sic] due to his refusal to breach PCL’s Code of Conduct” (paragraph 35 of the Proposed Claim).

[ 5 ] Sklar relies on the same bases for his punitive damages claim. He alleges that given the facts he pleads to support the above allegations, “termination of his employment by PCL was arbitrary and high-handed and is deserving of an award of punitive damages against PCL” (paragraph 36 of the Proposed Claim).

[ 6 ] Sklar relies on the following alleged conduct of PCL to support his claim that PCL owed (and breached) duties to Sklar to (i) ensure that Sklar was not subjected to adverse employment consequences for abiding by the PCL Code of Conduct and (ii) conduct a proper investigation of Sklar’s allegations that others at PCL were in breach of the PCL Code of Conduct and to consider such information prior to the termination:

(i) While PCL told Sklar that the reason for his termination was a shortage of work, there was no shortage of work (paragraphs 23 and 24 of the Proposed Claim);

(ii) Sklar refused to participate in an alleged kickback scheme being conducted by other PCL employees and a large contractor (paragraphs 25-30 of the Proposed Claim);

(iii) Because Sklar refused to participate in the conduct which was contrary to the PCL Code of Conduct, the other PCL employees “worked together to have [Sklar’s] employment terminated by PCL” (paragraph 31 of the Proposed Claim);

(iv) “PCL knew or ought to have known that [the other PCL employees] were seeking termination of [Sklar’s] employment for reasons unrelated to lack of work” and “PCL breached its obligation of good faith and fair dealings with [Sklar] by failing to properly address the bonafides [sic] of the termination of [Sklar’s] employment” (paragraph 32 of the Proposed Claim); and

(v) Subsequent to the termination, Sklar advised PCL of the alleged PCL Code of Conduct violations, but PCL denied that his termination was related to Sklar’s refusal to violate the PCL Code of Conduct (paragraphs 33-34 of the Proposed Claim).

Analysis

[ 7 ] The issue on this motion is whether the Bad Faith/Punitive Damages Claim (including the allegations relied upon to support that claim) constitute a tenable cause of action.

(a) The test for leave to amend a pleading

[ 8 ] Rule 26.01 provides that “the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment”.

[ 9 ] However, the proposed amendments must set out a tenable claim. The threshold to establish a tenable claim is not high. A legally untenable claim is one which is “clearly impossible of success” ( Chinook Group Ltd. v. Foamex International Inc. , 2004 33017 (ON SC) , [2004] O.J. No. 4118 (S.C.J. – Mast.) at para. 13 ).

[ 10 ] The proposed amendments must also comply with the rules of pleading under Rule 25.11. PCL submits that the majority of the proposed amendments are scandalous, frivolous or vexatious under Rule 25.11(b). However, as I find that the amendments do not disclose a tenable cause of action, I do not address this argument in my reasons.

[ 11 ] Consequently, the issue on this motion is whether the Bad Faith/Punitive Damages Claim is legally tenable. The issue requires a consideration of whether the proposed allegations (i) are relevant to a wrongful dismissal claim, (ii) set out a tenable bad faith claim, or (iii) set out a tenable punitive damages claim. I address each of these issues below.

(b) The proposed allegations are not relevant to a wrongful dismissal claim

[ 12 ] In Wallace v. United Grain Growers Ltd. (c.o.b. Public Press) , 1997 332 (SCC) , [1997] S.C.J. No. 94 (“ Wallace ”), the Supreme Court of Canada recognized the mutual right of both employers and employees to terminate an employment contract at any time and for any reason. Iacobucci J. held that:

(i) There was no implied term in an employment contract that an employee would not be fired except for cause or legitimate business reasons;

(ii) If an employer terminates an employee without cause, the employer’s obligation is to provide reasonable notice or compensation in lieu thereof; and

(iii) Requiring “good faith” reasons for dismissal would deprive employers of the ability to determine the composition of their workforce. ( Wallace , at paras. 75-76 ; see also Correia v. Canac Kitchens, a division of Kohler Ltd. , 2008 ONCA 506 () , [2008] O.J. No. 2497 (C.A) (“ Correia ”) at para. 72 )

[ 13 ] Consequently, PCL’s alleged breach of its duties to conduct a proper investigation or to protect Sklar from sanctions for complying with the PCL Code of Conduct cannot be relevant to the claim for wrongful dismissal. PCL had the right to terminate Sklar regardless of its reasons or any alleged breach of duty. Conversely, Sklar has the right to seek his reasonable notice and any other rights to which he is entitled under his employment contract regardless of whether PCL had good faith reasons for the dismissal. Sklar sought that relief in the Initial Claim and the reasons for his termination or alleged breaches of duty cannot be relevant to the damages sought for wrongful dismissal.

(c) A claim for bad faith damages is not tenable based on the proposed allegations

[ 14 ] In Wallace , Iacobucci J. held that if the employer is found to have “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” ( Wallace , at para. 103 ).

[ 15 ] Iacobucci J. affirmed that in a claim for bad faith damages arising out of dismissal [2] , “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 , at para. 103 ).

[ 16 ] More recently, in Honda Canada Inc. v. Keays , 2008 SCC 39 () , [2008] S.C.J. No. 40 (“ Honda ”), the Supreme Court of Canada affirmed the principle that Wallace damages are available to compensate an employee for actual damages arising out of the manner in which the employee was dismissed. Bastarache J. held ( Honda , at paras. 59-60 ):

(i) “the award of damages for psychological injury [for employer’s conduct in dismissal] is still intended to be compensatory”, and

(ii) “if the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages”.

[ 17 ] In Honda , Bastarache J. provided the following examples of conduct in dismissal resulting in compensable Wallace damages: “attacking the employee’s reputation by declarations made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right, permanent status for instance” ( Honda , at para. 60 ). Bastarache J. also relied on the examples discussed in Wallace at paras. 99-100 which considered conduct in the manner of the termination ( Honda , at para. 60 ).

[ 18 ] In Correia , the Court of Appeal held that allegations of negligent investigation could not serve as the basis for a Wallace damages claim. The Court held ( Correia , at paras. 72-73 ):

The fundamental premise of the employer-employee relationship in Canada is the right, subject to contractual terms to the contrary, of either party to terminate the relationship. Thus, in Wallace , the Supreme Court of Canada rejected the submission that an employer must have good faith reasons for dismissal or that there could be an independent action or head of damages for breach of such alleged duty of good faith, either in contract or in tort. In our view, it would be inconsistent to nevertheless recognize a duty on an employer not to conduct a negligent investigation regarding an employee. To do so would be to do indirectly what the Supreme Court expressly rejected in Wallace .

The Supreme Court, for policy reasons explained in Wallace , has refused to recognize an action in tort for breach of a good faith and fair dealing obligation. In this case, Canac fired the plaintiff for cause. It concedes that it was wrong in doing so and it may have been negligent. But, in our view, to recognize a tort of negligent investigation for an employer would be inconsistent with the holding in Wallace . It would, in effect, carve out an exception from the broad holding in Wallace where the reason for the dismissal was an allegation of criminality. We can see no principled reason for so doing. [emphasis added]

[ 19 ] Sklar submits that because the conduct affected his rights as a shareholder of PCL (as PCL is an employee-owned company), the allegations constitute a tenable cause of action for Wallace damages. I do not agree.

[ 20 ] It may be possible under Honda to bring an action for Wallace damages for conduct in a dismissal “meant to deprive the employee of a pension benefit or other right, permanent status for instance” ( Honda , at para. 60 ). However, such a claim would require, at a minimum, that the impugned conduct was “meant to deprive the employee” of his shareholder rights. By way of example, if an employee who was with a company for 4 years and had shareholder rights vesting at 5 years was dismissed for the reason that the other shareholders did not want that employee to obtain his or her shareholder rights, such a claim may be open under Honda even though it does not deal directly with the “manner” of the dismissal. [3] In such a case, the employee would suffer “actual” damage from the bad faith conduct because the damages for the lost shareholding interest could not be obtained in the wrongful dismissal claim since the notice period would not extend to the 5-year vesting date.

[ 21 ] Sklar’s counsel submitted that Wallace damages and the reasons in Honda are limited to damages arising from the manner of the dismissal, and that since reasons for termination are not relevant, the hypothetical pleading I discuss at paragraph 20 above would not constitute a tenable claim.

[ 22 ] However, there is no such claim of this nature in the proposed allegations. Consequently, I do not decide the tenability of the type of claim I discuss at paragraph 20 above.

[ 23 ] In particular, Sklar does not plead that PCL’s conduct was “meant” (or intended) to deprive him of his rights as a shareholder and as such he suffered actual damage from the alleged bad faith conduct. Sklar’s rights as a shareholder are part of his employment contract and were claimed as part of the Initial Claim for damages arising out of the alleged breach of contract.

[ 24 ] The proposed allegations are based on implied duties to properly investigate the allegations made by other PCL employees, and an implied obligation that PCL would not sanction employees who complied with the PCL Code of Conduct. Those types of obligations cannot be implied into an employment contract, for the reasons set out in Wallace , Honda , and Correia . There is no actual injury or compensatory damage arising from the alleged bad faith reasons for Sklar’s dismissal or PCL’s conduct after dismissal.

[ 25 ] Consequently, the proposed allegations do not support a tenable Wallace damages claim.

(d) A claim for punitive damages is not tenable based on the proposed allegations

[ 26 ] A plaintiff seeking punitive damages must allege facts to support a claim that the defendant’s conduct constituted an actionable wrong independent of the contractual breach itself ( Vorvis v. Insurance Corp. of British Columbia , 1989 93 (SCC) , [1989] S.C.J. No. 46 (“ Vorvis ”) at para. 25 ). An actionable wrong within the Vorvis rule does not require an independent tort and a breach of the contractual duty of good faith can qualify as an independent wrong ( Honda , at para. 62 , citing Whiten v. Pilot Insurance Co. , 2002 SCC 18 () , [2002] 1 S.C.R. 595 at para. 82 ).

[ 27 ] Employment contracts do not impose a general and overriding duty of good faith on either party. As I discuss above, Iacobucci J. in Wallace held that an employer is under no requirement either in tort or in contract to discharge an employee only for good faith reasons.

[ 28 ] Consequently, in order for Sklar to maintain a claim for punitive damages, he must plead allegations to support an independent actionable wrong. He has not done so.

[ 29 ] Sklar relies on the two implied duties set out above as independent actionable wrongs: i.e. an implied duty “not to subject or allow [Sklar] to be subjected to adverse employment consequences for abiding by the PCL Code of Conduct” (paragraph 22 of the Proposed Claim) and an implied duty “to conduct a proper investigation of [Sklar’s] allegations and to consider such information in the context of [Sklar’s] allegation that his employment was terminated to [sic] due to his refusal to breach PCL’s Code of Conduct” (paragraph 35 of the Proposed Claim). Neither of these implied duties can constitute an independent actionable wrong.

[ 30 ] Under Wallace and Honda , it does not matter why a person is dismissed from his or her employment, as there is no good faith requirement for a reason for dismissal and as such a lack of good faith cannot constitute an actionable wrong. [4] Even if PCL conducted a negligent investigation (as in Correia ), PCL can have no duty to conduct a proper investigation with respect to the dismissal. Similarly, even if PCL dismissed Sklar because it failed to ensure that Sklar was protected for complying with the PCL Code of Conduct, PCL had no duty in law to do so.

[ 31 ] Consequently, neither of the two alleged duties relied upon to establish the punitive damages claim can constitute an independent actionable wrong.

Order and costs

[ 32 ] For the above reasons, I dismiss the motion to amend. The costs sought by PCL in the amount of $12,969.50 (inclusive of taxes and disbursements) on a partial indemnity scale are reasonable given the importance of the motion, the complexity of the legal issues, and the research required for the motion. Further, those costs are consistent with the costs incurred by Sklar, and reflect the costs an unsuccessful party would reasonably expect to pay. Consequently, I fix costs at $12,969.50, payable by Sklar to PCL within 30 days of this order.

[ 33 ] I thank counsel for their thorough written and oral submissions which were of great assistance to the court.

Master Benjamin Glustein

DATE: May 18, 2012

[1] As I discuss below, PCL also opposes the proposed amendments on the basis that many of them are scandalous and vexatious and are not permitted under Rule 25.11(b). However, as I find that the proposed amendments do not disclose a tenable cause if action, I do not address the Rule 25.11(b) issue in my reasons.

[2] (referred to by both counsel as “ Wallace damages” and a term I adopt in these reasons)

[3] I do not decide this issue as it does not arise on the pleadings in this case, as I discuss below.

[4] (unless the reason for dismissal is in itself an actionable wrong, such as a violation of human rights legislation)