Is dismissal, in itself, or the stigma arising from it, a matter that can be compensated under law? This question arose when Merrill Lynch appealed extra damages awarded to Kurt Soost, one of its top investment advisors.
Soost had been dismissed, with neither notice nor pay in lieu, following incidences of alleged misconduct in contravention of the employment agreement. Although the company believed itself to have cause for terminating Soost, the Court of Queen’s Bench of Alberta heard the case in 2009 and found the misconduct to be insufficient grounds for a termination for cause. Soost was then awarded $600,000 for one year’s pay in lieu of notice, plus an extra $1.6 million for damage to his reputation and the book of business he had developed.
While Merrill Lynch did not appeal the first head of damages, it did object to the second. In August 2010, the appeal was upheld, underscoring the fact that the dismissal, in and of itself, was not a wrong. Furthermore, even without cause, other than providing notice, the dismissal could not be compensated.
What is Compensable in a Wrongful Dismissal?
In his judgment on the appeal, Justice J.E.L Cote pointed out: “All that need be reasonable is the length of notice. The dismissal (or resignation) need not be reasonable; it may be whimsical, or inexplicable.” Even in cases of misconduct or poor performance, many cases lack sufficient gravity to warrant termination for cause, or the employer may fall short of providing sufficient warnings and constructive suggestions to the employee before termination. Justice Cote concluded that “dismissal is never breach of contract in an indefinite hiring. Only want of reasonable notice may be (if there is no cause)”. As such, Soost was rightfully awarded one year’s pay in lieu notice.
However, the original judgment awarded Soost further damages, known as “Honda damages”. Justice Cote clarified that these apply only in cases where the employer executes the dismissal in an intentional, malicious, or unduly insensitive way. Furthermore, “Honda damages are limited to compensating loss, and are not punitive”. In the present case, several factors barred “Honda damages”:
- Merrill Lynch was sincere in the belief that it had sufficient grounds for dismissal.
- Soost made no allegations that his employer had portrayed him in a deliberately unsavoury light.
- Mental suffering was not cited as the basis for the extra damage award.
- Facts failed to show that Merrill Lynch engaged in unfair competition, intentional infliction of harm, or conspiracy to unfairly obtain Soost’s clients following the dismissal.
Thus, the manner of Soost’s dismissal did not fit the conditions for the application of Honda damages.
Justice Cote further observed that many factors could cause greater loss to a dismissed employee than is covered by reasonable notice (or pay in lieu), such as age, economic conditions, skill set, changes to the occupation or industry, etc. When a salesperson leaves one company to work at another company, not all clients may follow. Even a change of business address might occasion such a lack of following. As such, discrepancy between the employee’s new salary and the notice period is not specifically compensated.
Compensation for Loss of a “Book of Business”?
Could, then, the loss of Soost’s “book of business” be treated as a capital item justifying compensation? Soost’s first award of a year’s pay in lieu of notice was based on estimated annual commissions from customer trades. A significant point is that the value of the “book of business” was also calculated on annual commissions from customer trades. It became obvious that the second award of another $1.6 million for the value of the book would thus represent an additional 2-2/3 year’s salary, a double counted award. Given all the facts, Justice Cote concluded that one year’s salary was sufficient compensation.
Justice Cote concluded that “the second damage award has no basis in law; it purports to compensate for matters which the law does not recognize as compensable…It lacks a factual basis.”
Points to Note
The case underscores the fact that dismissals, in themselves, are not a breach of contract. In most cases, only lack of reasonable notice, or pay in lieu, is compensable, unless the manner of dismissal was unduly unfair and insensitive. Consequences that follow the dismissal, including lower salary, cannot be compensated through Honda damages.
Even in cases of employee misconduct or poor performance, employers may lack sufficient grounds for termination for cause. Employers need to be well-informed on the laws and legislation surrounding dismissals and reasonable notice owed to their employees.
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