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Extracontractual Remedies in Employment Law: Key Principles
Date: September, 2008
Hugh R. Scher*
The world of contractual claims used to be simpler and more predictable.
However, the ever increasing array of extracontractual claims is changing the landscape
of contract litigation making it more complex, unpredictable and costly to all parties. This
paper examines some key principles related to extracontractual claims and remedies most
often relied upon in employment law. It examines some of the leading authorities in the
area of punitive and aggravated damages, intentional infliction of emotional distress,
negligent infliction of mental suffering and prospective discrimination and harassment
claims under the new Ontario Human Rights Code.
Punitive Damages – Whiten v. Pilot Insurance Co.
Punitive damages are rarely awarded in contractual claims. In order to justify an
award of punitive damages, a party must demonstrate outrageous conduct that offends the
Court’s sense of decency together with an independent actionable wrong separate from
the contractual claim itself. Punitive damages must serve a rational purpose and are only
available where compensatory damages do not adequately achieve the objectives of
retribution, deterrence and denunciation.1
Proportionality is the key to the Court’s assessment of an appropriate award of
punitive damages. Proportionality is assessed based on the following criteria:
1. Blameworthiness of the defendant’s conduct:
a. Whether the misconduct was planed and deliberate;
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Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595 (“Whiten”)
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b. The intent and motive of the defendant;
c. Whether the defendant concealed or attempted to cover its misconduct;
d. The duration of the misconduct;
e. Whether the defendant profited from its misconduct;
f. The defendant’s awareness that what they were doing is wrong; and
g. Whether the interest violated by the misconduct was known to be deeply
personal to the plaintiff.
2. Degree of vulnerability of the plaintiff;
3. Harm caused to the plaintiff;
4. Need for deterrence;
5. Other civil and criminal penalties inflicted on the defendant for the
same misconduct; and
6. Advantage wrongfully gained by a defendant from the misconduct;2
In the insurance context, the SCC has held that a breach of an insurer’s implied
duty of good faith represents an independent actionable wrong which can found an award
of punitive damages.3 In the employment context, however, the SCC has held that the
nature of an employment contract does not give rise to an implied duty of good faith
which is independently actionable. As such, in order to justify an award of punitive
damages in the employment law context, an employee must demonstrate that an
employer’s conduct gives rise to a separate actionable wrong, independent of the breach
of the employment contract itself.4
2
Whiten at para 111 - 123
Whiten
4
Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701
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Punitive Damages based on discrimination – Keays v. Honda
The Ontario Court of Appeal recently upheld a significant award of punitive
damages as a result of Honda’s outrageous and discriminatory conduct in the termination
of a disabled employee with Chronic Fatigue Syndrome.5
The Court’s award of punitive damages was in addition to its contractual award of
two years notice for reason of Honda’s wrongful dismissal and bad faith in the manner of
termination. It should be noted that the trial judge awarded punitive damages in the
amount of $500,000.00 together with a cost award of $610,000.00. Justice Goudge, who
wrote the unanimous judgment for the Court of appeal on all other issues, would have
upheld the $500,000.00 punitive damage award having regard to Honda’s deliberate
termination of Keays’ employment in order to avoid its obligation to accommodate his
disability; Honda’s attempt to intimidate Keays into seeing its doctor who employed a
hard-ball approach to employee absence; and the fact that Honda did all of this with full
knowledge of Keays’ particular vulnerability because of his disability. Justice Goudge
emphasised the trial judge’s finding that Honda’s conduct was planned and deliberate and
was designed to escape its responsibility to accommodate Keays. As such, Honda
violated a deeply personal interest, Keays’ sense of dignity and self-worth. This
represented significant blameworthiness on the part of Honda.
Justice Goudge further emphasised the degree of vulnerability of Keays because
of his status as a long-term employee and also because of the nature of his serious
medical condition which added to his vulnerability and which makes clear Honda’s abuse
of power. In addition, he focuses on the specific harm to Keays, who was rendered totally
disabled as a consequence of Honda’s actions and has remained so ever since. Lastly, he
reviews the need for deterrence and finds that it is important to deter Honda and other
large employers from failing to take seriously their responsibility to accommodate
employees with disability under human rights law.
Justice Rosenberg, for the majority, also found the need for punitive damages
present but felt that the amount granted by the trial judge was too high and that certain of
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Keays v. Honda Canada Inc., [2006] O.J. No. 3891
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the trial judge’s findings of fact were not supported by the evidence. As such, he reduced
the award of punitive damages to $100,000.00 noting that such an award was necessary
based on the following findings at trial:

The appellant's intent to intimidate and eventually terminate the respondent was
for the purpose of depriving him of the accommodation he had earned;

The appellant did not reveal the extremely damaging letter from Dr. Brennan until
late in the trial;

The appellant was aware of its obligation to accommodate and must have known
it was wrong to terminate the accommodation without just cause and terminate
him as an act of retaliation;

The appellant knew that the respondent valued his employment and that he was
dependent upon it for disability benefits;

The appellant knew that the respondent was a victim of particular vulnerability
because of his precarious medical condition; and

The appellant unreasonably refused to deal with the respondent’s counsel who
made a reasonable request to discuss accommodation of the respondent’s
disability.
The majority of the Court of Appeal found that the following findings of fact made by
the trial judge were not supported by the evidence:

Honda clearly benefited from their misconduct because they rid themselves of an
irritation that they viewed as a “problem” associate;

Honda’s outrageous conduct has persisted over a period of five years without a
hint of modification of their position that Keays was the one in the wrong;

Honda’s misconduct formed a protracted corporate conspiracy against Keays;
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
Honda ran amok as a result of their blind insistence on production efficiency at
the expense of their obligation to provide a long-time employee reasonable
accommodation that included his own physician’s participation; and

Honda’s in-house counsel breached the Rules of Professional Conduct of the Law
Society of Upper Canada when she participated in the “scrum” to attempt to
persuade Keays to abandon his request for clarification of Dr. Brennan’s
mandate.6
The SCC has granted leave to appeal and cross-appeal in the Keays case. The
SCC is being asked to review the requirement of an independent actionable wrong and to
determine whether discrimination contrary to human rights law can serve as the basis for
an award of punitive damages. The Court is also being asked to recognize a new cause of
action for discrimination and harassment as a matter of tort and contract law. The Court
will also consider whether or not to reinstate the trial judge’s award of punitive damages
in the amount of $500,000.00.
Damages for bad faith in the manner of termination - Wallace v. United Grain
Growers Ltd., [1997] 3 S.C.R. 701
The SCC in Wallace imposes on employers an obligation of good faith and fair
dealing which requires employers to be candid, reasonable and honest with employees
and to refrain from engaging in conduct that is unfair or in bad faith in the course of an
employment termination. Where employers conduct themselves in bad faith, injuries such
as humiliation, embarrassment and damage to one’s sense of self-worth may be worthy of
compensation. Increased compensation may be warranted where such conduct adversely
impacts future employment prospects. The Court stops short of creating a separate cause
of action for bad faith discharge or for breach of an implied duty of good faith on the part
of an employer.
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Keays v. Honda Canada Inc., [2006] O.J. No. 3891at para 91, 94 and 98
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Claims of bad faith in the manner of termination may give rise to an increase in
the notice period upon termination of employment and thus are considered contractual in
nature. However, such claims recognize the aggravating factor of employer bad faith in
the manner of termination as a means to increase the compensatory damages that may
otherwise be available to a terminated employee.
In Keays, the Court of Appeal upheld a significant increase in the notice period by
nine months as a result of Honda’s bad faith in the manner of termination characterized
by Honda’s deliberate misrepresentation of the positions of both of its physicians for the
purpose of intimidation and forcing Keays to meet with Honda’s doctor without
providing him the clarification he had sought about the purpose of that meeting. The
Court also relies upon Honda’s retaliation against Keays for retaining counsel as a further
basis for the Wallace extension.
The nine month Wallace increase in Keays is significant. Most Wallace increases
are in the range of one to three months, although some have extended as long as twelve
months.
Aggravated Damages
In Vorvis, the SCC highlighted that unlike punitive damages, aggravated damages
serve the purpose of compensation for intangible injuries. 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
from the employer’s conduct before or after the dismissal7.
These criteria were considered in Wallace, where the majority also recognized
that aggravated damages could be awarded for mental distress flowing from a wrongful
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Vorvis v. Insurance Corp. of British Columbia, 1989 CanLII 93 (S.C.C.), [1989] 1 S.C.R. 1085 p. 1103 -4
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dismissal, provided that an independent actionable wrong was also present. However, in
Vorvis and Wallace alike, aggravated damages were denied to the plaintiff.
The Supreme Court of Canada has recently clarified the test that ought to apply to
determine the appropriateness of an award of mental distress damages stemming from a
breach of contract, as contrasted with an award of aggravated damages.8
The SCC in Fidler notes that damages for mental distress arising from a breach of
contract may be recovered where they are established on the evidence and are shown to
be within the reasonable expectation of the parties at the time the contact was made.
There is no requirement for an independent actionable wrong to justify such an award of
damages. To be successful, a plaintiff must prove their loss and the Court must be
satisfied that the degree of mental suffering caused by the breach was sufficient to
warrant compensation. The Court found that given the nature of a disability insurance
contract, it was within the reasonable expectation of the parties that mental distress would
likely flow from a failure to pay the required benefits. As such, an award of damages for
mental distress flowing from an insurer’s breach of contract was found to be appropriate
to compensate the claimant for the psychological consequences of the insurer’s breach of
contract9. Such awards are dependant upon the expectations of the parties and the nature
of the contract. Contracts which have as a fundamental element protection of peace of
mind, are more likely to attract such compensatory damages than other commercial
contracts.10
With respect to aggravated damages, the SCC notes that they “describe an award
that aims at compensation, but takes full account of the intangible injuries such as distress
and humiliation, that may have been caused by the defendant’s insulting behaviour.”
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The Court notes that true aggravated damages arise out of aggravating circumstances and
are not awarded under the general principles of compensation as set out in Hadley v.
Baxendale12. Such aggravated damages are based on a separate actionable wrong. Where
8
Fidler v. Sun Life Assurance Co. of Canada [2006] S.C.J. No.30 (Fidler)
Fidler at para 44 – 45, 47, 56 – 59
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Fidler and Jarvis v. Swans Tours, Lat., supra
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Vorvis v. Insurance Corp. of British Columbia [1989] 1 S.C.R. 1085 at pg. 1099 and Fidler at para 50
12
Hadley v. Baxendale (1854), 9 Ex. 341, 156 E.R. 145
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a plaintiff can establish mental distress as a result of the breach of an independent wrong
such as the intentional infliction of emotional distress, negligent misrepresentation, or
defamation, the plaintiff may be entitled to recover damages accordingly. The award of
damages in such a case arises from the separate wrong and does not arise out of the
contractual breach itself.
The SCC has recognized that the principles set out in Hadley represent the single
and controlling test for compensatory damages in cases of breach of contract. The
presence of an independent actionable wrong is thus not required to justify recovery of
mental distress damages arising directly from the breach of contract. An independent
wrong will only need to be proven where damages are of a different sort entirely, that is
where they are sought on the basis of aggravating circumstances that extend beyond the
expectation of the parties to the contract.
Historically in the employment law context, in order to justify an award of
aggravated damages, including an award for mental distress, an employee must
demonstrate that an employer’s conduct gives rise to a separate actionable wrong,
independent of the breach of the employment contract itself. It remains to be seen how
the SCC analysis in Fidler will apply in the employment law context and whether courts
will begin to recognise mental distress claims arising directly from the breach of an
employment contract.
Intentional Infliction of Mental Distress – Prinzo v. Baycrest
In the case of Prinzo13, the Court found that the employer’s conduct towards the
employee amounted to the intentional infliction of mental suffering. In this case, the
Court found that the employer engaged in a pattern of harassing conduct, comprised of
improper communications with a disabled employee which implied that the employee
was malingering and caused that employee significant mental distress. The Court
awarded mental distress damages of $15,000.00, in addition to 12 months’ notice.
Awards of punitive damages and substantial indemnity costs were set aside on appeal.
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Prinzo v. Baycrest Centre for Geriatric Care, [2002] O.J. No. 2712
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The test for a determination of an award of intentional infliction of mental distress
requires the proof of (a) flagrant or outrageous conduct; (b)calculated to produce harm;
and (c) resulting in a visible and provable illness.14
The following facts were found to support the Court’s award of damages for the
intentional infliction of mental distress in Prinzo:

Prinzo was medically unfit for any form of work from November 27 to
February 9, including so-called modified duties and was not malingering;

Gates and Frost kept calling Prinzo urging her to return to perform modified
duties;

Frost told Dr. McNabb that Prinzo had to be brought back to work so she could
be let go;

Gates sent Prinzo a letter dated December 22, 1997 that implied that Prinzo’s
doctor had agreed to her return to work when this was not the case;

Gates advised Prinzo that a refusal to perform modified work as of December
23, 1997 was a work refusal;

The emotional upset to Prinzo as a result of the calls was or ought to have been
apparent to the callers. In the portion of his reasons entitled “Background to
November, 1997” the trial judge reviewed the evidence that in the spring of
1997 Prinzo was off sick and Gates called her several times. The staff at
Baycrest became aware that that the calls were emotionally upsetting to Prinzo.
When Prinzo re-injured herself in November 1997 and Gates again began
calling, Prinzo’s lawyer in a letter of January 15, 1998 outlined the stress and
anxiety that was being caused, and requested that all communication be directed
to him. The trial judge held that the calls continued after the letter.
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Prinzo v. Baycrest Centre for Geriatric Care, [2002] O.J. No. 2712
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
At the request of Baycrest, the Workplace Safety and Insurance Board became
involved in early January. The Board would seek information from Prinzo’s
doctor as to her ability to return to work. Although there was no need for
Baycrest’s staff to contact Prinzo directly once the Board was engaged, the trial
judge found that the calls did not cease.

Baycrest’s obligations respecting the WSIA did not include exacerbating
Prinzo‘s fragile health by harassment.15
Negligent Infliction of Mental Suffering - Sulz v. Canada
The British Columbia Supreme Court recently found the RCMP liable in tort for
the negligent infliction of mental suffering arising from a breach of a duty of care owed
by a commanding officer to a female RCMP officer to ensure that she could work in a
harassment-free environment as was required by various anti-harassment policies that the
RCMP had in place. The Court awarded general damages in the amount of $950,000.00
reflecting past and future wage loss and general damages attributable to the commander’s
unlawful conduct, for which the defendant RCMP was held responsible. Claims for
punitive and aggravated damages as well as for the intentional infliction of emotional
distress were dismissed along with the plaintiff’s contact claim for wrongful dismissal. 16
This case demonstrates the significance of the application of tort law principles in
the employment law context. In the circumstances of this case, the tort law damages were
found to be extremely large, while the plaintiff’s contractual claim to wrongful dismissal
would have resulted in a far more modest award had the Court found that it had
jurisdiction to deal with that claim. The Court refused jurisdiction for reason of the
particular nature of the employment relationship between RCMP officers and the RCMP
to which some Courts have held that typical rules of employment law do not apply in that
RCMP officers serve at pleasure.
15
16
Prinzo v. Baycrest Centre for Geriatric Care, [2002] O.J. No. 2712 at para 57
Sulz v. Canada (A.G.), 2006 BCSC 99 (CanLII)
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The new Ontario Human Rights Code – Bill 107
In December, 2006, the Ontario legislature introduced Bill 10717 to reform the
human rights regime in Ontario. These reforms would significantly reduce the power and
authority of the Ontario Human Rights Commission to deal with individual complaints.
The bill proposes a stand-alone Human Rights Tribunal to which all human rights
complaints shall be made and requires the implementation of a legal resource centre in
order to assist claimants to obtain information about their rights and to file complaints
with the tribunal as well as to provide counsel and related advocacy services to
complainants. The proposed Code amendments have passed third reading but have yet to
be proclaimed.
Unlike the present Human Rights Tribunal, decisions of the proposed Tribunal
shall be subject to a privitive clause which means that their decisions are final and
binding on the parties and are not subject to appeal to the Superior Courts. Any
challenges to a Tribunal finding would have to proceed by way a of a judicial review
application.
The present Code provides that the Human Rights Commission must investigate
all complaints brought before it unless the complaint is better dealt with through another
process such as the Ontario Labour Relations Board, or under another act such as the
Employment Standards Act. Under the present Code, the Commission has carriage of all
complaints and has discretion not to refer a matter to a hearing by the Tribunal. This
gatekeeper function will be removed.
Under Bill 107, the claimant shall have a direct right of access to the Human
Rights Tribunal in order to file their complaints and proceed to a hearing of those
complaints in a timely manner. The Commission has the right to inquire and intervene in
any matter before the Tribunal and may initiate claims involving systemic discrimination.
17
Bill 107, Human Rights Code Amendment Act, 2nd Session, 38th Parliament, Ontario 2004, cl. 8 at s.
46.2
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Another fundamental change contained in the Bill 107 would empower Courts to
deal with complaints of human rights infringements in cases that are properly before
them on other valid causes of action such as wrongful dismissal or tort claims. In essence,
claimants will have to chose the forum by which they wish to proceed. They can either
proceed with a claim to the Courts to enforce their contractual as well as their human
rights, or alternatively, they can proceed directly to a Human Rights Tribunal that has the
authority to deal with any violation of the Code as well any contractual damages
stemming from such violations.
Based on the SCC decision in Seneca College18, Courts have historically been
precluded from considering discrimination and harassment claims which arise directly
from a breach of the Code or from the public policy contained within the Code. That said,
Courts have repeatedly found that discrimination and harassment may serve as the basis
for an unlawful termination of employment which thus entitles the employee to their
contractual damages. Further, Courts have included discriminatory conduct as the basis
for awards of Wallace damages as well as damages for the intentional infliction of
emotional distress. In essence, Courts have done indirectly what they have been
prohibited from doing directly. Bill 107 seeks to address this anomaly by empowering
Courts to interpret and apply the Code and to grant damages in restitution as well as
monetary damages to address such breaches where they occur. Bill 107 stops short of
creating a new cause of action for discrimination based upon a violation of the rights set
out in the Code. The SCC will have the opportunity to address this point in Keays as one
of the arguments advanced by the plaintiff is that the Court ought to recognise a separate
cause of action for discrimination and harassment as a matter of tort and contract law.
It remains to be seen how Courts will interpret their new remedial authority.
Historically, damage awards for human rights violations have been nominal. It will be
interesting to watch if a dichotomy arises as Code provisions are interpreted both by the
Courts and the Human Rights Tribunal in the exercise of their concurrent remedial
authority. Bill 107 also removes the $10,000.00 cap on mental distress awards under the
Code.
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Seneca College of Applied Arts and Technology v. Bhadauria, [1981] 2 S.C.R. 181
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There is little doubt that the new regime represents a significant legal
development which will be welcomed by both claimants and defendants in that it will
negate the duplication of proceedings that the present Code requires in order to address
contractual claims for wrongful dismissal before the Courts and claims for violation of
the Code at the Tribunal.
Experts continue to debate the scope of the remedial authority given to Courts
under Bill 107. Some commentators have indicated that Courts will now be afforded the
same jurisdiction as the Human Rights Tribunal to grant reinstatement in addition to
other monetary damages related to human rights violations. Others suggest that the
remedial authority given to Courts under Bill 107 does not extend that far and limits the
Courts to monetary awards of damages in response to human rights violations.
It will also be interesting to watch how Courts balance and apportion damage
awards for Wallace, aggravated, mental distress, punitive and discrimination damages.
Clearly, the Courts will have to develop a test to weigh and balance damages flowing
from the same conduct that may be compensable under each of the above heads. This is
another point that the SCC is asked to address in the Keays case.
Conclusion
The developments in extracontractual claims and remedies have significantly
impacted employment law and practice over the last several years. Recent changes to the
Ontario Human Rights Code which extend the Court’s jurisdiction and authority to grant
damage awards contrary to the Code are certain to create additional questions and to
complicate employment litigation into the future. The Court of Appeal’s recent upholding
of an award of punitive damages for discrimination in Keays provides Courts with
another weapon in their arsenal of remedies to address egregious conduct including
discrimination and harassment contrary to the Code.
There is certainly no substitute for experience and expertise when it comes to
applying these diverse but interrelated areas of human rights and employment law in
order to ensure that parties are best equipped to apply and respond to the new remedial
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authority of the Courts and the Human Rights Tribunal. The development of
extracontractual claims and remedies along with the proposed Code amendments are
creating a new subspecialty in human rights and employment law which is sure to
challenge lawyers who practice in this area for years to come.
Note on Author: Hugh Scher is a partner in the law firm of Scher & De Angelis where he practices civil
litigation with a focus on employment and human rights law especially in the area of disability rights. He
serves as counsel to Kevin Keays in Keays v. Honda.