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November 2018

A Cautionary Tale for Employers

A Case Study - Hampton Securities Ltd. v. Dean

Sabrina Lucibello
Sabrina Lucibello,
Partner

By Sabrina Lucibello

In the recent decision, Hampton Securities Limited v. Dean,1 the Ontario Court of Appeal affirmed the detailed trial decision of Justice Koehnen2 with respect to an employment-related action involving a proprietary trader. The decision serves as a cautionary tale for employers when disclosing the reason(s) for the termination of an employee.

Christina Dean began working with Hampton Securities Limited (“Hampton”) as a propriety trader of securities on March 6, 2008. Her employment ended 13 months later on April 3, 2009. Hampton took the position that Ms. Dean had been terminated for cause for failing to follow trading policies and engaging in unauthorized trading, while Ms. Dean took the position that she had been constructively dismissed.

The key consideration in determining whether Hampton had cause to terminate Ms. Dean's employment or had constructively dismissed her was a meeting that took place between Ms. Dean and Hampton's CEO, Peter Deeb, on April 2, 2009 (the day before her employment ended). In brief, on that day, Mr. Deeb advised Ms. Dean that she owed Ms. Hampton money as a result of certain trading losses and that she was required to post an additional $50,000 to her reserve account by the next day, failing which she would be suspended from trading. The next day, Ms. Dean resigned from Hampton, stating that she had been constructively dismissed. However, Hampton filed a Notice of Termination (“NOT”) on the National Research Database (“NRD”) maintained by its industry regulator, the Investment Industry Regulatory Organization of Canada (“IIROC”), wherein it stated that Ms. Dean had been terminated for cause for failing to follow trading policies and engaging in unauthorized trading. It should be noted that as a member of a regulated industry, Hampton was required to notify IIROC and the Ontario Securities Commission (OSC) of Ms. Dean's change in registration status within 5 days of any such change.

...seeking repayment of funds that it claimed stemmed from trading losses.

Hampton commenced an action against Ms. Dean seeking repayment of funds that it claimed stemmed from trading losses. Ms. Dean counterclaimed for constructive dismissal, defamation, and punitive damages, among other things.

The trial court carefully reviewed the terms of Ms. Dean's employment contract and ultimately dismissed Hampton's claim against Ms. Dean and held that she had been constructively dismissed. The court noted that the Hampton's attempt to change the way it calculated the losses for which Ms. Dean would be responsible and demanding an additional $50,000 from one day to the next were unilateral and fundamental changes to the employment contract that amounted to a constructive dismissal. The Ontario Court of Appeal affirmed this finding, noting that there “could be no serious argument that Ms. Dean was not constructively dismissed.”

The trial court also held that Ms. Dean's employment contract, which stipulated that it would pay the minimum amount required by the Employment Standards Act (ESA) in force at the time of termination and no further compensation, did not comply with the ESA, such that the provision was not valid and Hampton was required to pay common law notice to Ms. Dean. The court ultimately awarded 6 months' pay in lieu of notice. The court noted that the notice period for someone in Ms. Dean's position would be 3-4 months but then extended it by 2 months to account for the fact that Hampton's actions had made it significantly more difficult for Ms. Dean to find alternative employment.

The trial court carefully reviewed the evidence of all witnesses and found that the information Hampton provided to IIROC that Ms. Dean had failed to follow trading policies and had engaged in unauthorized trading was unsupported by the evidence and was in fact knowingly false. Almost 8 years after the fact, Ms. Dean still had not found equivalent employment. Indeed, she ultimately took a part-time position as an entry level administrative assistant with a bank, just to get her foot in the door. However, even in that role, the information that Hampton had filed with IIROC caused issues for her, such that the compliance department of her new employer questioned her as she attempted to move up the corporate ladder so to speak.

These facts became critically important to Ms. Dean's defamation and punitive damages claims.

These facts became critically important to Ms. Dean's defamation and punitive damages claims. With respect to defamation, the trial court noted that unauthorized trading was a very serious issue and that trading is a highly regulated industry. Therefore, it was easy to see how a statement that a professional trader had failed to follow trading policies and had engaged in unauthorized trading would seriously damage her reputation in the eyes of potential employers. The court further noted that any prudent securities firm would review the NRD of an individual they were considering for a discretionary trading position of the sort that Ms. Dean held with Hampton.

Hampton put forth the defence of qualified privilege, arguing that it ought to have immunity from defamation with respect to the information it had submitted to IIROC. However, while Hampton's obligation to inform IIROC of the reasons for the departure of a registered individual like Ms. Dean attracts qualified privilege, the immunity is limited and extends only to statements that are reasonably appropriate to the circumstances and are made honestly and in good faith. In this case, the trial court found that the filing was untrue and that Ms. Dean's employment was terminated because she did not increase her reserve account, not because she had engaged in unauthorized trading. Therefore, Hampton could not rely on the defence of qualified privilege. The Ontario Court of Appeal agreed with this analysis and conclusion, noting that “[p]roviding misleading statements to IIROC clearly exceeded the scope of the duty to report all internal discipline matters or the duty to warn of potential risks that registered individuals might create.”

In considering damages for defamation, the trial court noted the devastating impact of the statements on Ms. Dean's life and employment prospects. It, therefore, awarded $25,000 in damages at large. It further ordered that Hampton file with IIROC a notice of correction of the NOT that was to be posted on the NRD. The trial court was of the view that the notice of correction ought to make clear that Ms. Dean resigned after Hampton unilaterally changed the terms of her employment contract and that there was never any valid basis to suggest that she was dismissed for cause, that she had engaged in unauthorized trading, or that she had breached trading policies or procedures.

Perhaps one of the most striking elements of the decision was the award of punitive damages. Punitive damages are typically rare and are meant to sanction conduct that represents a marked departure from ordinary standards of decent behaviour. They are not compensatory in nature (as contrasted with, for example, damages for wrongful dismissal or general damages for a personal injury) and are instead rooted in the principles of retribution, deterrence, and denunciation. Even where such principles are at play, the court is still careful to consider whether or not an award of punitive damages would overlap with compensatory damages that have been awarded, as the courts do not wish to provide parties with a double recovery and want to ensure that the damages awarded are proportional to the objectives for which they are awarded.

Punitive damages are usually supported by an independent actionable wrong.

Punitive damages are usually supported by an independent actionable wrong. However, an independent actionable wrong does not require an independent tort and can be grounded in a breach of the contractual duty of good faith. In this case, Hampton's statement that Ms. Dean was terminated for unauthorized trading amounted to a breach of the duty of good faith associated with employment contracts. The trial court noted that “[r]efraining from untruthful statements that go to the integrity of another would appear to be one of the most basic elements of good faith.” In addition, the trial court was of the view that defamation would also support a claim for punitive damages in the particular circumstances of this case.

The trial court held that Hampton's conduct represented a marked departure from ordinary standards of decent behaviour. In coming to this conclusion, the court noted that employees depend on employment for physical survival and a sense of self-worth and that conduct of the more powerful party in the employment relationship which has no basis in fact and attacks the core of someone's self-worth and has potentially lifelong implications for the employee warrants condemnation and punishment.

The court concluded that Hampton's conduct was highly blameworthy, noting that Hampton had offered no excuse for its refusal to withdraw the allegation despite the lack of evidence to support it. The court was not concerned that there was a danger of double recovery if punitive damages were awarded, as damages for wrongful dismissal did not compensate Ms. Dean for her inability to find comparable employment in the securities field. Furthermore, the court wished to attach stigma and denunciation to Hampton's conduct, which it considered to be egregious in the circumstances. It ultimately awarded $25,000 in punitive damages.

The Ontario Court of Appeal concluded that the award of punitive damages “was perfectly appropriate” in light of Hampton's conduct and was “necessary to sanction Hampton for its marked departure from the ordinary standards of decent behaviour.” The Ontario Court of Appeal disagreed with Hampton's submission that there was an overlap in the damages awarded, noting that the damages were modest and did not come close to fully compensating Ms. Dean for the “devastating consequences” of Hampton's conduct.

Both levels of court concurred in that Ms. Dean ought to be entitled to significant costs of the proceedings.

This case serves as a significant cautionary tale for employers when they are determining how to describe their reasons for terminating an employee to a regulator, or indeed to any outside parties. Both levels of court were scathing in their critique of the employer's conduct in this matter and awarded significant amounts in damages to reflect their repudiation of that conduct. In future, any employer ought to take care to ensure that the reasons it puts forth with respect to an employee's termination are fair and accurate and supported by facts. The failure to do so can have serious and long-lasting effects on the employee's future employment prospects and can ultimately cost the employer dearly if litigation arises.


1 2018 ONCA 901.
2 2018 ONSC 101 (CanLII).


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