Howard Levitt: Punitive damages from a pandemic layoff are a cautionary tale for employers

Gary Fogelman worked for International Financial Group (IFG), which conducts job recruiting for the financial industry, from June 13, 2009, when he was hired and paid through his company, until his temporary layoff on March 16, 2020, because of  COVID. In 2014, he signed an employment contract with termination provisions, and that contract referred to him as an employee. From then on he was paid directly.

Upon being laid off, he immediately had a lawyer claim constructive dismissal. In defending itself, IFG took a number of legal positions that worked to its disadvantage, a lesson for employers on what positions not to take.

IFG argued that the IDEL regulation to the Ontario Employment Standards Act permitted Fogelman’s layoff without recourse to the courts. The general law is that a layoff is a constructive dismissal permitting an employee to resign and sue as if they had been fired. But many employers believe that IDEL gave them a full exemption.

The court noted that the ESA makes clear that IDEL was not intended to affect civil (judge-created) rights and therefore did not preclude Fogelman from taking the position in court that he was constructively dismissed and suing for wrongful dismissal. The court said IDEL only affects rights in ESA cases, not in court. Realistically, since ESA awards in almost every case amount to a very small percentage of what a court provides a dismissed employee, the IDEL legislation provides employers with no practical protection.

The court made short shrift of IFG’s next position — that Fogelman was an independent contractor during his first five years because he contracted his services through a company. The court declared it to be of little importance that he was paid through his company and noted that nothing really changed when he later signed the contract as an employee.

This is a reminder to employers and employees that it takes far more than merely billing through a company to make a worker an independent contractor. They must be genuinely independent of that “employer,” use their own tools to perform their functions, work for a number of different  “employers,” and have a genuine chance of profit or risk of loss. They also cannot be integrated into the company in the same fashion as a regular employee. The reality is that probably 90 per cent or more of Canadian workers who declare they are independent contractors — and file taxes as such — are employees at law and at genuine legal risk. So are the employers that participate in what is really a tax sham.

The contract Fogelman signed in 2014 limited his severance entitlement to only the employment standards minimum and so IFG next argued that that limited severance was all that it had to pay. The court concluded that Fogelman had received nothing of value in return for giving away his wrongful dismissal rights in that 2014 contract, and that lack of “consideration” made it unenforceable. It based that ruling upon a decision of the Ontario Court of Appeal, Hobbs v TDI, which I won in 2004.

Companies too often forget that once an agreement is made as to the terms of employment, even if that agreement is oral or in some quick emails, anything signed after that containing new terms is unenforceable unless the employee receives some new consideration in return for the new restrictions.

Finally, IFG argued that the CERB payments Fogelman received following his dismissal should be deducted from the damages it had to pay. The court refused to deduct them similar to the law respecting Employment Insurance. Many employers had looked to save money on severance by having terminated employees collect CERB. There has been differing authority across the country, but this case reflected the majority view of non-deductibility.

This case touched on so many 2021 themes, but perhaps the most interesting aspect was the awarding of punitive damages against an employer that may have believed it had the right to lay off workers without severance. This is something that much of corporate Canada has done during the pandemic, and the vast majority have gotten away with it.

In awarding $25,000 in punitive damages, on top of 15 months’ wrongful dismissal damages (rather than slightly more than the four months’ employment standards would have awarded), the court noted the following:

• “Even after IFG acknowledged that an employment contract existed, it did not pay the notice and severance obligations stipulated by that contract.”
• The company used the excuse of Fogelman’s claiming constructive dismissal for not telling him of his prospects of being recalled despite promising to do so when he was laid off. Also, it never recalled him.
• His lawyer’s request for his minimum entitlements under the ESA “was met with radio silence after an initial letter from IFG’s lawyer promising to respond.”
• IFG made it difficult to serve the statement of claim. Its lawyer declined to accept service and then IFG personnel stated that they were not instructed to accept service “to make it as difficult as possible for Fogelman to proceed with his lawsuit.”

Finally, and most devastatingly, the court concluded: “Employers cannot be permitted to ignore their obligations under the ESA while awaiting the outcome of a court proceeding where the termination is conceded to be without cause. It is critical that the courts protect the statutory rights of employees especially in harsh economic times.”

This judgment is a cautionary tale for employers and a roadmap for employees seeking punitive damages. Increasingly, employers need sound legal advice to handle the missiles being thrown at them, and the same is true for employees seeking to maximize their recovery.