An Ontario court recently awarded a wrongfully dismissed employee more than a quarter million dollars in extraordinary damages and legal costs due to the employer’s egregious bad faith conduct and frivolous counterclaim against him.
In Koshman v. Controlex Corporation [Koshman], the Ontario Superior Court of Justice (“ONSC”) awarded Mr. Koshman $50,000 in aggravated damages and $50,000 in punitive damages after he was treated in a “highly disrespectful and offensive manner in the two months leading to his summary dismissal”, which included the defendant’s President making “bizarre and defamatory” statements about him to clients. He was also awarded nearly $200,000 in legal costs and disbursements due to the employer making a frivolous counterclaim against him and its improper litigation conduct.
Although Koshman is an unusual case in certain respects, it serves as a useful cautionary tale for employers on how common types of bad faith conduct can substantially increase liability.
Background
Mr. Koshman is a professional engineer who served as the Vice President of Controlex under its late President and founder, Mr. Dent, for 18.5 years. Mr. Koshman earned an annual salary of $228,000 and directed Controlex’s operational and property management functions throughout his tenure.
Unfortunately, Mr. Dent suddenly died in an accident in July 2020, which led his wife, Mrs. Dent, to take over as the company’s President. Upon becoming President, Mrs. Dent informed Mr. Koshman that she was removing his signing authority effective immediately, undermining his ability to perform his role.
Mrs. Dent subsequently began providing instructions to Mr. Koshman’s direct reports without his knowledge, in addition to making “bizarre and defamatory” statements about Mr. Koshman to clients. For example, she suggested to clients that: (i) Mr. Dent had been murdered and Mr. Koshman may have been involved; (ii) Mr. Koshman was “on the take” and getting kickbacks; and (iii) that she had fired him (despite that she had not done so at the time). Moreover, she also told clients that Mr. Koshman was “a nobody”, that he was “no good”, and that they should not speak to him.
Ultimately, Mrs. Dent summarily dismissed Mr. Koshman 8 weeks after becoming President by sending him a termination letter via courier, without any explanation. Mr. Koshman was 69 years old, at the time. However, Mr. Koshman had already learned of his dismissal from Controlex’s office staff well before he received his termination letter. He also later learned that Mrs. Dent had offered his job to one of his direct reports before dismissing him.
Mr. Koshman was provided with only eight weeks of severance pay and two weeks of termination pay, despite his length of service and that he had not waived his entitlement to common law reasonable notice in an employment contract. He also was also not provided with his more than $150,000 in accrued vacation entitlements for nearly a year, contrary to the Employment Standards Act, 2000 (the “ESA”).
Mr. Koshman subsequently commenced a wrongful dismissal action against Controlex. In response, Controlex asserted for the first time that there was cause for Mr. Koshman’s dismissal, and it also filed a baseless counterclaim against him for breach of fiduciary duty. However, Controlex ultimately failed to attend the trial, without any communications to Mr. Kohsman’s counsel or the court, which caused Mr. Koshman’s counsel to undertake full trial preparation at substantial cost.
The Court’s Decision
The ONSC ruled that Mr. Koshman was entitled to 24 months of pay in lieu of reasonable notice for wrongful dismissal, and that aggravated and punitive damages were “manifestly justified” due to Mrs. Dent treating Mr. Koshman in a “highly disrespectful and offensive manner” in the two months leading to his summary dismissal.
Notably, the 24-month reasonable notice award was based in part on the court’s finding that Mrs. Dent’s defamatory allegations and Controlex’s baseless counterclaim adversely affected Mr. Koshman’s ability to obtain comparable employment. Thus, Controlex’s bad faith conduct, and improper litigation tactics increased its wrongful dismissal liability, amounting to $471,461.68 in damages.
Further, the court awarded Mr. Koshman $50,000 in aggravated damages because it found that Mrs. Dent’s bad faith conduct towards him breached its duty of good faith in the manner of dismissal, which is breached where an employer is untruthful, misleading, or unduly insensitive in dismissing an employee. In particular, the court found that Mrs. Dent’s bad faith conduct included: removing Mr. Koshman’s signing authority; telling clients not to deal with him, that he was dishonest, and that he had been terminated (before he had been); offering his job to his subordinate prior to his dismissal; terminating his employment by way of a letter sent by courier; refusing to pay his accrued vacation pay; suggesting to clients that he had been involved in murdering Mr. Dent; and making baseless allegations of breach of fiduciary duty against him in the course of the litigation.
The court also awarded Mr. Kohsman $50,000 in punitive damages, which are awarded in exceptional circumstances to denounce and deter reprehensible conduct by a defendant. This was because Mrs. Dent embarked on a “malicious campaign” to destroy Mr. Koshman’s reputation; she pursued a baseless counterclaim against him, and she directed Controlex’s improper litigation conduct.
Finally, the court also ordered Controlex to pay Mr. Koshman$192,112.10 in legal costs and disbursements, which was due in part to its improper litigation conduct causing him to incur a substantial amount of unnecessary legal fees.
The Bottom Line
Although some of the bad faith conduct by the employer in Koshman was very strange/unusual, many instances were the type of mistakes that employers often make when they are not aware of the duty of good faith in the manner of dismissal and the costly consequences of breaching it. Thus, Koshman serves as a useful cautionary tale for employers to avoid making the same mistakes, such as: making disparaging comments about an employee to clients; communicating an employee’s dismissal to their co-workers before them; failing to provide an employee with their ESA termination entitlements promptly following their dismissal; and engaging in unreasonable hard-ball litigation tactics in response to a wrongful dismissal claim. By avoiding these common mistakes, employers can avoid the costly consequences.
If you require assistance with ending an employment relationship while minimizing liability, please do not hesitate to contact us for expert legal advice and guidance.
