Jan 31, 2018

Bad faith dismissal: is medical evidence required to prove damages?

Lau v. Royal Bank of Canada, 2017 BCCA 253 (CanLII)

A dismissal from employment is rarely pleasant for anyone involved. Frustration, anxiety and hurt feelings are all common by-products. But how do we assess whether an employee has suffered harm beyond the ordinary due to a poorly handled termination?

This question is one that courts across Canada have struggled with for some time. Claims of mental distress related to a bad faith termination are commonly litigated. To separate the wheat from the chaff, some courts have required that a worker claiming mental distress provide medical evidence demonstrating the same. Yet this standard has been inconsistently applied, creating confusion for employers and employees alike.

This past summer, some welcome guidance was provided by the Supreme Court of Canada. In a landmark personal injury case, it was held that damages for mental distress do not require medical evidence. Courts are free to rely upon other evidence, including the testimony of laypersons. As explained by the Supreme Court:

To be clear, however: while relevant expert evidence will often be helpful in determining whether the claimant has proven a mental injury it is not a requirement as a matter of law. Where a psychiatric diagnosis is unavailable, it remains open to a trier of fact to find other evidence adduced by the claimant that he or she has proven on a balance of probabilities the occurrence of mental injury. [emphasis added] Saadati v. Moorhead, 2017 SCC 28

was not an employment law case. Nevertheless, it quickly caught the attention of many employment lawyers who wondered whether this same logic may be applied to bad faith dismissals. We didn’t have to wait long for an answer.

About a month after Saadati, the British Columbia Court of Appeal released the highly instructive decision of Lau v. Royal Bank of Canada, 2017 BCCA 253. This case involved a customer service representation of the Royal Bank who was fired on a cause basis for alleged “falsification of bank records.” At trial, it was determined that the Royal Bank did not have cause for the dismissal.

Lau also sought damages for bad faith in the manner of dismissal. He claimed that as a result of a flawed investigation and publication of false allegations with respect to the reason for his dismissal, he had suffered mental distress. At trial, this was accepted by the Court. Interestingly, the primary basis by which the trial judge determined Lau had suffered mental distress was through direct observation of “the slow, quiet, and almost monotone manner in which [Lau] testified.” No medical evidence was provided to support the claim of mental injury. Likewise, there was no evidence from family, friends or other individuals as to the plaintiff’s mental state. Nevertheless, a $30,000.00 award was issued to Lau for aggravated damages.

The Royal Bank appealed solely based on damages for bad faith in dismissal. It was argued that absent medical evidence, no aggravated damages had been proven or should be awarded.

The Court of Appeal disagreed by looking to Saadati for guidance:

The cases to which we have been referred (of which there are many) in which there was medical evidence of depression or other psychological maladies do not go so far as to require medical evidence…The Supreme Court of Canada in Saadati specifically rejected the notion that legally compensable mental injury must rest on the claimant proving a recognized psychiatric illness (at paras. 2, 36‑38). Saadati was a tort case rather than a contract case. However, I am of the view the discussion in Saadati on proving mental injury is nevertheless applicable. [emphasis added]

Despite this conclusion, it wasn’t all bad news for the Royal Bank. While medical evidence wasn’t required to prove mental distress in the manner of a dismissal, the Court of Appeal still found that the evidence that was available wasn’t good enough. It concluded:

Mr. Lau felt lost because the “decision was not one that I expected”. The decision was “that I would be terminated”. Mr. Lau relies on the “horrible feeling” and feeling “lost” as grounding an award for aggravated damages. In my view, it is not open to the court to award damages for the normal distress and bad feelings resulting from the loss of employment.

The Takeaway

It now seems clear that a lack of medical evidence is not a bar to a successful claim for mental distress related to the manner of dismissal. Employers should expect to see an increase in the number of such claims being sought by former employees in the years to come. However, as the decision in Lau makes clear, the floodgates have not been totally opened. Former employees are still expected to prove, through some objective evidence, that they have suffered more than ordinary hurt feelings related to dismissal. To that end, medical evidence (and the lack thereof) will still have a role to play in assessing the merits when bad faith dismissal is advanced before Canadian courts.

This article was originally published on October 13, 2017 at First Reference Talks.