The Alberta Court of Appeal decision of Elgert v Home Hardware provides a further vivid example of the adverse consequences which may be suffered by a company for failing to do a fair and proper investigation.

Daniel Elgert was wrongly accused of sexually harassing two female employees. Following his termination, he sued for wrongful dismissal, aggravated and punitive damages against the employer and further for damages for defamation against the personal defendants who had made the allegations of sexual harassment against him.

At trial, the plaintiff succeeded in his claim against the employer and was awarded two years lost income as the dismissal claim, $200,000 for aggravated damages and $300,000 in punitive damages, a decision which underwent a considerable re-write on appeal. The aggravated damage award was then set aside and the punitive damage award was reduced to $75,000, which nonetheless remained a significant sum.

More importantly the appellate court agreed in concept that a claim for aggravated and punitive damages were each possible, had the evidence supported the emotional anguish, given the unfairness of the investigative process.

The claim against the personal defendants also succeeded at trial as the jury believed that the two personal defendants had acted maliciously, hence depriving them of the defence of qualified privilege. The sums of $50,000 and $10,000 were awarded against them.

The plaintiff had been employed with the distribution centre of Home Hardware in Wetaskiwin, Alberta for 17 years. He was employed as a supervisor on termination, at 48 years of age, earning $60,000 annually.

He reported to Norris Bernier, the manager of the centre. Bernier’s daughter, Ms. Crista Bernier, the main protagonist, reported to Elgert.

Elgert had become concerned with certain performance issues of Ms. Bernier, specifically, that she was spending an inordinate amount of time with a male co-worker with whom she had a romantic interest. Elgert noted this issue and relocated her to a different area of the facility, a decision which caused her some chagrin. Evidence was given as to her intent to “get even” with Elgert.

Following her reassignment, Crista Bernier reported to her father an event which had taken place some four months earlier in which Elgert had “belly bumped” her. The co-defendant Diane Stengle offered her recall of a similar event involving Elgert, conduct which had previously been considered by her to be a joke and hence then went unreported.

The evidence at trial was that Elgert and two others had “belly bumped” on prior occasions, conduct which was determined at trial to be reflective of “silly behaviour”.

An investigation was conducted by the senior human resources person, Kirck, a long time acquaintance of the senior Bernier. Kirck had not conducted such a prior investigation in his 26 years of employment with Home Hardware.

The award of 2 years as a notice claim was upheld.

Aggravated Damages – Does the Unfair Investigation Meet the Honda Test ?

On the issue of the aggravated damage award, the Court of Appeal found that there was no case to submit to the jury as no evidence had been led of the degree of emotional suffering endured by the plaintiff.

The Court of Appeal, however, acknowledged that the legal basis existed for such an award of aggravated damages based on Honda where the manner of dismissal was inherently unfair:

Aggravated damages in wrongful dismissal cases are compensatory in nature. In Honda, the Supreme Court reviewed the history of the law relating to damages in cases of employment termination, noting that aggravated damages must be considered in the context of a breach of the employment contract. The Court held that aggravated damages are recoverable for breach of contract if such damages were contemplated by the parties at the time they formed the contract. As an employment contract is inherently subject to cancellation on notice, or payment in lieu of notice, “without regard to the ordinary psychological impact of that decision” (para 56), damages for mental distress caused merely by the dismissal are not in the contemplation of the parties because “dismissal is a clear legal possibility”: ibid. As such, distress or hurt feelings ordinarily resulting from the fact of termination are not compensable: Honda at paras 54-57 ¹

[73]           Damages resulting from the manner of dismissal (as opposed to the fact of dismissal) are available, however, if damages arise out of the conduct of the employer in the course of termination. To be compensable, such conduct must be unfair or in bad faith, in that it is “untruthful, misleading or unduly insensitive”: Honda at para 57; Wallace v United Grain Growers Ltd.... There is an “expectation by both parties to the contract that employers will act in good faith in the manner of dismissal” and failure to do so “can lead to foreseeable, compensable damages”: Honda at para 58.

The Court of Appeal agreed that there was at trial a factual underpinning of unfairness demonstrated to allow for the potential of an award of aggravated damages and also of punitive damages. The Court was very critical of the manner of the investigation and saw such conduct as theoretically supportive of incremental damage awards:

In order to determine whether there was sufficient evidence to support the trial judge’s decision to leave aggravated and punitive damages with the jury, we must examine the evidence as a whole to determine if it can support the jury’s finding unfairness or bad faith conduct in the manner of dismissal (to provide the threshold for a possible award of aggravated damages) and harsh, vindictive, reprehensible, malicious conduct (to justify a possible award of punitive damages). Put another way, viewed from the appellants’ perspective, what is the worst view of the case this evidence can reasonably support? In relation to aggravated damages, we also need to assess the evidence supporting Elgert’s claim to actual damages arising from unfairness in the manner of his dismissal.

 

[86]           The following evidence and inferences about Home Hardware’s treatment of Elgert are relevant both to possible aggravated and punitive damages as it concerns the way Home Hardware treated him:

2.       Norris Bernier, Christa Bernier’s father, had some involvement in the early stages of this matter. Bernier told her father about the incident on April 1 or 2.

3.       Norris Bernier called a meeting of supervisors within days (maybe April 3) and advised that there was a serious allegation of sexual harassment against a supervisor and there was an investigation. Pamphlets relating to sexual harassment policies were circulated.

4.       Although, Norris Bernier denied discussing this matter with his friends Gingrich or Kirck, Gingrich confirmed that Norris Bernier discussed it with him on April 15, before head office had received any complaint.

5.       Bernier did not file the originating complaint. Rather, her friend Bowen talked to Borodawka then sent a letter outlining the Stengle and Bernier incidents and other incidents involving others. Borodawka sent an email to Kirck on April 15 advising of Bowen’s complaint, then sent her letter on April 23. There was a notation in Gingrich’s interview with Borodowka “trying to keep Christa’s [Bernier’s] name out.”

6.       In a conference call on April 24 among Norris Bernier, Gingrich, Borodawka, and Kirck, Kirck advised he would commence the investigation.

7.       Notwithstanding what was described as the most serious allegation of sexual harassment ever at Home Hardware, Kirck (who had no training or experience in investigations) was sent to investigate.

8.       Elgert was called to the boardroom where he met his immediate supervisor Hlusiak, Borodawka and Kirck. Evidence suggests that Kirck’s manner was accusatory. Elgert asked what he was supposed to have done, and was told he knew. Elgert said he did not know and begged for information but no information was provided and no questions were asked as to his side of the story. Elgert begged them to investigate. He was crying and very upset. Kirck suspended him immediately. He was told to hand in his radio and keys. He was not allowed to return to his work station or locker to gather his personal effects. Kirck escorted him out of the building through the lunch room.

9.       Read-ins from Hlusiak confirmed Elgert’s evidence that he was very surprised, upset and crying at the meeting. He confirmed that Elgert asked what it was about and that Elgert appeared to be struggling to understand the nature of the allegation. Elgert asked for a careful investigation in case someone was just out to get him. Hlusiak acknowledged that he was so upset after the meeting he had to go outside to compose himself. Borodawka’s notes confirmed that Hlusiak had to leave the building to compose himself.

10.       Elgert was not provided with particulars prior to the interview. The experts disagreed on whether particulars should be provided prior to interview as sometimes an investigator wants to start out with cold questions leading up to the issue, but they agreed particulars should be provided in the course of the initial interview. Allegations were not provided for 10 days.

11.       Following Elgert’s suspension, Kirck told Elgert’s son, Trent, that Home Hardware would not have suspended his dad if he was not 100 percent positive.

12.       Gingrich confirmed that Kirck had already made up his mind as to Elgert’s guilt before speaking to him. Kirck had not talked to Stengle at the time of the interview and had no written statements; although he had talked to Fontaine.

13.       There was no effort during the investigation to examine the relationship between Bernier and Elgert or interview people, other than Fontaine, who worked directly with them.

14.      Home Hardware never considered motive or fabrication. Both experts indicated that this is an essential aspect of a proper investigation. Both emphasized that an investigator’s role is to be impartial, neutral, and objective. Although they had the evidence of Fontaine, there is at least some evidence that Home Hardware largely accepted what Bernier said at face value.

15.       Elgert testified that shortly before Bernier’s allegations (in either February or March) he had handed in a negative performance review on Bernier. Read-ins from Hlusiak confirmed that Hlusiak recalled seeing some reviews but was not sure who they were about. When asked on discovery whether he had remembered reading Bernier’s review and then saying words to the effect “she’s not going to be happy with it”, he replied “no, could have, I don’t know.” He was pretty sure Elgert had done a couple of reviews. This performance view was never produced and Hlusiak could not locate it.

16.       Elgert’s planners containing all his notes about performance issues with Bernier were at Home Hardware and could not be located, leading to a possible inference that they were lost or accidentally or intentionally destroyed. Similarly, the performance review he completed on Bernier in March 2001 was never produced.

17.       Home Hardware acknowledged it was aware of the stigma attached to sexual harassment and the effect on future employment of dismissal for this cause.

18.       Despite providing particulars of similar allegations against employees in past cases, Home Hardware did not do so here in a timely way.

19.       Gingrich did not come to the Distribution Centre to conduct interviews until May 8, notwithstanding Home Hardware knew that Elgert had still not been provided with particulars, was aware that employees would know of Elgert’s suspension and connect it to the earlier supervisors’ meeting with Norris Bernier.

20.       Although Gingrich learned of Bernier’s work ethic issues from Ron Shantz, he made no further inquiries about her work and possible motives with respect to her supervisor.

21.       During the interview with Bernier, Gingrich asked about gossip involving Elgert. Bernier offered rumours of Elgert having an affair with Polei and having naked pictures. Had an effort been made to talk to some of other employees or with Polei, Gingrich may have received information that would at least call Bernier’s credibility into question.

22.       Gingrich requested a meeting with Elgert but refused to meet with his lawyer. He acknowledged that it was his hope to get a confession from Elgert. While an employer has a right to speak to an employee directly, this behaviour can be taken into account here, especially since particulars were not provided to Elgert when he asked for them.

23.       Notwithstanding Home Hardware’s position of zero tolerance, and the letter of complaint that referenced other employees, only Elgert was investigated. Home Hardware did not investigate Bernier’s alleged incident with Fontaine despite allegations that someone had witnessed that event.

24.      The termination letter listed bear hugs as one of the reasons for dismissal, and in particular, a bear hug given to Stengle. By this time, Stengle had been interviewed and had no memory of such an incident. At most, she said Elgert could have poked her. A possible inference is that this incident was not documented to the file at the time, but papered later. The inclusion of the incident on the termination letter was at least misleading.

25.       Similarly, the termination letter mentioned insubordination for not meeting with Gingrich. When cross-examined, Gingrich acknowledged that sexual harassment was really the reason.

26.       There was evidence to support the view that the suspension was unjustified. Home Hardware’s expert said suspensions were justified in two circumstances: to protect the Home Hardware “brand” and to ensure personal safety.

There was no evidence on either of these issues. In fact, Bernier continued to work under Elgert’s supervision for almost five months after the alleged incident. Neither she nor Kirck recalled discussing the issue of safety concerns or the suspension itself. Even without expert evidence, it would be possible to conclude that there were insufficient grounds to suspend Elgert.

[87]           Although the above list is not exhaustive, it demonstrates there was sufficient evidence to permit a jury to conclude that the manner of dismissal was unfair, in bad faith, misleading, or unduly insensitive. It is capable of supporting inferences of bad faith, including that Norris Bernier participated in a matter involving his daughter; his friends Kirck and Gingrich had carriage of the file, even though Kirck was inexperienced; there was a lack of the necessary neutrality on Home Hardware’s part; and the decision to terminate Elgert was a fait accompli. It could also support the view that the manner of dismissal was unfair, particularly given Home Hardware’s conduct of its meeting with Elgert; its decision to suspend him when there was arguably no good reason to do so at the time; and its failure to conduct an appropriately broad investigation that took account of Bernier’s possible motives against Elgert.

The Court of Appeal continued to conclude that there was no evidence before the jury on which a damage claim, however, could be based:

[90]           Unfortunately, the trial judge’s reasons on aggravated damages did not refer to evidence of actual damage. Rather in his reasons he noted that Elgert experienced “intangible benefits” from his employment and that the loss of his position would be “embarrassing, humiliating and traumatic”, and would impose financial hardships on him: Damages Ruling at para 37. With respect, none of the above points could support a claim for aggravated damages, as they are the effects that many (if not most) employees would suffer simply from being terminated, in whatever manner.

[91]           What evidence, then, would support Elgert’s claim for aggravated damages?

[92]           A review of the transcript reveals that during counsel submissions about leaving aggravated damages with the jury, there was very little discussion of the need for Elgert to show actual damages in order to support this claim. Likewise, the topic received scant attention in Elgert’s appeal factum.

[93]           During oral argument, when pressed on this point, Elgert’s counsel referred us to admissions made by Gingrich at AB 568-9 where Gingrich acknowledged that Elgert is an emotional person; that being suspended is humiliating, could be embarrassing and can be traumatic and stressful; and that for someone like Elgert, who loved his job, a suspension would be all those things. This evidence, however, cannot support Elgert’s claim that he suffered actual damages as a result of the manner of his termination.

[94]           Counsel also referred us to Elgert’s own evidence. In that regard the only marginally relevant passage is as follows:

Q:        How did the termination from Home Hardware affect you emotionally?

A:         Well emotionally it was devastating. Draining. Just took away all my self‑esteem, all  my confidence. I just remember night after night crying with Shelley in bed, crying ourselves to sleep, thinking that, you know, this was just all a bad dream.

A.R. 57/5-8 (emphasis added)

[95]           There are suggestions in the transcript that he reacted emotionally during his testimony:

Q:        Dan, this meeting happened almost eight years ago. It’s upsetting for you but if you can continue on with how the rest of the meeting unfolded?

[...]

Q:        Were you as upset as you are today?

A:         Yes, it was ‑‑ my world was coming apart and I didn’t know why.

A.R. 38/25-39/4

[96]           During closing submissions to the jury, his counsel also suggested Elgert’s manner of testifying revealed the negative impact of his experiences on him. Likewise, at the appeal hearing, Elgert’s counsel stressed the importance of Elgert’s demeanour during his testimony. The above evidence is very vague as to how it might relate to Elgert’s actual damages. Moreover, it is far from clear that any distress displayed by Elgert during the trial was a result of how he was terminated rather than the fact that he was terminated. It is also problematic that the trial judge took no account of Elgert’s demeanour in reasoning that there was sufficient evidence of actual damages to support a claim for aggravated damages: Elgert v Home Hardware Stores Limited, 2010 ABQB 71 (CanLII), 2010 ABQB 71, 486 AR 213 (“Quantum Reasons”). Indeed, it is somewhat telling that in his decision about possible ranges for an award for aggravated damages, he relied not on any evidence about actual damages but rather on expert reports concerning Elgert’s loss of income. That topic was irrelevant to an aggravated damages claim and further underscores the paucity of evidence showing actual damages.

[97]           Although a plaintiff does not necessarily have to provide medical evidence to show that he has suffered actual damages as a result of the manner in which he was terminated, the trial judge correctly noted that there must be more than a scintilla of evidence. This record is simply inadequate in that regard. There was no basis for leaving the issue of aggravated damages with the jury.

The Court of Appeal decision appears to be based on the proposition that the question posed to the plaintiff at trial dealt with “termination” as opposed to the specifics of this “manner of termination”, which is, it is submitted, drawing an overly fine distinction in the evidence.

While Home Hardware may have dodged the bullet on the aggravated damage award on this record, the morale of the story is apparent from five miles up. There is an imperative need to conduct a fair and unbiased investigation.

Elgert – Punitive Damages - $75,000

As to the punitive damage award, the Court of Appeal reduced the sum awarded to $75,000, led by the principle that the message was well delivered by a lower sum. There was no reference made to the financial net worth of the company, which is typically a factor:

Appellate courts can be more interventionist as regards punitive damages than other jury awards. As stated in Whiten at para 107, “the test is whether a reasonable jury, properly instructed, could have concluded that an award in that amount, and no less, was rationally required to punish the defendant’s misconduct.” The Court further explained at paras 108 and 109:

In the case of punitive damages, the emphasis is on the appellate court’s obligation to ensure that the award is the product of reason and rationality. The focus is on whether the court’s sense of reason is offended rather than on whether its conscience is shocked.

If the award of punitive damages, when added to the compensatory damages, produces a total sum that is so “inordinately large” that it exceeds what is “rationally” required to punish the defendant, it will be reduced or set aside on appeal.

[104]      Although this jury could have concluded from the evidence that punitive damages were justified (because, for example, Elgert’s termination resulted from bias and was preordained, and because Home Hardware’s treatment of Elgert was high-handed and vindictive), we cannot accept that the amount awarded by the jury was required to punish Home Hardware. Even assuming the worst possible view of Home Hardware’s treatment of Elgert, given the constraints that accompany punitive damage awards (as well as the quantum of compensatory damages here awarded), in our view, the jury award was inordinately high and unnecessary to convey the message intended. Accordingly, we reduce the award for punitive damages to $75,000.

The defamation awards, while considered on the high side, were maintained.

The plaintiff’s application for leave to appeal was dismissed. [2011] S.C.C.A. No. 294 (QL)

The most significant aspect of this decision was that it recognized that the flawed investigative process was part of the “manner of dismissal” to allow an award of aggravated damages to fit within the words of the Supreme Court in Keays v Honda.