Court affirms arbitrator’s award of mental distress damages

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Increasingly, employees are seeking compensation for mental distress from their employers when they lose their jobs. In the labour context, where the relationship between employees and their employer is governed by a collective agreement, mental distress damages arising from a job loss are rarely awarded.In declining to award mental distress damages, arbitrators have relied on the Ontario Court of Appeal’s decision in Ontario Public Service Employees Union v. Seneca College of Applied Arts & Technology (2006), 80 O.R. (3d) 1, where the court stated that unless a collective agreement specifically states that an arbitration board can award aggravated, punitive and mental distress damages, the board is limited to awarding damages for lost pay and benefits.

Recently, however, the issue of arbitrators’ jurisdiction to award mental distress damages arising from the manner of dismissal, and the type of employer conduct that will give rise to such damages, was revisited by the Ontario Divisional Court in Greater Toronto Airports Authority v. Public Service Alliance Canada Local 004, 2011 ONSC 487 (“the GTAA decision”).

In the GTAA decision, the Divisional Court reviewed an arbitrator’s decision to award significant wrongful dismissal, punitive and mental distress damages to a 47-year-old employee who had been employed by the Greater Toronto Airports Authority (the “GTAA”) and its predecessors for approximately 23 years. She had been fired for alleged sick leave abuse and had grieved her dismissal. The employee had held a position as fleet coordinator, which required a considerable amount of walking. When she injured her knee at work, she was accommodated with modified duties until she had surgery on her knee. The employee’s orthopaedic surgeon provided her with a note stating she should be off work for four weeks after the surgery.

At the time of the grievor’s surgery, the GTAA was experiencing a costly absenteeism and sick leave abuse problem, which it was addressing by placing under surveillance employees who were suspected of abusing their sick leave. The GTAA decided to place the grievor under surveillance due to the fact that she was living with another GTAA employee who was under surveillance for suspected sick leave abuse. The surveillance produced observations of the grievor doing some driving and walking of limited duration. The employer confronted the grievor regarding these activities, and questioned her need to be off work for four weeks. Fearful of losing her job, and against the advice of her surgeon, the grievor returned to work early. She was not given modified duties, and her knee injury was aggravated. Nevertheless, the GTAA discharged the grievor for dishonesty.

At the time of the discharge, the grievor had a clear disciplinary record and was regarded as a satisfactory employee. Throughout her years of employment, the grievor had taken a two month absence from work because of a mental breakdown, and had experienced significant problems because of her personal life, including mental, physical and sexual abuse, of which the GTAA was aware.

The arbitrator found that the GTAA had failed to prove that the grievor has been dishonest in reporting her absences, and awarded her significant damages, which included lost back pay as well as future income loss, $50,000 in punitive damages, and $50,000 in damages for mental distress and pain and suffering in her knee. The arbitrator also found that the GTAA had acted in bad faith when it had decided to place the grievor under surveillance merely because of her association with another GTAA employee, when it had failed to consider modifying the grievor’s work responsibilities after her surgery, when it had fired the grievor without relying on any medical evidence, and when it had refused to consider lesser penalties. The arbitrator also held that the GTAA’s actions in the course of dismissing the grievor were the cause of the grievor’s development of Post-Traumatic Stress Disorder, and that the GTAA should have foreseen the grievor’s extreme mental distress, considering the GTAA’s knowledge of the grievor’s history of psychological problems.

The employer applied for judicial review of the arbitrator’s award, challenging, in particular, the merits of the arbitrator’s mental distress and punitive damages awards. The Divisional Court upheld the arbitrator’s jurisdiction to award such damages, and reasoned that it stemmed from the provisions of the collective agreement and the Canada Labour Code (the “Code”). The Code allows an arbitrator to substitute a just and reasonable penalty for discharge or discipline, if the collective agreement does not contain a specific penalty. In this case, the collective agreement provided that an arbitrator could “substitute for discharge or discipline such other penalties that the arbitrator deems just and reasonable in the circumstances”. Although the collective agreement did not make a specific reference to mental distress awards, the court reasoned that the agreement gave the arbitrator wide remedial powers, and that he was within his jurisdiction to award mental distress damages.

The Divisional Court also affirmed the arbitrator’s assessment that mental distress damages were foreseeable, given the expectation on employers to act in good faith when dismissing any employee, and given this particular employee’s psychological vulnerabilities. However, the Divisional Court disagreed with the arbitrator’s award of the cumulative $50,000 award for both mental distress, and pain and suffering associated with the grievor’s knee injury. The court held that the arbitrator should have separated the mental distress damages from the damages for pain and suffering associated with the grievor’s knee injury, as the damages for the aggravation of the knee were not within the reasonable contemplation of the grievor and the employer, and were not supported by the evidence. The court therefore remitted the mental distress damages amount back to the arbitrator for determination.

The Divisional Court’s reasoning in the GTAA decision has been followed in a number of recent decisions. For instance, in Windsor (City) and Windsor Municipal Employees’ (C.U.P.E., Local 543) (Leixner) (Re), 2011 CLB 9406, the arbitrator considered a grievance by an employee who had been dismissed for having allegedly stolen funds from her employer. The wrongfully dismissed grievor was reinstated. In considering the grievor’s claim for mental distress damages, the arbitrator acknowledged that, based on the principles discussed in the GTAA decision, mental distress damages may be awarded for bad faith conduct at dismissal, but found that on the specific facts before him, such damages had not been made out.

Even more recently, in Coca-Cola Bottling and C.A.W., Local 385 (Chew) (Re), 2011 CLB 2409, the grievor was placed on sick leave and became eligible for workers compensation after he was told that his job was being eliminated. Despite an independent assessment which determined that the grievor was not physically or psychologically disabled, and despite the grievor’s requests to return to work, the employer refused to return the grievor to work. The arbitrator held that the employer had repeatedly failed to meet its duty to accommodate the grievor’s disability to the point of undue hardship, and to offer him suitable work. The arbitrator reinstated the grievor, and relying on the Divisional Court’s reasoning in the GTAA decision, awarded the grievor $18,000 in mental distress damages.

The recent trend of successful mental distress claims in the labour context has heightened the importance of being aware of this issue in both unionized and non-unionized workplaces.