Aggravated and punitive damages are discrete heads of damage that are potentially available in wrongful dismissal claims. A judge may find it appropriate to make an award for either head of damage depending on the circumstances of the manner of dismissal.
Aggravated damages are intended to compensate a plaintiff employee for intangible injuries such as distress and humiliation caused from the manner of dismissal. They are measured by a plaintiff’s suffering, as distinct from punitive damages which are measured by the wrongdoer’s moral culpability: Vorvis v. Insurance Corporation of British Columbia,  1 S.C.R. 1085 at 1099.
Punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own: Honda Canada Inc. v. Keays, 2008 SCC 39 at para. 62. In the context of wrongful dismissal claims, punitive damages are meant to punish the employer when its conduct is so malicious and outrageous that it is deserving of punishment.
The common law imposes an obligation on employers to act in good faith in the manner of dismissal. Failure to do so can lead to foreseeable, compensable damages. If an employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties at the time of the contract, then damages for the mental distress (i.e. “aggravated damages”) may be appropriate: Hyrnkiw v. Central City Brewers & Distillers Ltd., 2020 BCSC 1640 at para. 190, citing Honda Canada Inc. at paras. 59-59.
As set out in Lau v. Royal Bank of Canada, 2017 BCCA 253 at para. 17, an employee seeking to recover aggravated damages must establish two conditions:
the employer has breached its duty of good faith and fair dealings in the manner of dismissal, and
the employee suffered compensable damages as a result of breach.
Conduct that may constitute a breach of the employer’s duty of good faith and fair dealings include: being untruthful, misleading or unduly insensitive in the course of dismissal; attacking the employee’s reputation by declarations made at the time of dismissal; and the employer’s dealings with the employee after dismissal, including its conduct in litigating the employee’s claim, provided it is conduct that relates to the dismissal: Hrynkiw at para. 192.
In Ontario, and increasingly in British Columbia, courts have characterized some pre- and post-termination conduct as “a component of the manner of dismissal” in relation to claims for aggravated damages: Deol v Dreyer Davison LLP, 2020 BCSC 771 para 127.
For the second condition of the above test, the plaintiff must prove suffering beyond the normal distress and hurt feelings that invariably accompany the loss of employment. The normal distress and hurt feelings resulting from dismissal are not compensable: Cottrill v. Utopia Day Spas and Salons Ltd., 2018 BCCA 383 at para 14-15.
Medical evidence is not required to establish that the dismissed employee has suffered emotional or health consequences, but there must be some evidence of serious and prolonged disruption that transcends ordinary emotional upset or distress: Hrynkiw at para 193 citing Cottrill at para. 18; Lau v. Royal Bank of Canada, 2017 BCCA 253 at para. 49; Saadati v. Moorehead, 2017 SCC 28 at para. 40.
Punitive damages are an exceptional remedy. They are restricted to cases where an employer’s conduct is so malicious and outrageous that it is deserving of punishment, and where the general and aggravated damages awarded are insufficient to express the court’s condemnation of the defendant’s actions: Whiten v. Pilot Insurance Co., 2002 SCC 18 at paras. 36-37 and 119.
Punitive damages are intended to punish the wrongdoer as opposed to compensating a plaintiff. An object of punitive damages is to deter others from acting in a similar way: Yates v. Langley Motor Sport Centre Ltd., 2021 BCSC 2175 at para. 65.
Unlike aggravated damages, punitive damages require the establishment of an independent and deliberate “actionable wrong”. Canadian law does not require that the independent actionable wrong be a tort. It can be found in a breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation, and a breach of the contractual duty of good faith can qualify as such a wrong: Deol v. Dreyer Davison LLP, 2020 BCSC 771 at paras. 142 and 143, citing Whiten at paras. 82 and Honda at para 62.
In Yates, the Court provided some examples of conduct that may lead to punitive damages in the context of a wrongful dismissal action. These examples included:
fabricating allegations of serious misconduct or incompetence;
using bullying or intimidation tactics such as:
intimidating an employee into withdrawing or settling a wrongful dismissal suit,
threatening to bankrupt a plaintiff;
threatening a baseless counter suit; or
refusing to return a plaintiff’s belongings;
lying about other employees "signing off" without severance;
denying, on specious grounds, that a plaintiff is entitled to statutory pay;
pressuring a plaintiff to agree to settle a wrongful dismissal claim immediately; and
failing to pay statutory severance while knowing that this amount is payable - especially when the employer knows that the terminated employee is financially vulnerable.