In June of last year, the Supreme Court of Canada released their unanimous decision in Saadati v Moorhead dealing with the proof required to establish “mental injury” in the context of tort claims. The landmark decision determined conclusively that evidence of a “recognized psychiatric injury” is no longer required to substantiate an award of damages for mental injury suffered by a plaintiff. Rather, the Supreme Court clarified that in order to establish a mental injury, claimants will be required to prove “a serious and prolonged disturbance that rises above ordinary annoyances, anxieties and fears”.
In Saadati, the trial judge found that the evidence produced at trial by Mr. Saadati’s expert psychologist was not sufficient to establish a recognized psychological injury. However, the judge proceeded to award Mr. Saadati $100,000.00 in damages based on the testimony of Mr. Saadati’s family and friends, which proved that Mr. Saadati had experienced a personality change and other cognitive difficulties following a motor vehicle accident in 2005. That decision was overturned by the British Columbia Court of Appeal, but ultimately affirmed by the Supreme Court of Canada, which specifically noted that a plaintiff is not required to prove the existence of a classified mental illness in order to recover damages for mental injury.
While the decision in Saadati arose in the context of a personal injury claim, many suspected that the decision would have implications in the employment context. Employees can pursue damages
arising from the bad faith conduct of their employer in the manner of dismissal (referred to as moral or bad faith damages), and also in circumstances where an employer’s deliberate and intentional acts result in the mental suffering of the employee (e.g. situations of bullying or harassment). The British Columbia Court of Appeal recently had the opportunity to apply Saadati in the employment context in Lau v Royal Bank of Canada.
Mr. Lau was employed as an accounts manager selling mutual funds. He was dismissed for cause following an investigation by RBC into a client complaint that he had completed a transaction without instructions to do so. In the course of the investigation, RBC also discovered that Mr. Lau had been tracking sales incorrectly, recording renewed or retained investments as “new money”, and therefore increasing his sales numbers. In the dismissal letter, RBC noted that Mr. Lau had not only falsified bank records, but had failed to be truthful during the investigation. Mr. Lau brought a claim for wrongful dismissal as well as aggravated damages based on mental distress arising from the manner of his dismissal.
At trial, the judge concluded that Mr. Lau had been honest in the course of the investigation, and that his misconduct did not warrant termination for cause. As a result, the judge awarded Mr. Lau damages for wrongful dismissal over a nine month notice period, and aggravated damages of $30,000.00. The award of aggravated damages was based on the judge’s determination that Mr. Lau was “depressed”, although he did not testify to this effect or offer any medical evidence in this regard. Rather, the trial judge noted: “I do not need medical evidence to prove that a false accusation of failing to tell the truth which is published can lead to mental distress.”
On appeal, RBC challenged only the award of aggravated damages, arguing that it had not acted unfairly or in bad faith in terminating Mr. Lau’s employment, and further that the trial judge had made palpable and overriding errors in the course of her analysis.
The Court of Appeal agreed with RBC, finding that there had been no bad faith conduct in the manner of Mr. Lau’s dismissal. Mr. Lau participated in the investigation process, and was thereafter advised of the reasons for his dismissal at an in-person meeting during which he was not mistreated. Although the Court of Appeal, citing Saadati, confirmed that an employee is not required to produce medical evidence proving the existence of a recognized psychiatric illness in order to receive damages for mental distress, the Court also noted that there must be some evidentiary basis for such an award. In this case, the trial judge’s decision to award aggravated damages was based solely on Mr. Lau’s disposition at trial, in the absence of any third party evidence concerning the impact of the dismissal on Mr. Lau. This was not sufficient to demonstrate a serious and prolonged disruption transcending ordinary emotional upset or distress.
Although Mr. Lau’s claim for mental distress damages was not successful, the decision of the Court of Appeal confirms that the principles established in Saadati are applicable in the employment context. As a result, employees will not need to produce professional expert evidence in order to support a claim for mental distress arising from the termination of their employment. However, it is also important for employees to take note that such a claim will not succeed without some reliable evidence in support of same. As in Saadati, this may include testimony from family members, former colleagues and friends who can speak to the impact on the employee and his or her mental state.
Employers should be aware that mental distress arising from the manner of dismissal which does not meet the level of a diagnosed, recognizable psychological illness may still entitle an employee to an award of moral damages. While Lau confirms that an employer will not be held liable for normal distress suffered by an employee resulting from the loss of their employment, it also makes it clear that where an employee can demonstrate that the distress suffered rises above this threshold, they may be entitled to additional damages on top of any pay in lieu of notice.