February 3, 2007
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Since the decision in Vorvis v. Insurance Corporation of British Columbia [1989] S.C.J. No. 46 it has been clear that awards for mental distress in employment law were limited to situations where the employer was also guilty of an independent actionable wrong. However, the Supreme Court may have opened up a world of possibilities for recovery for mental distress in its recent decision, Fidler v. Sun Life Assurance Co. ofCanada, [2006] S.C.J. No. 30. The question remains, however, what advantages can be had from the conclusions arrived at in Fidler and how can they be put to best use. Recent articles in The Lawyers Weekly have explored the repercussions of Fidler for the insurance industry. We propose to do the same in the employment context.

The framework for mental distress damages

The court indicates that damages for mental distress can properly fall under two headings, namely compensatory and aggravated damages. Damages for mental distress are compensatory in nature when they seek to put the plaintiff back into the position they would have been had it not been for the breach. For instance, the now infamous Jarvis v. Swans Tours Ltd., [1973] 1 All E.R. 71 case was properly awarding compensatory damages for loss of enjoyment of a Swiss Alps vacation. Aggravated damages, on the other hand, are awarded in situations where the defendant's conduct increased the mental distress suffered by the plaintiff. Aggravated damages will generally require an "independent cause of action", usually in tort in order to be awarded. The examples given by the court are defamation, oppression or fraud. Typically such an independent actionable wrong was necessary in the employment context.

The court analyzes the theoretical and judicial foundations of compensatory damages for mental distress as a result of breach of contract. It concludes that the overarching principle guiding compensation in the case of breach of contract was enunciated in Hadley v. Baxendale: plaintiffs should be compensated, so far as money can, for all losses that were reasonably in the contemplation of the parties when the contract was concluded. Under this theory a plaintiff can rightfully be compensated for mental distress.

The test put forward by the court in the awarding of compensatory damages for mental distress is the following:

  1. mental distress was within the reasonable contemplation of the parties when the contract was concluded, and
  2. the suffering is of a degree to require redress (i.e. there is a minimum threshold of mental distress that must be attained before compensation will ensue).

The implications for employment law

The first condition of an award for mental distress as conceded by the Supreme Court is that mental distress be within the reasonable contemplation of the parties in case of breach. This need not be the essential feature of the contract, however, nor need it be the principal result of the breach. This approach enlarges the scope of damages for mental distress occasioned by contractual breaches.

In an employment situation, it may now be possible to recover awards for mental distress in the event the employment contract is breached. The question remains: how will the advocate manage to prove that mental distress was within the reasonable contemplation of the parties when the employment contract is first concluded?

In Reference Re Public Service Employee Relations Act (Alta.), [1987] S.C.J. No. 10, the Supreme Court indicated that employment is the single dominating feature of a person's life. Choosing to accept employment is perhaps amongst the most important decisions a person will make in their life. Employment secures income, usually the most significant source, often the only one, to allow a person to partake actively in every aspect of their lives. Trauma at work is perhaps one of the most harrowing experiences most people will ever have to undergo. The fear of not being able to meet financial obligations looms large over our heads at these moments and employment can form a large part of a person's identity and selfworth. Employment and the employment relationship therefore has a psychological or "peace of mind" component to it. And it is perhaps exactly for these reasons that compensatory damages for mental distress might now be available. It is arguable that it is in the contemplation of the parties at the time of contract, that if an employer breaches the obligation of good faith or assurances of job security or other critical employment entitlements such as benefit and compensation plans, that an employee may suffer mental distress because of that breach.

The acceptance of compensatory damages for mental distress potentially means that employees will not have to necessarily allege or prove an independent actionable wrong when claiming damages for mental distress. Assuming mental distress is a foreseeable consequence of the breach in the factualcircumstances, the employer will be liable for any breach of the employment contract that causes the employee mental distress, assuming such distress meets the second criterion laid out by the court, i.e. that the mental distress be of a sufficient degree to warrant the awarding of damages.

This last point will be completely situation-dependent and there is really no way to predict what will constitute mental distress of a sufficient degree to warrant the awarding of damages. Transient annoyance or mild frustration is undoubtedly excluded from redress. A nervous breakdown is assuredly compensable. But somewhere in between a line will be drawn.

A final point to keep in mind is that mental distress maybe subject to a rule similar to tort law's "thin skull" rule. Two employees experiencing the same or a similar breach may in fact be compensated differently for mental distress if one bears the shock with fortitude whilst the other loses all semblance of sense.

The conclusion

Damages for mental distress for contractual breaches are now an accepted part of the Canadian common law. Employment contracts will no doubt be subject to the same rule and no longer necessarily require an independent actionable wrong given the appropriate factual context. It is now up to employment lawyers to take on the challenge and begin establishing the parameters within which such compensation will be available in the employment context. For now, prudent counsel will seek mental distress damages by pleading both the Fidler approach as well as the existence of an independent actionable wrong.

Steve Levitt practises employment law with Nelligan O'Brien Payne LLP, a full service law firm in Ottawa.

[This article is reprinted with permission and first appeared in the March 2007 issue of The Lawyers Weekly.]

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Employment Law