The Court of Appeal for Ontario has upheld a ruling that awarded a former chief operating officer $75,000 in aggravated and punitive damages. But it slashed her reasonable notice period in half for failure to mitigate because she declined a a job offer with another company that contained a substantial raise.
Jacquelyn Humphrey was the COO for Mene, an online jewelry retailer, and its parent company Goldmoney for about three years. When she was dismissed, she was 32 and earned an annual salary of $90,000. She also participated in the company bonus/stock option plan.
She was let go, allegedly for cause, shortly after she asked for a raise.
Although Mene claimed it had cause, it withdrew that allegation in the course of litigation. Instead, it relied upon her employment contract which limited her compensation to the minimum provided under Ontario’s Employment Standards Act (ESA).
Humphrey alleged bad faith in the manner of her dismissal, and other misconduct by Mene during her employment and the litigation.
At trial, she was awarded 12 months’ notice less one month’s notice for unreasonable mitigation and the ESA amount she had already received – or $81,275.45.
The court also awarded her $50,000 in aggravated damages and $25,000 in punitive damages.
Mene appealed. It took the position that 12 months’ notice was too much, that she was not entitled to aggravated and punitive damages (and, even if she was, the amount was too high). And it also disagreed with the judge’s approach to and conclusions about mitigation – which was her obligation to search for similar employment.
Humphrey cross appealed, stating that she was entitled to even more in punitive damages.
The appeal court dismissed everything except for the employer’s concern around mitigation.
“In my view, the motion judge erred in principle when she concluded that Mene had failed to establish that a position Ms. Humphrey was offered seven months after her termination was “comparable” for the purpose of mitigation. As I will explain, I would limit Ms. Humphrey’s damages in lieu of notice to six months’ compensation,” the court said.
Humphrey was hired at Goldmoney in July 2016 as its director of communications, earning an annual salary of $72,000.
Her role soon expanded to include responsibility for investor relations and marketing. From December 2016 through 2017, she helped create a new subsidiary – Mene – which went public in 2017.
In September 2017 she took on the role vice-president of operations. In May 2018, she was promoted to COO. She received a base salary increase to $7,500 per month and 150,000 stock options valued at 45 cents per share that would vest annually over three years.
On Jan. 22, 2019, she requested a salary review – asking for $165,000 annually with $15,000 in the form of additional shares. Roy Sebag, co-founder and CEO, responded via email with the following:
I am surprised because I thought you felt passionate about this business and were looking to build it, recognizing the opportunity which was provided to you by the Board of Directors and myself. Being overly focused on your own personal compensation at this juncture is in my view premature and confabulates your incentives with where we are in the long journey of building this business into a viable enterprise.
At the salary level you indicate below, Mene Inc., and its Board of Directors in its Compensation Committee would be required to stress test for comparable hires in that bracket and breadth of interdisciplinary experience they bring. That is to say beyond a communications background. This would be before any subsequent testing for quarterly and annual performance which I assure you would be nothing like what is presently being carried out.
Have you lost your passion for the business? Do you feel you are working too hard? I need to know if that’s the case.
If you want me to proceed with a discussion on this matter with the Comp Committee, I will at the next board meeting. I just feel it will bring up a lot more negatives than positives for your role.
Humphrey responded, stating she was 100 per cent committed to Mene and asked him to take her request to the compensation committee. On Feb. 16, after not hearing back from Sebag for three weeks, she sent a followup email asking for a firm timeline regarding his discussion with the board.
On Feb. 18, Humphrey was contacted by a vendor who told her she had received an email from Mene staying that Humphrey no longer worked there. She tried to access her business-related accounts online, but was locked out.
She sent a message to Sebag, who responded that she would shortly receive a letter from the board. Sebag also sent a message to all employees (other than Humphrey) at 4:23 a.m. that morning, advising that she had been suspended “pending investigation into a few matters” and that the board has weighed a few recent events and decided she is not the right person to serve as COO.
On the evening of Feb. 18, she received an email memo dated Feb. 16 – a suspension letter. It advised that after “conversations with senior management and an investigation of recent performance”, Mene had decided to remove her as COO effective immediately and to suspend her from work with pay for two weeks, pending an investigation and final decision whether to terminate her employment or to demote her to a non-executive level position.
In response, Humphrey retained counsel. On Feb. 21, her lawyer sent a letter to Mene disputing the allegations in the suspension letter and objecting to Mene undertaking any investigation without seeking her version of events. It also asked Mene to “protect and preserve all documents associated with the (suspension letter) should litigation subsequently ensue.”
On Feb, 26, Mene sent Humphrey a notice of termination by email, including a memo that set out a number of alleged performance issues. It said the letter from her lawyer “made clear that (she) was no longer a good fit” and was a further reason precipitating her termination.
The board memo concluded it had just cause to terminate her employment and claimed that Mene had “extensive employee affidavits, complaints, and other concerns shared by the Board”, as well as “additional materials” that it would “provide in any court process to further solidify (its) position that (the) termination (was) with cause.”
The mitigation issue
As noted above, the appeal court saw no reason to interfere with the reasonable notice period or the addition of punitive and aggravated damages.
It turned on a job offer Humphrey received in or around October 2019. It had a $125,000 base salary with “at least” $25,000 in options and a $75,000 bonus based on achieving metrics jointly determined. She counter offered with a request for a C-level title and more compensation, and at that point the offer disappeared.
In the initial trial, she said her conversations with this potential employer contemplated a broader role in senior management. But she declined the offer because it was not actually for a broad-based senior leadership role.
The appeal court said the lower court simply set the bar too high.
“Comparable employment does not mean identical employment,” the appeal court said. Rather, it means a comparable position reasonably adapted to the worker’s abilities.
“It was sufficient for Mene to rely on evidence that Ms. Humphrey had been offered a senior management position with compensation that was comparable to or greater than what she earned at Mene,” the court said.
Therefore, it cut her damages in lieu of notice from 12 months to six months.
It also awarded Humphrey $18,500 in costs, inclusive of HST and disbursements.
For more information see Humphrey v. Mene Inc., 2022 ONCA 531 (CanLII)