In a summary judgment, the Court of King’s Bench of Alberta has ruled in favour of a former CFO in his wrongful dismissal lawsuit against Sproule Management GP Limited.
The chief financial officer, KM, had filed an application for judgment in the amount of $985,799 for reasonable notice and an additional $489,696 in damages for the manner of termination.
The court found that KM was wrongfully dismissed and was entitled to an 18-month notice period. He was awarded $379,312.68, along with pre- and post-judgment interest. However, the court did not find merit in his claim for damages related to bad faith on the part of Sproule.
In the early 1980s, KM earned a commerce degree and became a chartered accountant. He worked in various accounting firms until December 2003, when he joined Sproule Management GP Limited as its controller.
In 2010, his title changed to Chief Financial Officer (CFO). Between 2014 and 2016, there was a complex series of events with KM facing multiple behavioural and performance issues. These concerns included:
Harassment and bullying: In September 2014, an investigation confirmed bullying by one of KM’s direct reports. He was criticized for not addressing the bullying but was not directly investigated.
Job performance: KM failed to complete financial statements for Sproule’s subsidiaries and showed a dismissive attitude toward the Board and its audit committee. Although he was rated “above average” in his 2015 performance review, KM disagreed with the feedback and refused to sign it.
Attitude Issues: KM continually expressed disagreement with company decisions, particularly the termination of one of his direct reports, which had an impact on staff morale. He displayed a dismissive and sarcastic demeanor during staff training sessions.
Role and responsibilities: In a corporate reorganization, KM was moved from CFO to controller. He refused to accept this change and was not willing to report to his new supervisor.
Unauthorized activities: KM incurred a $50,000 expense for a Tax Savings Project without prior authorization from the Board, which did not approve the project afterward.
Behavioral deterioration: General observations noted that KM became increasingly combative, disrespectful, and disconnected in Board meetings, though specific instances were not documented.
Final warning: In January 2016, the company’s president had a meeting with KM to discuss his behaviour, warning him that such conduct would not be accepted.
Despite these issues, there is no evidence to suggest KM was explicitly warned that his employment was at risk for termination or that these issues were specifically raised with him for corrective action. He was terminated three weeks later on Feb. 11, 2016.
Long legal battle
KM filed his Statement of Claim on June 29, 2016, alleging that his employment was terminated without cause and without any severance pay. The claim sought various damages, including his base salary, benefits, and other incentives for a 24-month notice period, along with out-of-pocket expenses he incurred while looking for alternative employment.
Sproule had filed its Statement of Defence on August 18, 2016, asserting that it had just cause for KM’s dismissal. The company also contested the length of the notice period, proposing one month per year of service as appropriate.
The court ruled Sproule did not have just cause to terminate KM’s employment. Though his performance and conduct were “certainly becoming serious,” he also received positive messages about his performance and was issued a significant bonus.
“After his inappropriate conduct at the January 2016 board meeting, he was not terminated, but then was immediately warned to ‘begin acting’ differently and that, at some undescribed point in the future, his employment might be at risk.” it said.
“In all the circumstances, I find that, on this undisputed and assumed record, termination was not a proportionate response to either his performance issues or his attitudinal issues, whether taken alone or considered together.”
Bad faith damages rejected
The court concluded KM did not provide adequate evidence to warrant additional damages based on the manner of his termination.
According to legal precedents cited in the ruling, damages beyond those for failure to provide reasonable notice — such as for mental distress — require proof of “an independent actionable wrong.” KM had sought extra compensation calculated on an additional 3-month notice period, invoking the Supreme Court of Canada’s ruling in Wallace, which establishes that employers are obligated to act in good faith during the termination process.
The court referred to the Keays ruling, which tightened the conditions under which such additional damages can be awarded. It clarified that damages tied to the manner of dismissal must adhere to the Hadley principle, based on “proof of actual damages resulting from the unfair or bad faith conduct.”
The ruling stressed that these are not automatically added to wrongful dismissal damages and must be specifically proven.
In KM’s case, the Statement of Claim did not prove any additional damages stemming from the manner of his termination. The court pointed out that his feelings of “shock and disappointment” were not sufficient grounds for additional damages and noted the absence of any medical evidence or evidence that the manner of dismissal affected his ability to secure new employment.
As a result, KM’s claim for additional damages was dismissed. The court noted it did not need to examine Sproule’s conduct in the manner of dismissal due to KM’s lack of proof for extra damages.
The court ultimately determined that there was “no merit to Sproule’s defence and there are no genuine issues requiring a trial.” As such, KM’s application for summary judgment was successful. He was awarded damages and judgment in the amount of $379,312.68, plus interest.
For more information, see McDonald v Sproule Management GP Limited, 2023 ABKB 587 (CanLII)