Executive Summary: Key Legal and Evidentiary Issues

• A former insurance producer sued her employer for wrongful dismissal after being terminated on the basis of alleged frustration of contract.
   
• Central to the case was whether the employer could rely on the doctrine of frustration where its own conduct contributed to the employee's inability to return to work.
   
• Credibility findings played a decisive role, with the court finding the plaintiff reliable while rejecting much of the branch manager's evidence as inconsistent and self-serving.
   
• Damages were calculated using an averaged three-year income figure rather than a single year, given the plaintiff's fluctuating commission-based earnings.
   
• Deductibility of WorkSafeBC disability benefits from the wrongful dismissal award turned on whether the benefits functioned as wage-loss indemnity or injury compensation.
   
• Claims for aggravated or punitive damages and for failure to mitigate were both raised but ultimately rejected on the evidence.

Facts of the case

Amber Hedrick worked as an insurance producer for Johnston Meier Insurance Agencies Ltd. ("JMI") for approximately seven and a half years, reporting to branch manager David Ebner. For years before her termination, Ms. Hedrick was stalked and harassed by a representative of one of her clients. She raised the issue with Mr. Ebner repeatedly, including in August 2021 when the stalking escalated. Mr. Ebner initially responded with sympathy but, according to the court's findings, failed to follow through on any meaningful support. Around the same period, Mr. Ebner unilaterally reduced Ms. Hedrick's monthly draw from $10,000 to $7,000 without notice, later adjusting it to $8,300. When Ms. Hedrick sought vacation time due to declining mental health, Mr. Ebner responded by telling her to drop her "attitude." She went on medical leave in October 2021, her last working day, and was later diagnosed by WorkSafeBC with post-traumatic stress disorder and major depressive disorder attributed in part to the stalking and in part to Mr. Ebner's handling of the situation. WorkSafeBC determined Ms. Hedrick was permanently restricted from returning to her pre-injury employer, and JMI terminated her employment on September 16, 2022, citing frustration of contract.

Policy and legislative provisions at issue

The court applied the three-part test for frustration set out in Aldergrove Duty Free Shop Ltd v MacCallum, 2024 BCCA 28, requiring an employer to show a qualifying supervening event, that the event was not the fault of either party, and that performance became radically different from what was undertaken. The judgment also relied on section 23 of the Workers Compensation Act, R.S.B.C. 2019, c. 1, which imposes a positive duty on supervisors to protect the health and safety of workers. On the question of deducting WorkSafeBC benefits from a wrongful dismissal award, the court applied the "compensating advantage" framework from IBM Canada Limited v. Waterman, 2013 SCC 70, asking whether the benefit was received "but for" the breach or was intended to indemnify the same type of loss caused by the breach.

Reasoning and analysis

The court found Ms. Hedrick's evidence detailed, consistent, and credible throughout cross-examination, while finding Mr. Ebner's testimony unreliable, noting his selective recollection and denials contradicted by objective evidence such as payroll records. Applying the Aldergrove test, the court accepted that the stalking was an unforeseen event but concluded the frustration defence failed at the second stage because JMI's own conduct, including Mr. Ebner's failure to act on his statutory duty under the Workers Compensation Act and his mishandling of Ms. Hedrick's pay and leave requests, contributed to her inability to return to work. On damages, the court rejected JMI's position that only the final year's earnings should be used, since that year's reduced income resulted from the very events at issue, and instead averaged three years of tax documents to determine a monthly figure of $12,904. Turning to aggravated and punitive damages, the court distinguished this case from Boucher v. Wal-Mart Canada Corp, 2014 ONCA 419, and Zheng v. China Southern Airlines Company Limited, 2023 BCSC 1763, finding Mr. Ebner's conduct insensitive and unprofessional but not malicious or high-handed. On the WorkSafeBC set-off issue, the court applied Waterman and Sylvester v. British Columbia, [1997] 2 S.C.R. 315, distinguishing between benefits paid before August 29, 2022, which served as wage-loss indemnity based on testimony from WorkSafeBC case manager Zack Fraser, and benefits paid afterward, which shifted to compensating for permanent injury and vocational rehabilitation rather than lost income. Finally, the court rejected the failure-to-mitigate argument, accepting that Ms. Hedrick's PTSD and major depressive disorder made her medically unfit to pursue further employment during the relevant period.

Ruling and overall outcome

The court found in favour of Ms. Hedrick, ruling that JMI could not establish frustration of contract and that her dismissal was therefore wrongful. She was awarded nine months' payment in lieu of notice, calculated using her averaged three-year monthly income, resulting in damages of $116,136. The court declined to award aggravated or punitive damages, finding JMI's conduct did not rise to the level of malicious or high-handed behaviour required. It also declined to deduct any WorkSafeBC benefits received after August 29, 2022, from the award, having found those payments were not indemnity for lost wages, and declined to reduce the award for failure to mitigate. Ms. Hedrick was found to be the successful party and was presumptively entitled to costs at Scale B.