Bad Faith Damages – An Overview

An employee who is terminated without just cause has a legal entitlement to reasonable notice of termination or pay equal to the appropriate notice period. The intention of this legal principle is that a terminated employee should not suffer financially for the period they require to find alternate work (or more appropriately, the period a Court believes it should take that person to find comparable work). An individual who is not provided with appropriate notice (or payment in lieu) can enforce their right to reasonable notice by bringing a civil action for wrongful dismissal.

EMPLOYMENT STANDARDS

Employment Standards payments (commonly referred to as severance or termination pay) are prescribed in the Employment Standards Act and are owing to an employee without an obligation to execute a release. Unlike wrongful dismissal damages Employment Standards payments are based solely on the years of service and the payroll of the employer and are not in any way related to an employee’s entitlement to “reasonable notice”. In fact, reasonable notice, with few exceptions, will always be significantly greater than Employment Standards minimums. To illustrate, take the example of a middle management employee, age 40, who is employed with a small company (payroll less than $2.5 million) for 12 years and earning $50,000.00 per year. Statutory minimums would total 8 weeks’ termination pay plus outstanding vacation pay. If you are asked to accept 8 weeks’ pay or $7,692.30 in exchange for executing a release the employee may be precluded from seeking reasonable notice which could range from 8 to 12 months or $33,330.00 to $50,000.00. It is no wonder that employers typically ask terminated employees to sign a release in exchange for the minimum payments under the Employment Standards Act. To do so, in most cases, would be a grave mistake and therefore any offer should be reviewed by a lawyer prior to acceptance of same.

BAD FAITH

In its decision in Wallace v. United Grain Growers, the Supreme Court of Canada observed that the involuntary loss of one’s job can be a traumatic event and that when employment is terminated, the employee is vulnerable and in need of protection. Thus, employers are held to an obligation of good faith and fair dealing in the manner of dismissal. Where there has been a breach of that duty, the Courts may order compensation in addition to damages for wrongful dismissal.

While Wallace specifically stated that injured feelings and emotional upset resulting from the fact of the dismissal do not provide a basis for compensation, injuries such as humiliation, embarrassment and damage to one’s self-esteem or sense of self-worth caused by the manner of termination may be worthy of compensation. The following are but a few examples of conduct by an employer which, according to Wallace, could result in bad faith damages:

(1) False allegation that termination was due to the employee’s inability to do his job;

(2) False allegation that termination was for cause;

(3) Spreading word through the industry that the employee was terminated for dishonest conduct;

(4) Refusal to provide a letter of termination after termination;

(5) Firing an employee immediately upon return from disability leave; and

(6) Replacing an employee shortly after he had been told that he was being laid off due to a shortage of work.

More recent case law provide further examples of the type of conduct that would constitute bad faith on the part of the employer and justify increased damages. In Noseworthy v. Riverside Pontiac-Buick Ltd., the Ontario Court of Appeal recognized that additional damages were warranted based upon a finding that the employer had confronted the plaintiff with false allegations of forgery and threatened to lay criminal charges if the employee did not sign a letter of resignation.

In Marshall v. Watson Wyatt & Co., the employer had claimed that it had cause to terminate the plaintiff because of insubordination, inability to deal with subordinates, failure to achieve expected performance and generally unprofessional behaviour. These allegations were maintained until shortly before trial and then withdrawn. The Court also found that the employer failed to pay commissions it admitted were owing to the plaintiff and failed to provide a Record of Employment required by the Employee to claim unemployment insurance benefits. The Court of Appeal in Marshall upheld a jury award for bad faith damages and noted that the employer “practiced the kind of hard ball the Supreme Court of Canada warned against in Wallace.”

In Antonacci v. Great Atlantic & Pacific Co. of Canada, the trial judge found that bad faith damages were justified because of unfounded allegations against the employee of poor performance, harassment, intimidation and threats that cast a shadow on him that would make it virtually impossible for him to find another position.

In Prinzo v Baycrest Centre for Geriatric Care, the Ontario Court of Appeal found that the plaintiff was entitled to bad faith damages as a result of phone calls from the employer prior to the plaintiff’s termination and while she was on disability leave, inferring that she was exaggerating or feigning illness and letters to the plaintiff falsely suggesting that her doctor had indicated she was fit to return to work. This conduct caused the plaintiff loss of self-esteem and disability for several months following her dismissal.

Where will the Courts draw the line between employer conduct which is permissible at termination and that which constitutes bad faith or unfair dealing? The test a plaintiff must meet to be awarded bad faith damages was recently clarified by the Ontario Court of Appeal in Gismondi v. The Corporation of the City of Toronto. Bad faith damages will be available where it can be shown that the employer’s conduct demonstrates something akin to intent, malice or blatant disregard for the employee. It is employer conduct which amounts to callous or insensitive treatment of the employee or as the Court put it in Watson, playing hardball.