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Bad Faith in Wrongful Dismissal Claims


Stuart Rudner here with another Rudner Law employment law update.

I’ve been practicing in employment law for over 23 years, and for pretty well that entire time, we’ve been talking about bad faith in wrongful dismissal claims. We all know there is a duty on the part of an employer to act in good faith in the course of a dismissal, but what I want to talk about today is what happens when an employer is found to have acted in bad faith in the course of a dismissal.

As many people are quite relieved to know, there is no longer an arbitrary extension of the notice period, what we used to call “Wallace damages”. The Supreme Court of Canada in Honda v. Keys corrected that by explaining that these damages for bad faith are not supposed to be arbitrary but compensatory and compensate the individual for the loss or the damage they suffer as a result of the bad faith, not just because they lost their job.

What award can there be? There can be an award of damages to compensate the employee, as they still occasionally refer to them, “the damages formerly known as Wallace damages”, that can be a monetary amount. There can also be punitive damages, for similar conduct, another monetary amount. The court can also choose not to enforce an otherwise valid termination clause, which can dramatically increase an employer’s severance costs by reverting to the common law. Further there can be extensive legal fees, as well as the obligation to reimburse the plaintiff, or the former employee, for a portion of their legal fees. There can be damage to the reputation of the employer and their ability to attract and keep top talent. I think we all know that treating somebody well on the way out can do wonders for a company’s reputation, and the opposite is equally true.

The latest example of how not to handle a termination is the case of Pohl v. Hudson’s Bay Company. In that case, Mr. Pohl was a 28 year employee with HBC, let go on a without cause basis, there was no contractual termination clause, therefore he was governed by the common law, and likely entitled to something in the range of 24 months for severance. Subsequent to termination, HBC chose to offer him a job in order to “help him mitigate” his damages. The court found that this was done in bad faith, and was essentially an effort to take advantage of him when he was most vulnerable.

First of all the court noted that he would be required to voluntarily relinquish his former job, so in other words resign, and therefore give up any entitlement to damages for termination based upon the 28 years of service that he had. Second of all, his hours would not be guaranteed but would vary between 28 and 40, there would be no guaranteed minimum and he’d only be paid $18.00 an hour, whereas before he was paid over $61,000 a year. So he even if he did work 40 hours a week, his pay would be just slightly more than half of what he made before. Furthermore this new contract, with a new job, had a termination clause which would allow HBC to let him go on the absolute minimum amounts provided for in the Employment Standards Act, as opposed to his current common law entitlement.

The court found that all of that was done in bad faith, to take advantage of him. The court confirmed that moral damages are available – that’s what we often call bad faith damages now, moral damages – they are available when an employer engages in a breach of the duty of good faith and fair dealing at the time of termination, and they can breach that duty by, among other things, being untruthful, misleading, or unduly insensitive. There is no independent, actionable wrong necessary but there can be a compensation if the employee can prove that the manner of dismissal caused mental distress that was in the reasonable contemplation of the parties, and that was not simply the normal distress that one suffers when one loses their job.

The court found that in this case, HBC breached the duty of good faith in the course of dismissal in four different ways. First of all, they let him go without cause yet they insisted on walking him out the door immediately, after a 28 year career, which was clearly humiliating and embarrassing and unnecessary, so that’s point one. Point two, they found that the offer of that other job was misleading and in bad faith and trying to essentially take advantage of him. Number three, HBC breached the Employment Standards Act by not paying out his wages as they were required to. In Ontario, as many viewers will know, severance pay, if it’s required, has to be paid as a lump sum, in this case HBC refused despite repeated requests from Mr. Pohl’s lawyer. And lastly, HBC did not file a record of employment, as required. First of all they missed the 5 day deadline, then they issued two different records of employment, one incorrectly described the reason as a shortage of work or end of contract, both of them incorrectly indicated that the expected date of recall was unknown when clearly he was not going to be returning, and one even had the last day for which he was paid wrong.

So, all of these things taken together resulted in the judge finding that it was in the reasonable contemplation of the parties that HBC’s conduct would cause Mr. Pohl mental distress, and therefore they awarded $45,000 in moral damages. Furthermore, the court found that the conduct of HBC also entitled him to punitive damages, because it was high handed and deserving of the court’s denunciation.

They awarded an additional $10,000 in punitive damages. So, HBC ended up paying the full 24 months that they would have paid otherwise, plus another $55,000, plus all their legal fees, plus a portion of Mr. Pohl’s legal fees, plus the damage this has done to their reputation.

Bottom line, if you’re an employer, treat employees fairly and respectfully, and in good faith, when you let them go. Don’t engage in bad faith, hardball tactics that are designed to intimidate the employee, or you may end up on the hook for far greater costs than simply paying them the severance that they would otherwise be entitled to. So, first of all it’s bad business, second of all it’s bad HR, and third it’s just bad at law to behave that way.

If you’re an employee, you’ve been let go for any reason, please contact us at Rudner Law, so we can review the severance package, and assess the circumstances of your termination, so that we can properly assess what you’re entitled to. Don’t sign anything before you get proper legal advice.

If you’re an employer, please work with us before you terminate an employee, so we can plan the dismissal, set out and clarify what documents are going to be used and how they’re going to be written, and do everything as strategically as we can so that we can minimize the risk of unnecessary liability.

That’s all for this time, thanks for tuning in, have a great day.

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