Bad Faith & Unfair Dealing in Employee Dismissal: 7 Lessons in 7 Years
January 30, 2015
By Darren Stratton, Partner at McInnes Cooper,
Megan Sheppard, Former lawyer at McInnes Cooper
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In December 2014, the NL Supreme Court ordered an employer to pay its former employee $30,000 in moral damages to compensate him for the mental distress its conduct caused him when it terminated his employment – the first such award in NL, and one of the highest in Canada.
It’s been 7 years since the Supreme Court of Canada last visited compensation for employers’ conduct in the manner of employee dismissal, and “moral damages” replaced the “Wallace damages” that first appeared 11 years earlier. Where does compensation for the employer’s conduct in dismissing an employee stand now? Here are 7 lessons employers can learn from the last 7 years.
FROM “WALLACE DAMAGES” TO “MORAL DAMAGES”
Until 1997, when a dismissed employee sued her former employer for “wrongful dismissal” (breach of the employment contract) she could only be compensated for her employer’s failure to give her reasonable notice of the employment termination – but not for actually losing her job or any resulting distress she might have suffered.
Wallace Damages. That all changed in 1997 and the Supreme Court of Canada’s decision in Wallace v. United Grain Growers Ltd. The Court decided that an employer owes its employees a duty of good faith and fair dealing in the manner of dismissal – and if the employer’s breach of that duty caused the employee mental distress, she could be compensated for that by extending (or “bumping up”) the reasonable notice period. This became commonly known as “Wallace damages” and the “Wallace bump-up”. The employee might also be entitled to additional compensation (aggravated damages). Employers immediately noticed – and so did employees. Almost every wrongful dismissal lawsuit included a claim for Wallace damages, often with no basis. Courts extended notice periods, but it was tough to identify a consistent pattern and thus the employer’s exposure.
“Moral” Damages. Seven years ago, the Supreme Court of Canada revisited – and revised – the issue in Honda Canada Inc. v. Keays: it replaced “Wallace damages” with “moral damages”, did away with the “Wallace bump-up” as the way to calculate compensation, and merged “Wallace damages” and “aggravated damages” to a single form of compensation. Now, an employee will be compensated if she can prove the employer’s manner of dismissal caused her mental distress that both she and the employer could reasonably foresee – for example, where the employer is untruthful, misleading or unduly insensitive. And the amount of compensation is the actual loss the employee suffered.
December 2014. On December 16, 2014, the NL Supreme Court awarded a former employee $30,000 in “moral damages”, one of the highest awards in Canada in the last 7 years. The employer dismissed Turner, a 22 year employee, seven months after he participated in organizing a job action due to excessive workload. Turner sued for wrongful dismissal and punitive damages for bad faith and maliciousness. The Court decided his employer breached its duty to act with good faith and fairness in the manner of his dismissal, and it impacted and exacerbated Turner’s mental health beyond any normal distress or hurt feelings as a result of the dismissal itself, and he and his employer did or should have contemplated this. The decision was based on the employer’s failure to conduct an objective and full assessment of Turner’s work, its failure to give him a meaningful opportunity to respond to alleged concerns or to address deficiencies, the tone and content of the dismissal letter, the failure to pay him vacation time, and the complaint it filed with Turner’s professional governing body that made exaggerated reference to Turner’s incompetence, negligence and misleading clients and involved the employer’s management employees – and also interfered with Turner’s future job prospects. Read the NL Supreme Court’s decision in Turner v. Newfoundland and Labrador Legal Aid Commission, 2014 NLTD(G) 156 (SCTD).
7 LESSONS IN 7 YEARS
So where does compensation for the employer’s conduct in dismissing an employee stand now? Here are 7 lessons employers can learn from the 7 years since the Supreme Court of Canada’s Honda decision:
- Harder to get. Since the 2008 Honda decision, it’s harder for a former employee to be compensated for the employer’s conduct in the manner of dismissal than it was in the Wallace damages era. Courts have explicitly said it’s harder and decisions from across Canada bear this out: courts haven’t actually considered many such claims (and not at all in PEI), there are but a relative handful of successful claims, and though the amounts vary, only a few courts have awarded more than $10,000.
- Evidence – not necessarily medical – is necessary. One reason it’s harder for an employee to get compensation for the manner of dismissal is that even if the employee proves bad faith in her former employer’s conduct in the manner of dismissal, compensation isn’t automatic. The employee must actually prove she suffered mental distress, and the employer’s conduct caused it. To do so, the employee has to produce some evidence. Medical evidence is best, but it’s also clear it isn’t the only evidence courts will accept – the employee’s own evidence and that of other witnesses could be enough.
- Be consistent. It’s important to be consistent in whether you say you terminated the employee for cause, or without cause. So if you tell the employee that there wasn’t any cause but then refuse to pay the statutory minimums for notice or put another reason on her ROE, that deprivation of money and benefits could lead to mental distress and a compensation claim. Courts have also ordered employers to compensate employees based on misrepresenting the reason for the dismissal.
- Be (procedurally) fair. If you dismiss an employee, do your best to be procedurally fair: follow any relevant internal policies (like a progressive discipline policy); if there should be an investigation then conduct one, and if there is an investigation then make sure it’s a fair one and include the affected employee and other relevant witnesses.
- And always professional. Maybe this goes without saying, but employers’ representatives should always act professionally when dealing with employees – and particularly in dismissal situations. Examples of employer conduct that has attracted compensation include yelling, insulting, criticizing and publicly embarrassing the employee. And maintain that professionalism after you dismiss the employee; courts have ordered employers to compensate employees for conduct like attacking the employee’s reputation (explicitly or implicitly) at the time of dismissal or afterward. Courts also don’t like it when employers mess with employee health and welfare benefits (like disability insurance and pension benefits) – so dismissal for the purpose of depriving the employee of a such a benefit is likely to be compensated.
- Honest mistakes are OK. Many employers have acted on the belief that they had cause to dismiss an employee, only to end up with a court deciding they did not. That mistake, as long as it’s an honest one, isn’t usually enough to amount to bad faith in the manner of dismissal exposing the employer to liability to compensate its former employee. However, on the flip side, an employer doesn’t have to intend to cause its employee mental distress to be liable – but conduct that has the smell of intent and dishonesty will be harshly judged.
- Context is crucial. Courts will look at and assess the employer’s conduct in context – like the employee’s age, length of service, state of health and relationship with the employer. Even factors like the timing vis-à-vis employer’s size and the nature of the community in which it operates can form part of that context.
Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Labour & Employment Team to discuss this topic or any other legal issue.
McInnes Cooper has prepared this document for information only; it is not intended to be legal advice. You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.
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