Since the Supreme Court of Canada’s decision in Honda Canada Inc. v.
Keays, 2008, dismissed employees have increasingly sought bad faith
damages in severance negotiations and wrongful dismissal actions. A key issue in
these claims is whether the employer’s conduct was sufficiently egregious to
justify these damages. The courts are clear that not every perceived offence or
instance of misconduct will give rise to a finding of bad faith.
The authorities establish that bad faith is akin to malice or blatant
disregard for the employee. The conduct must be reprehensible or egregious. In
Honda v. Keays, the Supreme Court set out the following
examples of dismissals conducted in bad faith:
If an employee establishes that the employer acted in bad faith, she or he
must still establish actual loss caused by the misconduct in order to be awarded
damages. Bad faith damages are compensatory rather than punitive. That is, they
are meant to compensate the employee for damage that they suffered rather than
punish the employer for their misconduct. Accordingly, an employee must be able
to prove actual loss due to psychological damage or mental distress in order to
be awarded bad faith damages. In most cases, this will require the employee to
produce medical evidence in support of their claim. However, it is worthy of
note that some cases have departed from the approach set out in the authorities
and awarded damages based on the bad faith conduct itself without evidence of
In Evans v. Complex Services Inc, 2012, the Ontario Superior
Court of Justice considered a claim for bad faith damages arising from the
manner of an employee’s dismissal. The day before her termination, the plaintiff
had overheard a manager state that the plaintiff was “getting canned” the next
day. However, when the plaintiff confronted management about this remark, they
were not truthful and allowed her to continue working overtime under the belief
she was not being fired.
The Court stated that, given the imbalance of power between the management
and the employee, the failure to tell her the truth was unfair and cruel. The
plaintiff testified she suffered depression after being terminated and required
medication. However, no medical evidence was offered to establish whether her
depression was the result of the management’s mistreatment of her or whether it
flowed from the loss of her employment.
The Court found that the management’s conduct did not reach the requisite
level of misconduct for a finding of bad faith. Further, the evidence did not
establish that the misconduct caused or contributed to the employee’s
depression. The Court held that the employee was not entitled to damages for
depression caused by the loss of her job. Rather, there must be misconduct in
the manner of dismissal of a sufficiently egregious nature to justify an award
of bad faith damages.
This decision is useful for employers in responding to unfounded claims for
bad faith damages in severance negotiations. It affirms the principle that an
employee is not entitled to damages for mental distress caused by the
termination itself. The employee must adduce evidence of actual harm caused by
the employer’s misconduct in order to make out a claim for damages. The case
also illustrates the high threshold for a finding of bad faith conduct. Despite
the stringent requirements for bad faith damages, employers would be
well-advised to treat their employees with civility, decency and respect, both
during the employment relationship and at the time of dismissal.
For more information please contact Alison Bird, Cox & Palmer.
This Cox & Palmer publication is intended to provide
information of a general nature only and not legal advice.
Cox & Palmer publications are intended to provide information of a general nature only and not legal advice. The information presented is current to the date of publication and may be subject to change following the publication date.