The High Cost of Employer’s ‘Bad Faith’ in Termination for Cause

In a decision of the Ontario Court of Appeal from earlier this year, the Court upheld a trial decision that awarded a terminated employee both punitive and aggravated damages, as well as “unusually high” costs in an action for wrongful dismissal.

Background

The employee had been employed by the defendant company for 11 years and was 54 years of age at the time of his termination. He began his employment as a sales representative, ultimately advancing to the role of president. When he was let go, he was told that “he was being terminated for cause and that he had committed fraud” but was given few details to support the claim. When he told his employer that he would be retaining counsel to fight the accusations, they said that if he brought a claim against them, they would initiate a counterclaim, and that litigation would be very costly. The employee did proceed with a claim against his former employer for wrongful dismissal, and as promised, they launched a counterclaim in the amount of $1.7 million in damages claiming fraud, unjust enrichment, and breach of fiduciary duty, plus $50,000 in punitive damages.

The Trial Decision

The trial judge ultimately dismissed the employer’s counterclaim, finding that it had failed to prove any of its claims against the plaintiff. Further, they determined that the employer had breached its duty of good faith and fair dealing in the termination and that the counterclaim had been little more than an intimidation tactic to prevent the plaintiff from entering litigation.

The judge awarded the plaintiff 19 months’ pay in lieu of reasonable notice, plus $100,000 in punitive damages and $25,000 in aggravated damages. Lastly, the court awarded costs to the plaintiff in the amount of $546,684.73. The employer appealed the decision.

The Court of Appeal

The Ontario Court of Appeal dismissed the employer’s appeal, upholding the trial judge’s determination of reasonable notice, which took into account not only the plaintiff’s years of service, but also his age at the time of termination, his position in the company, and his education level, which was grade 12. The court also considered the seriousness of the employer’s allegations against the plaintiff, which it had not been able to substantiate in court.

The Court also upheld the trial judge’s award of both punitive and aggravated damages in light of the employer’s bad faith, serious and unfounded allegations against the plaintiff, and the intimidation used in an effort to avoid litigation. The Court determined that the employer’s conduct gave rise to both punitive and aggravated damages, stating:

[A]ggravated damages aim to compensate a plaintiff for heightened damages caused by the breach of the employer’s duty of good faith and fair dealing in the manner of dismissal, while punitive damages seek to punish and denunciate inappropriate or unfair conduct.

Lastly, the Court upheld the trial judge’s costs decision, because the employer was unable to demonstrate that the costs award was unfair or unreasonable given the facts of the case.

Employer Takeaways

Employers should be aware that a breach of the obligation of good faith and fair dealing when dismissing an employee can give rise to either or both aggravated and punitive damages if the conduct warrants it. Further, a frivolous counterclaim to an action for wrongful dismissal can lead to a substantial award of costs against the employer. Before terminating an employee for cause, employers are advised to seek legal advice to ensure that their exposure to liability is minimized. Employees who feel that they’ve been unjustly terminated for cause should also seek counsel right away, to assess whether they have a sound basis for a claim.

At Duncan, Linton LLP in Waterloo, we have been advising and acting for both employers and employees across a broad range of sectors for over 150 years. The knowledgeable and strategic lawyers in our Employment Group regularly assist clients with managing all aspects of their workplace relationships including issues related to termination and dismissal. Call us at (519) 886-3340 or contact us online to schedule a consultation.