Ontario courts signal expanded approach to ‘bad faith’ damages

Three recently released Ontario court decisions serve as a stark warning to employers that administrative errors, technical statutory breaches, or poorly drafted termination letters can give rise to moral or aggravated (a.k.a. “bad faith”) damage awards.

Prior to these cases, it appeared moral or aggravated damages were reserved for rare situations where the employer’s conduct was particularly untruthful, misleading, or unduly insensitive.

While there was an understanding these damages could be awarded whenever an employer breached its duty of good faith and fair dealing in the employee’s manner of dismissal - or anytime the parties could reasonably contemplate the manner of dismissal would cause distress beyond normal hurt feelings accompanying a termination - courts appeared to limit “bad faith” damage awards to cases where the employer’s conduct was particularly egregious.

For example, $50,000 in moral or aggravated damages was awarded when the employer engaged in the following misconduct:

• Terminating an employee on the same day she was slapped by a co-worker and made a workplace violence complaint (Bassanese v. German Canadian News Company Limited et al, 2019 ONSC 1343).
• Publicly dismissing an employee in front of colleagues while misrepresenting the reasons for dismissal, and then failing to provide the employee an opportunity to respond to accusations of deceit (Acumen Law Corporation v. Ojanen, 2019 BCSC 1352 [aff’d 2021 BCCA 189].
• Demoting an employee and then subsequently terminating her for cause in a public manner (for previously unmentioned performance failures) after she requested a salary review (Humphrey v. Mene, 2021 ONSC 2539 [aff’d 2022 ONCA 531]).

Bad-faith claims are concerned with the events leading up to the termination, the termination itself, and the way the termination is conducted, an employment lawyer explains.

Less serious employer conduct

In the past two years, we have seen three cases where Ontario courts awarded moral or aggravated damages for what could be seen as less significant breaches than the ones described above, including matters that many employers may consider to be administrative errors, technical non-compliance with statutory rules, inadvertent mistakes, or oversights:

• In Russell v. The Brick Warehouse LP, 2021 ONSC 4822, $25,000 in moral damages was awarded after the employer failed to advise the terminated employee in writing that he would receive his minimum entitlements (including benefits continuance for the minimum period required by statute) if he rejected a gratuitous severance offer outlined in his termination letter. The court also pointed to the employer’s failure to pay all statutory entitlements, including statutory vacation pay, accrued over the course of the statutory notice period as a factor justifying a “bad faith” damages award. While the court classified these administrative errors as “inadvertent missteps,” it also found these mistakes caused the employee distress beyond the normal level in a termination, which the court found was a reasonably foreseeable breach. The court also re-iterated medical evidence of mental distress is not required to ground a moral damages award, and an employee’s representations regarding the distress they suffered will be sufficient.
• In Pohl v. Hudson’s Bay Company, 2022 ONSC 5230, $45,000 in moral damages was awarded for four separate incidents of post-termination conduct, including not paying out the employee’s statutory termination entitlements within the time period required by statute, and failing to issue a Record of Employment (ROE) within the time period required and incorrectly describing the reasons for issuing, expected recall date, and last pay date. Though the employee eventually received all statutory termination entitlements and an ROE (albeit not within the timelines or format required), the court nonetheless found the employer breached its duty of good faith and fair dealing which caused the employee mental distress. These factors were cited along with the employer’s decision to walk the employee out of the office (even though there were no misconduct allegations) and making an offer of continued employment which the court described as “misleading and a breach of the duty of good faith and fair dealing” as cumulatively justifying an aggravated damages award. In doing so, the court re-iterated employees are most vulnerable and in need of protection at the time of termination.
• In Teljeur v Aurora Hotel Group, 2023 ONSC 1324, $15,000 in aggravated damages was awarded after the employer breached the ESA by failing to provide the employee with written notice of termination and not paying out the employee’s minimum statutory entitlements within the time period required. The court also cited the employer’s delayed reimbursement of expenses following termination as akin to reducing a wage rate or other term or condition of employment, further justifying a moral damages award. Finally, the court referenced the employer’s verbal offer of a severance package but subsequent decision to pay out only the employee’s minimum statutory entitlements as an aggravating factor.

Notably, the Russell and Pohl cases saw moral or aggravated damages awarded against sophisticated employers with large human resources and in-house legal departments, leading to a belief that smaller employers may be spared from the court’s expanded approach. However, this year’s Teljeur decision saw damages awarded against a single hotel (and its associated operating companies), demonstrating that medium-sized employers may be subject to the same level of oversight. It remains to be seen whether smaller employers or “mom and pop” shops will be subject to similar scrutiny as larger or medium-sized employers.  

The duty of good faith requires employers, in the course of dismissal, to be candid, reasonable, honest, and forthright with the employee, says an employment lawyer.

Caution and diligence

Taken together, these cases warn employers to exercise caution and diligence when terminating employees by ensuring:

• Termination letters specify that employees will receive their minimum statutory entitlements regardless of whether a gratuitous severance offer is accepted.
• Compliance with the strict ESA timelines for providing wages (including accrued and outstanding pay, vacation pay, termination and severance pay, or outstanding expenses) at the conclusion of the employment relationship.
• ROEs are issued within the statutorily required timelines (five days within any interruption of earnings) and correctly describe the reasons for issuance.

If any aspect of the dismissal causes an employee distress, even if such distress resulting from an employer’s mistake, error, or oversight, Courts are signalling they are prepared to penalize employers and award additional compensatory damages to terminated employees.

Jeff Rochwerg is an employment lawyer and workplace investigator at Turnpenney Milne in Toronto.