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How to win damages for employers' bad faith conduct

Employees must now prove actual losses



By Steve Levitt

May 21 2010 issue


[Shane O'Brien / iStockphoto.com]
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While employers continue to have a duty of good faith toward employees in the manner of dismissal, uncertainty remains as to when an employee will be awarded damages for a breach, and what employees need to demonstrate to be awarded damages. This uncertainty is due to the seismic shift in employment law created by the Supreme Court of Canada in Honda Canada v. Keays, [2008] S.C.J. No. 40, from which the dust has not completely settled.

In Brien v. Niagara Motors Limited, [2009] O.J. No. 5313, the Ontario Court of Appeal reviewed the duty of employers to act in good faith at the time of termination for an employee who alleged mental distress from her termination. The decision appears to confirm that bad faith conduct on its own will no longer be a sufficient basis to award damages.

The case involved the termination of a 23-year employee, Margaret Brien, from her job as office manager at the Niagara Motors car dealership. Her termination came as a complete surprise. Brien experienced tremendous shock when she was terminated, since she had never previously been disciplined and was not provided with warnings about her performance. At the time of termination, the dealership told Brien that her dismissal was the result of her position being eliminated. The dealership, however, had secretly advertised her position, and, to add insult to injury, required Brien to train her replacement after her dismissal.

In a classic example of an employer playing hardball that would have attracted Wallace damages prior to Keays, the dealership only alleged that Brien had performed her duties incompetently and unprofessionally after she commenced the court action. The employer also alleged that her misconduct provided just cause for her termination and thus they owed her no notice of termination. Finally, the employer refused to provide Brien with a letter of reference or to assist her in any way with her job search.

The trial judge concluded that there was no just cause for her termination. Rather, the trial judge found the employer was dishonest, misleading and insensitive during the termination, at a time when Brien was at her most vulnerable. The trial judge concluded that the employer acted in bad faith in the manner of Brien’s dismissal, and pursuant to Wallace principles, increased the award of 24 months pay in lieu of notice by two additional months.

On appeal, the Court of Appeal considered, in light of the Supreme Court’s decision in Keays, whether Brien was entitled to damages resulting from the employer’s actions. The issue was whether the award of Wallace damages could survive in light of Keays.

The Court of Appeal affirmed that the employer’s conduct was improper and that employees are entitled to claim mental distress damages that result from their employer’s bad faith conduct. It also agreed that the dealership’s misconduct could have led to an award of mental distress damages; however, it found the distress that Brien experienced “was not of the nature and scope to qualify for compensatory damages” as she did not seek any medical or professional assistance, such as therapy, for her mental distress. As consequence, despite the employer having breached the duty of good faith, no damages could be awarded post-Keays to the employee for the breach, and the two months of Wallace damages awarded by the trial judge were set aside.

The decision clarifies that it is no longer sufficient for a plaintiff to demonstrate a breach of the duty of good faith to receive damages. The employees must now go further by demonstrating that the bad faith conduct in the manner of dismissal caused them an actual loss or damage, and that the loss was directly related to the manner of dismissal. The normal distress and hurt feelings resulting from dismissal, like those experienced by Brien due to her employer’s actions, are not compensable because termination is a clear legal possibility in the employment relationship.

Counsel who act for employees claiming to be suffering mental distress from a termination must ensure that employees seek appropriate professional assistance in order to fully understand the scope of their suffering, and lay the necessary evidentiary basis for a claim for bad faith damages. Post-Keays, evidence of a significant impact to an employee’s health on account of the manner of dismissal, and that he or she followed a course of treatment, will likely be necessary to sustain a bad faith damage award. Lawyers will also need to plead cases more carefully to specify the bad faith conduct and its impact.

Steve Levitt practises employment law with Nelligan O’Brien Payne LLP, a full service law firm in Ottawa.


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