The Concept of Bad Faith in the Manner of Dismissal
In 1997, the Supreme Court of Canada introduced the concept of "bad faith" in the assessment of wrongful dismissal damages. The Court in Wallace v. Grain Growers Ltd. ruled that employees subject to bad faith at the time of their dismissal could be entitled to additional notice (or pay in lieu of notice) than they would otherwise be entitled to. In so deciding, the Court reasoned as follows:
The point at which the employment relationship ruptures is the time when the employee is most vulnerable and hence most in need of protection. In recognition of this need, the law ought to encourage conduct that minimizes the damage and dislocation (both economic and personal) that results from dismissal. …. By way of expanding upon the statement, I note that the loss of one’s job is always a traumatic event. However, when termination is accompanied by acts of bad faith in the manner of discharge, the results can be equally devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, breach of which will be compensated for by adding to the length of the notice period. [emphasis added]
Unfortunately, the Court was unable to define exactly what constitutes bad faith in the manner of dismissal. Instead, it broadly defined the notion as follows:
The obligation of good faith and fair dealing is incapable of precise definition. However, at a minimum, I believe that in the course of dismissal, employers ought to be candid, reasonable, honest and forthright … and should refrain from engaging in conduct that is unfair or is in bad faith.
Employers have been clearly put on notice. A breach of the duty of good faith in the manner of dismissal will lead to an add on to an employee’s notice or pay in lieu thereof entitlement – now known as Wallace damages. And as a recent Superior Court of Justice decision confirms, all employers are subject to the duty of good faith. A restrictive clause in an employment agreement dictating an employee’s entitlement in the event of a dismissal may not afford any protection against Wallace damages.
Impact of Employment Agreements on Wallace Damages
In Smith v. Casino Rama Services Inc., a former employee was awarded an additional 2 ½ months pay in lieu of notice of termination despite the fact that her employment agreement stipulated that she was only entitled to 2 weeks pay in lieu of notice upon termination of employment The employee, Ms. Smith, suffered serious health problems. As a result, she exercised a sick leave of absence during which she received short-term disability benefits. Though there was no specific diagnosis of her illness at the time, her leave of absence was extended on three separate occasions prior to her attempted return to modified duties as a security officer. This led the employer to believe that Ms. Smith was "playing the system." The employee was later diagnosed as suffering from multiple sclerosis.
On August 18th, 2001, Ms. Smith contacted the employer and expressed a desire to return to modified duties for a trial period of two (2) weeks. In doing so she specifically requested a "sit down" job as recommended by her doctor.
Modified duties were made available and, therefore, Ms. Smith was placed in a "sit down" security job on August 19th checking identifications and parcels of employees entering and exiting the employer’s premises. Unfortunately, due to her illness Ms. Smith was incapable of continuing to work beyond one (1) hour that day and therefore left work early.
The next day, on August 20th, Ms. Smith contacted her immediate supervisor and informed him that she would not be able to return to work. However, the employer’s policy dictated that in addition to contacting her immediate supervisor, Ms. Smith was to have contacted the employer’s group health benefits administrator and to produce another doctor’s note confirming that she was unable to complete her two-week trial, which Ms. Smith failed to do. Ms. Smith’s further absence from the workplace, and particularly her failure to complete her return to work trial as supported by her doctor, clearly irked the employer who previous to these incidents perceived Ms. Smith as a "slacker."
Thus, the employer made the decision to dismiss Ms. Smith on August 21st ostensibly for her failure to follow procedure. Ms. Smith commenced an action for wrongful dismissal in which she also sought damages for bad faith in the manner of dismissal. At the time of her dismissal, Ms. Smith was 35 years of age and had been employed for 2 years. Subsequent to her dismissal, Ms. Smith was diagnosed as suffering from multiple sclerosis.
The employer defended the action by relying on its employment agreement with Ms. Smith. That agreement indicated that Ms. Smith’s notice entitlement or pay in lieu thereof was to be calculated strictly in accordance with the Employment Standards Act of Ontario, which for Ms. Smith, meant two (2) weeks’ pay at the time of her dismissal.
Evidence presented at trial suggested that there was some satisfaction on the part of the employer with the dismissal, as a supervisor was quoted to have said "we’ve got her" at the time Ms. Smith breached procedure. The implication was that the employer was looking for a reason to dismiss Ms. Smith and jumped at the opportunity to do so.
At the conclusion of trial, Justice Loukidelis ruled that Ms. Smith’s dismissal was harsh, since at the time of her dismissal Ms. Smith was seriously ill (even though there was no diagnosis of her ailment at the time) and wrongly perceived as a "slacker." Loukidelis J. was of the view that the decision to dismiss Ms. Smith in such circumstances was unreasonable, unfair and made in bad faith. Accordingly, Justice Loukidelis held that Wallace damages were warranted and awarded Ms. Smith an extra 2 ½ months pay in lieu of notice over an above her contractual entitlement of 2 weeks.
In doing so, Loukidelis J. specifically held that "to hold that a restrictive clause in the employment agreement automatically excludes Wallace damages would grant the employer an unlimited right to act in any unreasonable manner in dismissing an employee." In other words, employment agreements will not protect employers against findings of bad faith.
Thus, once again, employers are put on notice of the perils of conducting a dismissal in circumstances where "bad faith" may be found. Employers wishing to terminate their relationship with an employee should clearly no longer exclusively rely on the terms of their employment agreement to assess their potential liability for dismissal. Employers should also evaluate carefully whether there are any risks of a finding of bad faith in the dismissal. If so, employers would be well advised to either impose other forms of discipline or, where there is no true disciplinary motive underlying the decision to dismiss the employee, delay the termination to such time where the circumstances would unlikely result in a finding of bad faith. Specifically, employees should avoid terminating the services of an employee for trivial breaches of procedure or policy at a time when the employee is also suffering from an illness.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
© Copyright 2004 McMillan Binch LLP