Bad Faith damages increased with poor treatment
A number of years ago the Supreme Court of Canada changed employment law significantly when it awarded “bad faith damages”. As a result of how an employee was poorly treated during the termination process, the court increased the pay in lieu of reasonable notice to which the employee would otherwise have been entitled.
This case received a lot of attention and I am often asked by terminated employees whether they would be entitled to bad faith damages as a result of the circumstances of their termination.
Usually my answer is “Not likely”. Something truly extraordinary has to happen surround the termination process for the courts to award these damages. The courts have explicitly recognized that all terminations are traumatic. It leaves almost all employees upset and with a feeling of being powerless. Since non-unionized employees can be terminated without any reason being given, the courts will not award bad faith damages because the motivation for the termination was fickle or arbitrary.
But sometimes bad faith damages are warranted. Sheila’s case provides a prime example of the kind of conduct that will provoke the courts to award bad faith damages over and above the usual pay in lieu of notice.
Sheila worked for a bookkeeper for 8 years. She was paid partly by a regular pay cheque, partly in under the table cash and partly through falsified travel expense documents. By submitting the false travel documents and being reimbursed for them, the monies were paid without taxation. Of course, all this was done with the employer’s agreement.
Sheila got pregnant and worked some hours during her maternity leave. The employer paid her a maternity leave top up but the rules are that you can’t be required to work for the maternity leave top up. You can’t be working and collecting Employment Insurance at the same time.
A replacement was eventually hired for Sheila during her leave and towards the end of the leave she was told that that replacement was going to be working full time. She was told to copy any business-related computer files she had at home and to send them in to the employer. Lastly, she was told that when she returned to work she would only be paid at her “above the table” salary rate. The cash payments and travel expenses would stop.
Sheila wrote a letter to the employer asking for clarification of these significant changes to her employment contract and never got a response. Instead of returning to work, she sued for wrongful dismissal. She claimed that the drop in pay was a constructive dismissal.
As soon as the employer got served with the statement of claim, he contacted the police and reported the illegal payments that Sheila had received and the fact that she had been collecting EI while working for him and earning money. He didn’t mention to the police that he had agreed to all of these arrangements. He portrayed Sheila as a fraud artist.
Charges were laid by the police. From what they were told, Sheila had been taking money from the company without the owner’s knowledge. The charges, however, were eventually withdrawn by the Crown Attorney. Still not satisfied, the employer gave the Crown Attorney some more documentation and tried to get him to reinstate the charges. He failed.
At trial, the judge saw the employer for what he was…a liar. He found that by reporting Sheila to the police, the employer was guilty of malicious prosecution. Sheila was awarded 8 months pay in lieu of notice and 2 extra months of notice for bad faith damages.
Never one to give up, the employer appealed that decision to the Ontario Court of Appeal which dismissed the appeal in 6 decisive and swift paragraphs.
While Sheila’s case was an extreme one, it does provide an important example.
Although it is impossible to give a short description which describes all the situations in which bad faith damages will be awarded, an employee must prove that an employer did something during the termination process which was humiliating or traumatic. She must also prove that the employer was acting either maliciously or with a callous disregard for the feelings or rights of the employee.
Terminating an employee for performance issues that were never discussed or mentioned is not usually bad faith unless the employer tries to pretend that the performance was so bad that no severance package is owing.
Terminating an employee two months after they buy a new house that the employer knew they were buying is not bad faith unless the employee can prove that the employer encouraged them to commit to the house knowing that they were soon going to be terminated.
Escorting an employee out of the workplace like a criminal without giving them a chance to say goodbye to their colleagues is a stupid Human Resources management approach which will increase the chances of the employee suing for more money, but it is not usually bad faith treatment in the eyes of the court.
Telling an employee that unless they sign a release they won’t even receive their Employment Standards Act
minimum payments is bad faith treatment. Advising an employee that was terminated for reasons unrelated to their work performance that they can only receive a reference from the company if they sign off on the severance offer can also be held to be bad faith treatment.
Employers should not panic about this new head of damages called bad faith. They will not ending up paying extra damages for innocent or even careless errors in the termination process. However, acts of bullying like these two examples may land them in court with a larger than expected bill to pay.
As published in The Hamilton Spectator, March 1, 2008
Ed Canning practices labour and employment law representing both employers and employees with Ross & McBride LLP.