Bad Faith Discharges Revisited

The following decisions can be considered positive developments for employers in the area of wrongful dismissal.

BACKGROUND

In 1997, the Supreme Court of Canada (SCC) introduced the concept of “bad faith discharge” in Wallace v. United Grain Growers Ltd. In doing so, the SCC held that employers have a positive duty to treat an employee with good faith and fair dealing when terminating employment.

The SCC held that a breach of the employer’s obligation of “good faith and fair dealing” should be compensated for by adding to the length of the notice period. For example, a terminated employee may have been entitled to a six-month notice period, but is awarded nine months due to the employer’s bad faith. This increase in the notice period became known as “Wallace damages.”

REVISITING WALLACE DAMAGES

In Wallace, the SCC specifically noted that bad faith discharges would not occur in every termination. It made the point that termination of employment is usually an unhappy event and that only the most extreme conduct would justify a finding of bad faith. Unfortunately, following the decision in Wallace, it became commonplace for terminated employees to automatically claim “Wallace damages,” whether sufficient facts existed to justify the claim or not. This introduced an additional complexity into wrongful dismissal lawsuits and reduced the likelihood of a quick resolution.

On June 27, 2008, the SCC issued its decision in Honda Canada Inc. v. Keays. This decision radically changed the nature of “Wallace damages.” Employees may still be entitled to damages resulting from the manner of dismissal, but such damages will no longer be awarded by way of an “arbitrary extension of the notice period.” Instead, the employee will have to prove that he or she has, in fact, suffered actual compensable damages, which will be assessed accordingly.

SUBSEQUENT TREATMENT

Since its release in 2008, the Supreme Court’s decision in Honda Canada Inc. v. Keays has been generally accepted in the judicial arena and has been followed in a number of cases in British Columbia. For example, the case of Rodrigues v. Shendon Enterprises Ltd., the BC Supreme Court determined that the plaintiff was dismissed without cause and was entitled to pay in lieu of reasonable notice. However, the Court concluded that the employer’s actions were not sufficiently malicious or egregious in the dismissal to support the claim for punitive damages. The Court referred to the Keays test where, in order to obtain punitive damages, the employee would have to show that the employer engaged in conduct during the course of dismissal that was unfair or in bad faith. Further, punitive damages are restricted to wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. The Court determined that the employer’s conduct did not meet this test.

Another B.C. decision that has followed Keays is that of Palmer v. Clemco Industries Inc., where the B.C. Supreme Court found that the employees were wrongfully dismissed by the corporation but were not entitled to additional damages. The Court cited the decision in Keays for the notion that the ordinary psychological impact of a termination decision and the normal distress and hurt feelings that result are not compensable. Damages resulting from the manner of dismissal are only be available if they result from employer conduct during the course of the dismissal that is “unfair or is in bad faith by being, for example, untruthful, misleading, or unduly sensitive”. In this case there was no evidence that the employees suffered mental distress in excess of the normal hurt feelings associated with dismissal.

Information provided by Ryan Anderson, an employment lawyer with Mathews Dinsdale & Clark LLP. The information provided in this article is necessarily of a general nature and must not be regarded as legal advice. For more information about Mathews Dinsdale & Clark LLP, please visit mathewsdinsdale.com.