An Employer’s Breach of the Duty of Good Faith and Fair Dealing at the Time of Dismissal
In most cases, an employee is not entitled to additional compensation for the normal distress, disappointment and hurt feelings resulting from losing their job. Things change, however, where an employee can prove that the way in which their employer handled the dismissal was unfair or in bad faith. This can include, for example, an employer who is untruthful, misleading or unduly insensitive. In such cases, if the employee suffers additional harm (e.g., mental distress, anxiety and depression), a court will not hesitate to award “moral damages” for bad faith dismissal. If nothing else, it will do so simply to punish the employer for wrongdoing and deter other employers from similar conduct.
The recent case of Hampton Securities Limited v. Dean provides an example. In that case, the court made a rare decision to award an employee both punitive damages and damages for defamation because of the employer’s unfair conduct during her dismissal. It serves as another reminder to employers that when required to disclose reasons for an employee’s termination, it may be wise to tread carefully. Otherwise, a dismissed employee may be able to seek significant damages, especially if the reasons given are untruthful, unproven, and end up damaging to the employee.
After about a year into her employment as a securities trader with Hampton, Christina was presented with an ultimatum – either increase her reserve account by $50,000 or lose her job. Not surprisingly, Christina refused what she believed was a significant change to her job, claimed constructive dismissal and, the next day, submitted her resignation letter. For its part, Hampton sent her a letter claiming it was terminating her employment for cause. Hampton then followed up by filing a notice with her securities regulator that it terminated Christina’s employment for cause because she violated its trading policies and engaged in unauthorized trading. Not stopping there, Hampton then commenced a lawsuit against Christina for losses she incurred during her employment, and Christina counterclaimed for constructive dismissal and defamation.
What the Court Decided
On the issue of whether Hampton had grounds to terminate Christina’s employment for cause, the court found Hampton’s decision was not justified. Among other things, the employment contract did not allow Hampton to fire Christina if she refused to provide an additional reserve upon demand. On that basis, Christina’s refusal to pay that sum in those circumstances did not constitute grounds to terminate her employment for cause. Similarly, the court rejected Hampton’s argument that Christina violated its trading policies and that she had engaged in unauthorized trading.
Lastly, the court found that Hampton’s demand that Christina provide the additional $50,000 to her reserve fund was a unilateral and fundamental change to her employment contract, and it was made without providing her with reasonable notice in advance of such a major change. As such, the court found that Christina was wrongfully dismissed, and awarded her 6 months’ notice, 2 of which were in recognition of the difficulty she would face in finding new employment because of Hampton’s damaging conduct and unjustified allegations of cause.
Defamation & Punitive Damages
The court also found that Hampton’s false allegations that Christina violated trading policies and engaged in unauthorized trading were not only reckless, untrue and damaging to her career prospects, but they constituted defamation by implying she was guilty of dishonest conduct. In other words, Hampton’s untruthful statements about Christina attacked her reputation and integrity as a person, in breach of its obligation to act in good faith under its employment contract. As a result, the court awarded Christina an additional $25,000 in general damages, and ordered Hampton to file a notice of correction with the securities regulator.
Additionally, the court awarded Christina an additional $25,000 in punitive damages, and described the employer’s conduct as “the exceptional sort of case” warranting punishment. In the court’s view, “for an employer to conduct itself in this way is… so “extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment.”
This case serves as a cautionary tale for employers when making the ultimate decision to terminate an employee’s job. Most notably, it is a stark reminder to do so with respect and foresight, particularly when: (i) determining whether to terminate an employee’s job for cause, and (ii) disclosing reasons for the termination, especially to the public.
As in this case, the courts will not shy away from awarding an employee significant amounts in damages if an employer’s conduct “represents a marked departure from ordinary standards of decent behavior.” In carrying out a dismissal, an employer’s duty of good faith requires that – at the very least – any reasons it provides for termination are truthful, accurate and can be proven. Without that, an employer’s own misconduct will not only have serious and long-term effects on the employee’s well-being and future employment prospects, but ultimately cost it significantly if wrongful dismissal litigation arises.
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