Unfair Bad Faith Claims in Wrongful Dismissals in Ontario

What Happens if an Employer Acts in Bad Faith or Unfairly in a Wrongful Dismissal?

Wrongful dismissal is a typical employment dispute in Ontario employment law, and when an employer acts in bad faith or unfairly during the termination of an employee, it can have far-reaching legal consequences. Employees who are wrongfully dismissed may be entitled to damages beyond financial compensation in the form of a severance package that they would otherwise receive. This blog will explore the legal ramifications of an employer’s bad faith conduct during wrongful dismissal, and how it can lead employees to seek aggravated/moral damages for breach of the duty of good faith, honesty and fair dealing, or punitive damages. We will also cover examples such as frivolous counterclaims, workplace harassment, unproven allegations of just cause, and discrimination.

What is Wrongful Dismissal?

Wrongful dismissal occurs when an employer terminates an employment contract without just cause or fails to provide the proper notice or compensation in lieu of notice as required by Ontario employment law. Employees have the right to be treated fairly and respectfully, and when employers violate these rights, it may constitute wrongful dismissal.

Acting in Bad Faith: Legal Implications for Employers

When an employer terminates an employee in a manner that is deemed bad faith or unfair, it can lead to claims for aggravated/moral damages or punitive damages. The concept of an employer acting in “bad faith” conduct refers to actions that are dishonest, misleading, insensitive or otherwise intended to undermine the employee’s dignity or legal rights. This includes a variety of behaviours that demonstrate a disregard for the employee’s rights, both leading up to, during and after termination of employment.

Aggravated/Moral Damages vs. Punitive Damages

In wrongful dismissal cases, employees may be entitled to aggravated/moral damages intended to compensate an employee for an employer’s harmful conduct beyond the mere act of termination. Often, this includes actions by an employer that lead to emotional distress, humiliation, or reputational damage to the employee, particularly if an employer’s conduct was deliberately harmful, spiteful or malicious. In these cases, the employers wrongful acts are designed to cause harm beyond just the financial impact of the wrongful dismissal. For instance, if an employer acted in a particularly callous or reckless manner, such as publicly humiliating the employee, it may be required to provide financial compensation beyond a severance package.

Punitive damages, on the other hand, are meant to punish the employer for particularly egregious conduct and to denounce and deter similar behavior in the future. In the context of wrongful dismissal, punitive damages may be awarded if the employer acted in an especially malicious, dishonest, or high-handed manner. Often, courts dealing with a wrongful dismissal or constructive dismissal claim will award punitive damages in situations where an employer’s misconduct is so malicious, reprehensible, oppressive and high-handed that it offends the court’s sense of decency. As the court noted in a landmark case:

“While compensatory damages are awarded primarily for the purpose of compensating a plaintiff for pecuniary and non-pecuniary losses suffered as a result of a defendant’s conduct, punitive damages are designed to address the purposes of retribution, deterrence and denunciation: Whiten v. Pilot Insurance Co. …

… [T]o attract punitive damages, the impugned conduct must depart markedly from ordinary standards of decency – the exceptional case that can be described as malicious, oppressive or high-handed and that offends the court’s sense of decency: Hill v. Church of Scientology of Toronto … at para. 196; Whiten, at para. 36 … As stated in Whiten, at para. 36, “punitive damages straddle the frontier between civil law (compensation) and criminal law (punishment)”. Criminal law and quasi-criminal regulatory schemes are recognized as the primary vehicles for punishment. It is important that punitive damages be resorted to only in exceptional cases, and with restraint.

As is evident, punitive damages must serve a rational purpose. Thus, the standard of review of punitive damages is whether “a reasonable jury, properly instructed, could have concluded that an award in that amount, and no less, was rationally required to punish the defendant’s misconduct.”

Case in Point

Now, let’s look at some common examples where employers may act in bad faith, triggering these types of additional awards in employment disputes:

1. Employer Pursuing a Frivolous Counterclaim Without Merit

In wrongful dismissal cases, employers may sometimes pursue a frivolous counterclaim against an employee – meaning the employer makes a claim with no reasonable legal basis. For example, an employer might falsely accuse an employee of misconduct or breach of contract to distract from the wrongful nature of the dismissal, or allege a “frustration of employment” that are not supported by the facts of the situation.

By way of another example, consider a situation where an employee is wrongfully dismissed after making a complaint about unsafe working conditions. If the employer files a counterclaim accusing the employee of theft or fraud – without evidence and clearly in retaliation –the employee could argue that this is a frivolous counterclaim designed to harm their reputation. In such a case, the employee may be entitled to aggravated/moral damages to compensate for the emotional distress caused by these false accusations.

Additionally, if proven that the employer acted in bad faith by bringing forward such a claim, punitive damages could also be awarded to punish and deter the employer for their misconduct.

2. Workplace Harassment

Workplace harassment is another important issue that can trigger wrongful dismissal claims and lead to significant legal consequences. If an employer acts unfairly by allowing or even contributing to a hostile work environment, the employee may be entitled to damages. In workplaces, harassment can take many forms, including verbal abuse, bullying, or other forms of mistreatment that create a toxic work environment.

Imagine a scenario where an employee makes a legitimate complaint to their employer about ongoing harassment by a colleague, and the employer responds by dismissing the employee, and at the same time, alleging it had just cause for termination. If the employee can show that the workplace harassment was a significant factor in their dismissal, the wrongful nature of the dismissal becomes clear. The employer’s failure to address the workplace harassment (including by conducting an independent and appropriate investigation) and its retaliatory action can lead to claims for aggravated/moral damages.

In particularly egregious cases, if the employer’s response to the harassment is seen as malicious or vindictive, punitive damages might also be appropriate. The employer’s bad faith conduct could also serve as grounds for a constructive dismissal claim if the harassment was so severe that the employee felt compelled to resign due to the intolerable conditions (which should only be done with the careful assistance of an Ontario employment lawyer).

3. Unproven Allegations of Just Cause for Dismissal

A frequent tactic used by some employers to avoid providing a wrongfully dismissed employee with a severance package is by alleging “just cause for dismissal.” The concept of just cause refers to situations where the employer believes the employee has engaged in sufficiently serious and wilful misconduct (such as theft or insubordination,), which justifies immediate termination without notice of termination or severance pay.

However, if the employer’s allegations of just cause are unsubstantiated or exaggerated, it may constitute bad faith conduct. For example, if an employer dismisses an employee for alleged poor performance without providing proper documentation or prior warnings, the employee might reasonably respond with a wrongful dismissal claim seeking a severance package.

In cases where the employer’s allegations are proven false or without merit, the employee may be entitled to aggravated/moral damages or punitive damages. This is particularly true if the employer made baseless accusations to avoid paying severance or other severance package compensation. In such cases, punitive damages could also be awarded to punish the employer for their dishonest or vindictive behavior.

4. Discrimination and Wrongful Dismissal

Discrimination is a key issue some employees in Ontario face, and can reflect an employer’s bad faith conduct that can lead to wrongful dismissal claims. Discriminatory dismissals can involve an employee being terminated based on prohibited personal characteristics under the Ontario Human Rights Code, such as due to their race, gender, religion, age, ethnicity or disability. In such cases, this type of dismissal is not only wrongful but also a violation of human rights legislation (or discrimination).

If an employee can show that their dismissal was based on discrimination, they may have a valid case for wrongful dismissal. In addition to receiving compensation for severance package and general damages intended to financially compensate them for injury to their dignity, feelings, and self-respect as a result of the discrimination or harassment. Additionally, an employee may be entitled to moral/aggravated damages for the emotional distress caused by discriminatory treatment.

Conclusion: Holding Employers Accountable for Unfair Dismissals

When employers act in bad faith or unfairly towards employees during wrongful dismissals, the consequences can extend far beyond the typical severance pay. Employees have legal recourse to seek aggravated/moral, and punitive damages for serious harm caused by such misconduct. Whether it’s a frivolous counterclaim, workplace harassment, unproven allegations of just cause, or discriminatory behavior, employees who find themselves victims of unfair treatment should consult with an experienced employment lawyer.

For more information on wrongful dismissal claims and how you can protect your rights, visit Bune Law or contact our office today. Our team of experienced legal professionals is here to help you navigate the complexities of wrongful dismissal lawyer and ensure you receive the justice and compensation you deserve.

Book a Consultation with an Employment Lawyer in Toronto

At Bune Law, we understand and are familiar the complexities of workplace law and are committed to helping both employers and employees navigate these challenges. Whether you are an employer or employee dealing with employment contracts, workplace disputes like a wrongful dismissal or constructive dismissal, or simply need guidance on your rights and obligations for a severance package review and negotiation, our experienced employment lawyer is here to assist you.

Book a confidential consultation with our Toronto employment law firm to protect your legal rights to understand your options and protect your rights.

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