In a recent case called Krmpotic v. Thunder Bay Electronics Limited, the Ontario Court of Appeal expanded on the long-standing principle that employers have a duty to perform honestly during an employee’s termination. The ruling reinforced the idea that employers must act with transparency and fairness when ending an employment relationship, making it clear that failure to meet these expectations could result in substantial financial consequences for employers. Specifically, the Court confirmed that employers have a responsibility to be candid honest, reasonable, honest and forthright when dismissing an employee. If these standards are not met, the employee could be entitled to aggravated damages.
Background of the Case
In the case of Krmpotic, the employee had worked with the company for nearly 30 years before being terminated without cause. He had just returned to work from a medical leave after undergoing surgery and was called into a meeting on the very day he returned, where he was informed of his termination.
The Ontario Court of Appeal upheld the trial judge’s decision, granting the employee $50,000 in aggravated damagesin addition to a 24-month notice period. The decision aligns with Boucher v. Wal-Mart Canada Corp., where the Court established that aggravated damages are intended to compensate employees for “additional harm” caused by an employer’s actions that display bad faith. As such, the court emphasized that employees may be entitled to additional damages beyond a severance package because of an employer’s actions during the termination process that involve: (a) the employer behaving in a way that is “untruthful, misleading, or unduly insensitive” enough to amount to a breach of their duty of honest performance, and (b) the employee consequently suffers harm “beyond the normal distress and hurt feelings that result from dismissal”.
The Employer’s Conduct
The Court found that the employer in Krmpotic violated its duty of good faith by mishandling the termination process in various ways:
- the employee was told that he was dismissed for financial reasons and that the company’s’ financial statements would support that claim. However, it refused to produce the financial statements.
- the employee was terminated the day of his return to work from medical leave following surgery (in fact, within two hours of his shift).
- while the company was not directly untruthful with the employee during the termination meeting, it also was neither candid nor forthright with him as to the reasons for his termination, since the real reason for his termination was because of his physical limitations that restricted him from continuing to perform the wide array of job duties and responsibilities that he had performed for the appellants over the previous 29 years.
In conclusion, the Court found that the employer’s overall conduct during the termination meeting was untruthful, misleading and unduly insensitive, rather than complying with its duty of good faith to be candid, reasonable, honest, and forthright.
As a result, the Court accepted the employee’s claim that, due to the manner of dismissal, he was plagued by anxiety, depression, fear, poor sleep, frustration, and feelings of helplessness. That is, the Court found that the employee suffered harm beyond the normal distress and hurt feelings resulting from dismissal as a result of the terminating meeting, which breached the employer’s duty of good faith and deserved compensation in the form of aggravated damages.
As is not uncommon in wrongful dismissal claims of this nature, the employee was not required to provide medical or psychological evidence to show that the company’s conduct during his termination resulted in mental distress. In its view, even if an employee in such circumstances cannot provide medical evidence that he had suffered a diagnosable psychological injury, the court can still find an employee is entitled to financial compensation as a result of mental distress:
In my view, on a full reading of his reasons, the trial judge approached the issue of mental distress in that fashion. The fact that Mr. Krmpotic had not established, through medical evidence, that he had suffered a diagnosable psychological injury, was not the end of a consideration of the issue of mental distress damages. As the trial judge correctly understood, he had to go further and determine whether (1) the appellants’ conduct, during the course of termination amounted to a breach of their duty of honest performance; and (2), if so, whether Mr. Krmpotic suffered harm – beyond the normal distress and hurt feelings arising from dismissal – as a result of that breach. The trial judge found in Mr. Krmpotic’s favour on both matters: the appellants had engaged in conduct that amounted to bad faith during the dismissal process; and, Mr. Krmpotic suffered harm beyond the normal distress and hurt feelings that result from dismissal. These findings were fully open to the trial judge.
Employer’s Duty of Good Faith and Fair Dealing
A few excerpts from the Court’s decision are very important in understanding an employer’s obligations during the termination process:
The principles governing the employer’s obligations on termination are clearly articulated in a series of Supreme Court of Canada decisions that include Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 98; Keays, at para. 58; and Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, [2020] 3 S.C.R. 64, at paras. 40, 44. Those principles can be summarised as follows.
The duty of honest performance applies to all contracts, including employment contracts. It encompasses the employer’s duty to exercise good faith during the course of dismissal from employment. Breach of the duty of good faith occurs through conduct that is unfair or made in bad faith, as for example, by being “untruthful, misleading or unduly insensitive”. Callous or insensitive conduct in the manner of dismissal is a breach of the duty to exercise good faith.
While the normal distress and hurt feelings resulting from dismissal are not compensable, aggravated damages are available where the employer engages in conduct that is unfair or amounts to bad faith during the dismissal process by being untruthful, misleading, or unduly insensitive, and the employee suffers damages as a consequence. As the trial judge noted, in Boucher v. Wal-Mart Canada Corp., 2014 ONCA 419, 120 O.R. (3d) 481, at para. 66, this court confirmed that aggravated damages compensate an employee for the additional harm suffered because of the employer’s conduct.
Mental distress is a broad concept. It includes a diagnosable psychological condition arising from the manner of dismissal but is not limited to that. There is a spectrum along which a person can suffer mental distress as a result of the manner of dismissal. At one end is the person who suffers the normal distress and hurt feelings resulting from dismissal, which are not compensable in damages. At the other end of the spectrum is the person who suffers from a diagnosable psychological condition as a result of the manner of dismissal. In between those two end points, there is a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury.
Conclusion
The court’s decision in Krmpotic further solidifies the interpretation of an employer’s obligation to act in good faith during a dismissal. The Court’s ruling makes it clear that honesty and candor are essential components of the termination process. Employers must avoid misleading or insensitive behaviour, as failing to meet these expectations could lead to aggravated damages.
Importantly, the Court clarified that a finding of bad faith on the employer’s part does not necessarily require explicit dishonesty regarding the reason for the termination. Instead, a lack of transparency or directness can be sufficient to establish bad faith. Additionally, the Krmpotic decision emphasized that employees who experience mental distress due to an insensitive or deceptive termination process can seek aggravated damages, even without formal medical or psychological evidence. In other words, employees who suffer mental distress because of how they were terminated may have grounds to seek aggravated damages, even without medical or psychological evidence.
This case highlights the importance of seeking legal advice from an experienced wrongful dismissal lawyer if you believe your termination was mishandled or unfair. An employment lawyer in Toronto can review your employment contractand assess whether you are entitled to a severance package review or if you should pursue aggravated damages.
The decision in Krmpotic affirms and extends the current interpretation of an employer’s duty to act in good faith throughout the process of terminating an employee. The ruling emphasizes that employers should avoid being “untruthful, misleading or unduly insensitive” when dismissing employees.
A termination of employment is a difficult and confusing time, especially when it comes to reviewing a severance package, negotiating a severance package, or understanding the impact on an employees’ rights when it comes to changing an employment contract. Therefore, in a wrongful termination of employment, it is important for employees to consult with an employment lawyer for a severance package review to understand the impact of wrongful dismissal on pension plans. If you are an employer or employee needing to speak with an experienced Ontario wrongful dismissal lawyer to discuss your options and next steps on how to deal with workplace issues, call Bune Law, employment law firm in Toronto. You will review and get guidance on your severance package before you agree to sign any termination documents, and help ensure that your severance package is fair and reasonable.