What Happens if an Employer Acts Unfairly and Commits Bad Faith Wrongful Dismissal in Ontario?

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 experience bad faith wrongful dismissal in Ontario may be may be entitled to damages beyond financial compensation in the form of a severance package that they would otherwise receive.

In this blog post, we 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 bad faith in wrongful dismissal 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 behaviour in the future. In the context of bad faith wrongful dismissal in Ontario, punitive damages may be awarded if the employer acted in an especially malicious, dishonest, or high-handed manner. Courts 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

Based on my experience as a Toronto employment lawyer dealing with various types of workplace disputes, let’s look at some common examples where employers may act in bad faith, triggering these types of additional awards in employment disputes.

In each situation, I was able to leverage the employer’s conduct to strengthen our client’s case (often a wrongful dismissal or constructive dismissal), since it goes beyond the dismissal itself. This distinction really matters, both in litigation and at the negotiating table.

1. Employer Pursuing a Frivolous Counterclaim Without Merit

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 may 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 intolerable working conditions. This is a step that should only be taken with careful guidance from an Ontario employment lawyer, since resigning without proper legal advice can significantly affect your entitlements.

3. Being Unable to Prove Just Cause for Dismissal

A frequent tactic in bad faith wrongful dismissal cases in Ontario is the employer alleging just cause to avoid paying severance entirely. Just cause refers to situations where an employee has engaged in sufficiently serious and wilful misconduct — such as theft or insubordination — that justifies immediate termination without notice or severance pay.

However, if the employer’s allegations of just cause are unsubstantiated or exaggerated, it may constitute bad faith conduct. This issue comes up regularly in my practice as an employment lawyer in Toronto. Employees are handed termination letters citing serious misconduct (such as persistent performance failures, insubordination, or policy violations) when none of those concerns were ever raised with them before termination day. No written warnings. No performance improvement plan. No documented conversations with their manager. In some cases, a positive performance review sits in the file from just a few months earlier and the employee even receiving a bonus.

Alleging just cause without a proper evidentiary foundation is not simply an aggressive litigation position. When the allegations are demonstrably false, or so exaggerated as to be unrecognizable to the employee who lived through the described events, that conduct causes real harm, such as to the employee’s professional reputation, their ability to find new work, and their sense of self after what is already a difficult experience. That harm is compensable.

In cases where the employer’s allegations are proven false or without merit, the employee may be entitled to aggravated or moral damages, and where the employer’s conduct was dishonest or vindictive, punitive damages as well. In severance negotiations, identifying this issue early matters significantly. When a demand letter puts an employer on notice that their just cause position is not only unsupported but has caused documented harm beyond the loss of employment itself, it reframes the negotiation in a way that a straightforward wrongful dismissal claim does not.

4. The Manner of Termination

Ontario courts have consistently recognized that employees are entitled to be treated with basic dignity when they are let go. That standard does not require employers to be warm or generous — it simply requires honesty and decency in how the termination is carried out.

When that standard is not met (when an employee is told they are dismissed for cause without meaningful explanation, and escorted from a building they have worked in for years while colleagues look on), it is not just an uncomfortable memory. It is legally relevant conduct in any bad faith wrongful dismissal claim in Ontario.

Courts have awarded aggravated damages specifically because of how a termination was conducted, separate from whether the dismissal itself was wrongful. An employer who terminates a long-serving employee in a manner designed to minimize cost with no regard for that employee’s dignity has made a legal decision as much as a business one. The circumstances of the termination meeting belong in any severance negotiation where those circumstances were handled poorly, not as background context, but as a legally relevant fact that affects the employer’s exposure.

5. Constructive Dismissal: When the Employer Doesn’t Fire You — They Just Make It Impossible to Stay

Not every wrongful dismissal involves a termination letter. Some of the most serious bad faith wrongful dismissal cases in Ontario involve employees who were never formally dismissed — they were simply made to feel that staying was no longer viable.

The pattern tends to be recognizable in retrospect: a sudden change in reporting structure that strips the employee of meaningful responsibilities; exclusion from meetings and decisions they previously led; a performance improvement plan that materializes without warning after years of satisfactory reviews; public criticism from a manager in settings where it served no constructive purpose. Individually, some of these steps might be defensible. Together, over a sustained period, they may constitute constructive dismissal.

What matters for the purposes of damages beyond the notice period is whether the employer’s conduct was carried out in bad faith, such as whether the evidence suggests the purpose of these changes was to pressure the employee into resigning rather than address any legitimate business concern.

Where that evidence exists, and it sometimes does exist in email records, calendar histories, and performance documentation, the employer’s exposure increases substantially. A constructive dismissal claim with a strong bad faith component is a meaningfully different legal matter than a straightforward constructive dismissal claim, and it tends to be treated that way in negotiations.

6.  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.

It is worth noting that discrimination does not always present itself as an obvious, isolated act. In practice, discriminatory dismissals are often preceded by a pattern of conduct, such as being passed over for opportunities, subjected to comments that reflect bias, or having performance standards applied inconsistently compared to colleagues. That broader pattern is legally relevant and should be documented carefully with the assistance of an employment lawyer.

7. Post-Termination Conduct: When the Employer Keeps Talking

When negotiating a severance package and pursuing a bad faith wrongful dismissal claim in Ontario, I am often forced to remind opposing counsel that their client’s conduct will still be under a microscope of a judge deciding the wrongful case, particularly in light of cases like Gismondi v. Toronto (City of), [2003] ONCA 52143). 

In my experience dealing with employment disputes, this issue quite often tends to surface weeks after termination, when a client learns that their former employer has been in contact with clients, industry contacts, or former colleagues in ways that call their professional integrity into question — sometimes framed as an ongoing internal investigation, sometimes more subtle.

Post-termination conduct of this kind is an area where employers frequently underestimate their exposure. An employee who has already been wrongfully dismissed and then sustains reputational damage through an employer’s unsubstantiated communications has a claim that goes well beyond the notice period. Defamation, aggravated damages for reputational harm, and punitive damages where the conduct appears deliberate are all in play — and that scope needs to be addressed directly in any demand letter or legal proceeding.

Real-Life Example

In wrongful dismissal cases, employers occasionally respond to an employee’s legal claim by filing a counterclaim of their own – one that has no reasonable legal basis. This tactic is more common than employees expect, and it can be genuinely distressing when it happens.

A recent example from my practice illustrates this well. A client received a formal termination letter from a large Canadian employer — clear, unambiguous, signed, and dated. Weeks later, after she retained counsel and asserted her wrongful dismissal rights, the employer pivoted and attempted to reframe the termination as a “frustration of contract”. This concept refers to a legal doctrine that applies in genuinely narrow circumstances, such as when an employee becomes permanently unable to perform their duties through no fault of either party. It does not apply when the employer has already handed the employee a termination letter.

What many employees do not realize is that a counterclaim filed without a reasonable basis (particularly one whose primary function appears to be increasing the cost and stress of litigation rather than seeking genuine legal relief) is itself evidence of bad faith wrongful dismissal conduct in Ontario. It can form part of a broader bad faith claim, contribute to an award of aggravated or moral damages, and in appropriate cases attract punitive damages.

When a counterclaim is brought without a credible legal foundation (particularly in circumstances where the timing suggests its purpose is to pressure an employee into accepting less than they are owed), that conduct is not legally neutral. It can form part of a broader bad faith claim, contribute to an award of aggravated/moral damages, and in appropriate cases attract punitive damages.

In fact, in our case it did just that — strengthened our case to such an extent that it forced the employer to settle on the eve of trial. Why?

Because courts have little patience for counterclaims brought to intimidate rather than resolve a genuine legal dispute. In our case, the employer knew that by the time trial arrived, that tactic would be front and centre before a judge. Settling was the smarter business decision.

Take-Aways

Bad faith wrongful dismissal in Ontario carries consequences that extend well beyond a missed severance payment. Whether your employer manufactured just cause allegations, filed a baseless counterclaim, ignored harassment you reported, or conducted your termination in a manner that stripped you of basic dignity, Ontario employment law provides meaningful legal recourse. Aggravated/moral damages, and in serious cases punitive damages, exist precisely to hold employers accountable for that conduct — and identifying these issues early, ideally before you sign a release, can fundamentally change the outcome of your case.

Conclusion: Holding Employers Accountable for Unfair Dismissals

When employers act in bad faith during wrongful dismissals, the consequences can extend far beyond typical severance pay. Employees have legal recourse to seek aggravated, moral, and punitive damages for serious harm caused by such misconduct. Whether it involves a frivolous counterclaim, workplace harassment, unproven allegations of just cause, or discriminatory behavior, employees who find themselves the victim of bad faith wrongful dismissal in Ontario should consult with an experienced employment lawyer before responding to any offer or signing any release.

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. 

Why Choose Bune Law When You Need an Ontario Employment Lawyer?

• Experience in all areas of workplace law, including wrongful dismissal claims, constructive dismissal claims, severance package reviews, severance package negotiations, discrimination and human rights disputes, and employment contract reviews.
• Proven track record of successfully resolving workplace disputes through negotiation, mediation, and employment litigation.
• Compassionate and personalized approach to each case, ensuring tailored solutions that meet your specific needs.

If you need a Toronto employment lawyer who is committed to delivering strong results and proactive solutions, please contact Bune Law online or by phone today at 647-822-5492.

About the Author

Written by: Sezar Bune, J.D. | Toronto Employment Lawyer

With over 12 years of experience advising employees and employers, Sezar practices in all workplace disputes, including wrongful dismissal, constructive dismissal, severance packages, and employment contracts.