Written on behalf of Peter McSherry

When an employer decides to terminate one of its employees, there are certain legal standards which must be adhered to throughout the process. For example, in most circumstances, any departing employee must be paid severance and termination pay in accordance with the Employment Standards Act, and an employee must be provided with a reason to substantiate their termination. Employers are also obliged to act in good faith in its dismissal of any employee, just as both employee and employer are expected to carry out the terms of employment in good faith. Failure to act in good faith throughout the process of termination may have serious consequences for any employer, as exemplified by the recent Ontario Court of Appeal decision in Krmpotic v Thunder Bay Electronics Limited.

Employee Terminated Upon Return From Medical Leave

The case of Krmpotic v Thunder Bay Electronics Limited involved the plaintiff employee (“DK”) , who began working for Thunder Bay Electronics Limited (“TBEL”) as a carpenter in their maintenance department in 1987. Within 18 months of his hiring, DK was promoted to the role of Building Maintenance Supervisor, a role he maintained until the end of his employment. Although DK’s role evolved and came to include various duties over the course of his tenure with the company, there was never any employment contract between the parties that reflected the terms of DK’s employment.

In the spring of 2016, after having worked for TBEL for nearly 30 years, DK needed to take medical leave in order to enable him to undergo back surgery, which was necessitated by his years of work for TBEL (he had suffered injury as a result of multiple workplace accidents that occurred over the course of his tenure with TBEL). Immediately upon his return from medical leave, on June 13, 2016, TBEL called DK into a meeting wherein they advised that his employment was being terminated, for financial reasons. However, the employer representative present at this meeting, Mr. Caron, refused to provide any financial statements to substantiate this assertion. Moreover, Mr. Caron had called the meeting with DK only two hours after his return from medical leave. As a result, TBEL terminated DK’s employment without notice or cause. He was 59 years old at the time of his termination, and earned an annual salary of approximately $73,000 per year.

While TBEL offered a severance package of 16 months’ salary at the time of his termination, and asked him to sign a Memorandum of Settlement and Release, DK declined and commenced an action for wrongful termination. In addition to seeking damages for wrongful termination, he also claimed amounts for mental distress and aggravated damages.

Employer’s Bad Faith Behaviour Results in Moral Damage Award

In the trial judgment for this case, the court found that DK had indeed been wrongfully dismissed from his employment, in compensation for which he was awarded 24 months’ reasonable notice damages. In addition, the court concluded that DK was entitled to moral damages of $50,000 on grounds that “the manner in which the appellants terminated Mr. Krmpotic’s employment was ‘the antithesis of an employer’s duty’ to be candid, reasonable, honest and forthright, and to ‘refrain from engaging in conduct that is unfair or in bad faith by being untruthful, misleading or unduly insensitive’”. TBEL appealed, amongst other things, the award of moral damages.

Court Explains the Legal Principles Applicable to Awards of Moral Damages

As noted by the Court of Appeal, “the duty of honest performance applies to all contracts, including employment contracts”, and this duty includes an employer’s obligation to act in good faith during the course of dismissing someone from their employment. Moreover, “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.”

The court noted that the “normal distress and hurt feelings” that result from having been terminated from one’s employment are not compensable, rather, “aggravated damages are available where the employer engaged 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”. In other words, “aggravated damages compensate an employee for the additional harm suffered because of the employer’s’ conduct.” The mental distress from which a person may suffer constitutes a broad spectrum, at one end of which are people who suffer from typical, expected unhappiness and dissatisfaction associated with having lost their job, and at the other end of which lie people who suffer from diagnosable mental psychological conditions as a direct result of the manner of dismissal. Between those two points exists “a spectrum along which the manner of dismissal has caused mental distress that does not reach the level of a diagnosable psychological injury”.

Court of Appeal Upholds Award of Moral Damages

TBEL contended that it was inappropriate to have awarded DK moral damages because “the trial judge could award aggravated damages only if there was evidence of both mental distress – that is, distress beyond the normal distress and hurt feelings resulting from dismissal – and that the mental distress was caused by the manner caused of dismissal. Accordingly, they contend, not only did the trial judge err in considering mental distress and the manner of dismissal separately, but also that, once he rejected the respondent’s claim for damages for mental distress, the trial judge was precluded in law from making an award for aggravated damages”.

The Court of Appeal roundly rejected these contentions, which they found “reflect[ed] an unduly narrow view of the employer’s duty of good faith during the termination process and the meaning of mental distress in that context”.

In this case, although DK had not been diagnosed with any psychological condition as a result of the termination of his employment with TBEL, he had established that TBEL’s conduct during the course of termination amounted to a breach of their duty of honest performance and had also established that he had suffered harm beyond the normal distress and hurt feelings that result from dismissal. In these circumstances, the trial judge was entitled to find that Mr. Caron breached the duty of good faith in the manner of his dismissal of DK in that he:

• claimed that DK’s dismissal was attributable to financial reasons yet refused to produce documents to substantiate that claim;
• was neither candid nor forthright in the termination meeting with DK, and;
• DK was terminated within 2 hours of his return from medical leave for back surgery.

In these circumstances, the appellate court found no reason to interfere with the lower court’s decision, and the award to DK was allowed to stand.

Contact Guelph Employment Lawyer Peter A. McSherry for Skilled Representation in Wrongful Dismissal Claims

Whether you are seeking damages for wrongful or constructive dismissal, you hope to clarify the terms of your employment, seek to better understand your entitlement to human rights or disability benefits, or you require assistance to determine your status as an employee or an independent contractor, the trusted employment law team at Peter A. McSherry Employment Lawyer is here to help. From our office in Guelph, we provide each one of our clients with comprehensive legal advice and skilled representation in all facets of employment law matters. Contact us today online or by telephone at 519-821-5465 to schedule a confidential consultation and learn how we can assist you.