The Duty To Exercise Good Faith When Terminating an Employee

Written on behalf of Peter McSherry

While employers are entitled to terminate employees at any time, they must treat employees fairly when doing so. When terminating employees without cause, employers must provide reasonable notice or pay in lieu of notice. This notice period provides employees with financial stability and time to secure alternate employment. Employees may also be entitled to severance pay.

In addition, employers have a duty to exercise good faith in the manner of dismissal and cannot engage in untruthful or misleading conduct. This article looks at this duty, along with a recent decision of the Ontario Superior Court of Justice, in which an employee terminated without cause sought moral or exemplary damages for breach of the duty.

There is an obligation of good faith in the manner of dismissal of an employee

The Supreme Court of Canada confirmed in Matthews v Ocean Nutrition Canada Ltd. that the duty of honest performance applies to employment contracts. This means that the parties must not lie to or otherwise knowingly mislead the other about matters directly linked to the performance of the contract.

As part of this, there is an obligation of good faith in the manner of dismissal of an employee. According to the Ontario Court of Appeal in Doyle v Zochem Inc., an employer cannot engage in conduct that is “unfair or is in bad faith by being…untruthful, misleading or unduly insensitive”.

If an employee successfully argues in a wrongful dismissal action that the employer has engaged in such conduct, the court may award the employee moral or exemplary damages. Courts are permitted to examine a period of conduct that is not confined to the exact moment of termination itself. In other words, pre- and post-termination conduct may be considered in an award for moral damages if it is a component of the dismissal.

Defendant employer sells mine and implies that employer will be employed by the buyer

In Gascon v Newmont Goldcorp, the plaintiff employee was employed as the general manager of the defendant employer’s Red Lake Mine. He was the most senior employee on-site and had responsibility for a workforce of over 900 employees plus approximately 200 contractors.

In August 2019, the vice president of the employer told the plaintiff that it was entertaining the sale of the mine to potential purchasers. In September, he told the plaintiff that he would be “going with” the mine when it was sold.

In November, the vice president told the plaintiff that the employer had entered into an agreement to sell the mine, with an expected closing date of March 31, 2020. A couple of days later, the plaintiff received two emails from senior executives of the employer wishing him future success and thanking him for his service.

Plaintiff was terminated on the sale completion date

After asking about his employment status in November, the plaintiff claimed that he was again told that he would “go with” the mine when sold.

The plaintiff did not raise the matter again until March 2020. At this time, he asked the vice president why he had not received his annual long-term incentive compensation, which was normally issued in late February or early March. The vice president responded that the buyer had a plan to replace such compensation soon after closing.

In mid-March, the employer learned that the buyer would not be making an offer of employment to the plaintiff. On March 30, the plaintiff was provided with a formal notice of termination which included a “without prejudice” resolution proposal.

The plaintiff initiated a wrongful dismissal action against the employer seeking, amongst other things, moral or exemplary damages because of the manner of his termination.

Court finds plaintiff was left to speculate on his future employment

Justice Fregeau found that, as of November 2019, the plaintiff understood that his employer anticipated that the buyer would hire him after completion but that the employer had no control over this. The plaintiff also understood that his employment with the employer was likely to terminate upon the sale of the mine but this was not clearly expressed to him.

For the next four months, the plaintiff was left to speculate about his future employment with the employer while working diligently to facilitate the sale of the mine. The vice president never clarified the employer’s intention regarding his future employment if the buyer did not retain him.

Employee awarded $500,000 in moral and exemplary damages for misleading conduct by employer

Justice Fregeau said:

However, Mr. Thornton [the vice president] knew as early as November 2019 that Mr. Gascon [the employee], Newmont Goldcorp’s most senior employee at the Red Lake Mine and an instrumental party in the completion of the $375 million sale of the mine, was concerned about his future employment.  Mr. Thornton was obviously not able to provide Mr. Gascon with any guarantees.  The duty of honest performance … simply required Mr. Thornton to tell Mr. Gascon the truth as it was known to Mr. Thornton in November 2019 and as the sale transaction proceeded into 2020.

His Honour decided that the vice president must have known as early as February 2020 that the employer would terminate the plaintiff if the buyer did not hire him because he cited this as the rationale for the plaintiff not receiving his long-term incentive compensation payment. Not advising the plaintiff of this was misleading.

As a result, Justice Fregeau found that the employer’s conduct in the months before termination was untruthful, misleading and unduly insensitive. His Honour awarded the plaintiff moral or exemplary damages in the amount of $50,000.

Contact Peter A. McSherry Employment Lawyer in Guelph for Guidance on Employee Termination

Guelph employment lawyer Peter A. McSherry understands the stress faced by employees who have been wrongfully dismissed or constructively dismissed from their employment. He fights for the rights of employees and helps them recover compensation after an unlawful dismissal or severance process. Our dynamic team provides clients with the resources to stand up to discriminatory corporate practices, giants of industry, and other employers who take advantage of their employees. To ensure your case is handled fairly and efficiently, contact Peter A. McSherry Employment Lawyer by phone at 519-821-5465 or reach out online.