Canada: Employers Owe Duty of Good Faith When Dismissing Employees

The Ontario Superior Court of Justice awarded 55,000 Canadian dollars—approximately $40,302—in moral and punitive damages in September 2022 to a former sales manager at a Canadian retail business.

In the case Pohl v. Hudson's Bay Co., an employee had worked full time at Hudson's Bay Co. (HBC) for 28 years when he was terminated without cause. HBC eliminated his position because of economic conditions caused by the COVID-19 pandemic—not because of conduct. Management chose to escort the employee off the premises immediately upon termination, which he said humiliated him.

"This case is a wake-up call to employers in Canada about how they terminate their employees," said Emily Siu, an attorney with SpringLaw in Toronto. HBC "is a large, sophisticated employer; they're not a mom-and-pop shop."

HBC then offered the employee a lower-paying position as a sales associate with no guarantee of full-time hours, noted Andrew Monkhouse, a lawyer with Monkhouse Law in Toronto. This effectively would have been a demotion.

"The company tried to trick him into accepting the offer so that he would no longer be able to claim his common-law entitlements," Monkhouse said. "If he accepted the offer, he would have lost all 28 years of his past service."

The employee declined the offer. He then sued HBC for wrongful dismissal.

Duty of Good Faith

The court found HBC breached its duty of good faith. Siu explained that the duty of good faith requires employers to respond to terminations in a delicate and reasonable manner.

"This court decision highlights the equal importance of good faith and sensitivity during and after a termination and the significant ramifications of failing to meet these standards," Siu said. "Employers ought to recognize the distress, vulnerability and humiliation often experienced by employees when being terminated." 

Most employers do not set out to mistreat their staff or otherwise act in bad faith but are simply uneducated about the process of termination, Howard Levitt, an attorney with Levitt Sheikh in Toronto, wrote in the Financial Post.

"However, courts have historically shown zero to little tolerance for anything less than ideal compliance with employment standards legislation upon termination," Levitt added. "They have found a wide range of conduct to amount to a breach of the duty of good faith."

Moral and Punitive Damages

In the case of an employee's wrongful termination, moral and punitive damages have distinct purposes, Monkhouse said.

"Moral damages compensate an employee for their employer's bad faith conduct in the course of the dismissal," he said. "Punitive damages are not compensatory and are instead intended to punish an employer for their conduct." 

The court justified its decision to award the employee moral damages worth CA$45,000. Justice Robert Centa stated the employer's decision to walk the employee out the door of a Toronto store was "unduly insensitive."

"The employee experienced mental distress and hurt feelings beyond that which normally accompanies a dismissal," Siu said.  

HBC further violated Ontario's Employment Standards Act, 2000 by failing to pay the employee his owed wages in a lump sum and by not issuing him a record of employment (ROE) in a timely fashion. Employees in Canada need this document to claim employment insurance (EI) benefits, Monkhouse explained. The ROE—issued two years late—contained inaccuracies and errors.

Centa noted that the court awards punitive damages only in "exceptional cases for malicious, oppressive and high-handed conduct that offends the court's sense of decency and is deserving of punishment." He awarded CA$10,000 to the employee in punitive damages against HBC, Monkhouse said.

Lessons for Employers, HR

Legal experts say employers and human resource professionals can learn several lessons from the HBC case:

• Pay employees any outstanding wages upon termination, including vacation pay.
• Compensate employees with their statutory minimum entitlements—including termination pay, severance pay and vacation pay—in a timely lump sum.
• Continue employees' benefits during the statutory notice period.
• Issue the employees their ROEs within five days of termination.
• Ensure the ROEs contain accurate information that does not misrepresent the reason for the employees' termination.
• Contact Service Canada—the branch of the Canadian government that issues EI benefits—for assistance.
• Specify in a letter of termination that the tasks above will be completed.
• Make alternative job offers in good faith and offer comparable terms of employment when possible.

Monkhouse noted that HR should cultivate a strong relationship with a company's legal department so that they make fewer mistakes with paperwork. This relationship could result in a quicker resolution of employee-related claims.

HR professionals should also set timelines and deadlines for filing severance packages, along with providing employees with an ROE, Siu stated.

"The bottom line is Canadian employers always need to proceed slowly, with caution and with a hefty paper trail to back up the reasons for the termination," said Lisa Stam, an attorney with SpringLaw in Toronto.

Catherine Skrzypinski is a freelance writer based in Vancouver, British Columbia.