Williams HR Law LLP

BAD FAITH IN THE MANNER OF DISMISSAL CAN COST EMPLOYERS MORE THAN THEY BARGAINED FOR

October 5, 2022

In Pohl v Hudson’s Bay Company [Pohl], the Ontario Superior Court of Justice (“ONSC”) awarded the employee $55,000 in moral and punitive damages, in addition to a 24-month notice period, as a result of the employer’s bad faith in the manner of dismissal. This decision serves as a reminder that employers owe their employees a duty of good faith and fair dealing which, if breached, can expose them to liability beyond pay in lieu of reasonable notice.

Background

The employee spent his entire working life with the employer. After a series of promotions, he held the position of Sales Manager with approximately 30 reports. However, during the COVID pandemic, and after 28 years of loyal service, his employment was terminated without cause and he was immediately walked out the door.

Reasonable Notice Period

The employer did not have a written employment contract limiting the employee’s termination entitlements to the minimums set out in the Employment Standards Act, 2000 [ESA].

Having regard to the employee’s length of service of 28 years, age of 53 years old, character of employment as a Sales Manager with significant responsibilities, and the scarcity of suitable alternative employment (which was exacerbated by the pandemic), the ONSC awarded the employee a reasonable notice period of 24 months.

Mitigation

The employer argued that the notice period should be reduced by a period of 6 to 10 months because the employee did not take reasonable steps to mitigate his damages, despite the fact that he had applied to 142 jobs. In support of its position, the employer submitted that when it dismissed the employee, it offered him “continued employment” as an Associate Lead, which the employee refused. 

The ONSC did not accept this submission because the offer was for significantly less pay, potentially fewer hours, and would require the employee to forego his substantial common law entitlements in favour of his minimum entitlements under the ESA. The ONSC noted that the employer’s callous manner of dismissal caused the employee to experience mental health issues requiring counselling, which made it more difficult for him to commence a job search. The Court also took into account that the dismissal occurred during the COVID pandemic, which negatively impacted the retail industry in which the employee had built his career. In the circumstances, and despite the fact that the employee had waited 6 months before starting his job search, the ONSC found that the employee did not fail to mitigate his damages. 

Moral and Punitive Damages

The ONSC awarded the employee $45,000 in moral damages and $10,000 in punitive damages due to the employer’s bad faith and high-handedness in the manner of dismissal. 

The ONSC found that the award of moral damages was justified due to the following factors: 

  • the employer’s decision to walk the employee out the door was unduly insensitive in light of the employee’s 28 years of loyal service; 
  • the employer’s offer of a Sales Associate role was misleading and carefully calculated to limit the employee’s rights on termination;
  • the employer did not pay out the wages it owed to the employee in a lump sum within the required timeframe, in breach of the ESA, despite repeated demands by the employee’s counsel; and
  • the employer failed to issue a timely and correct record of employment. 

The latter two factors noted above were also grounds for the ONSC’s award of punitive damages.

Takeaways for Employers

The Pohl decision highlights some examples of bad faith conduct that may give rise to additional damages beyond pay in lieu of reasonable notice. Some of the key takeaways for employers are as follows:

  1. Enter into Written Employment Contracts. Employers should ensure that they have written employment contracts with enforceable termination clauses in place. Otherwise, they will be liable to provide employees with their robust termination entitlements under the common law, rather than their minimum entitlements under the ESA.
  2. Conduct Terminations with Appropriate Sensitivity. Employers should be cognizant that employees may be extremely vulnerable at the time of dismissal. As such, employers should ensure any dismissals are carried out in a manner that respects the employee’s dignity and responds to their individual circumstances.
  3. Offer Continued Employment in Good Faith. If offering an employee continued employment, the offer should be made in good faith and contain terms and conditions similar to those under which the employee previously worked. The duty to mitigate does not require employees to accept offers of continued employment with a former employer where the salary offered is not the same, where the working conditions are substantially different or the work demeaning, or where the personal relationships in the workplace are acrimonious. Where the offer includes a substantial change to a term or condition of employment, such as the relinquishing of common law termination entitlements, it should be accompanied by substantial consideration
  4. Comply with Statutory Termination-Related Obligations. Employers should ensure they comply with their statutory termination-related obligations. This includes paying out ESA entitlements, and issuing an accurate record of employment, on time. The failure to perform these obligations may exposure employers to significant moral and punitive damages.

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