No more bad faith? SCC ruling catastrophic for employees

Date: 2008
Author: Daniel A. Lublin
Publication: Metro
It is one of the most important concepts in workplace law – or at least it was.
Since 1997, When the Supreme Court presented Canadian workplaces with the Wallace decision, employers have had an obligation to play nice and behave well at the time of dismissal, or face paying additional “bad faith” damages to a former employee.  But following the Court’s most recent landmark decision, employers now go from strength to strength.
Before Wallace, employers could play legal hardball with relative impunity.  Trumped-up allegations of misconduct, bogus reasons for dismissal, malicious references or dragging out litigation for years based on frivolous defences may have been improper conduct, but seldom was there was an incentive to stop it.
In Wallace, the Court found the defendant’s conduct in handling a dismissal was so cruel that normal employment law damages, which indemnify lost salary only, would not adequately compensate the plaintiff for his loss.  With the stroke of a pen, the duty of good faith then became the law of land.  As the Court reasoned, employees were particularly vulnerable at the time of dismissal and in need of additional protection.  Employers listened.  If they breached this duty, they would pay additional “bad faith damages”, above and beyond the employee’s normal severance.
Then, in 2005, Kevin Keays, an assembly line worker at the Honda Plant in Alliston, Ontario, was fired in the midst of a battle over Honda’s sceptical efforts to accommodate his chronic fatigue syndrome.  When Keays refused to meet with the doctor selected by Honda to assess whether he was truly ill, it fired him.  Concluding Keays was dismissed, in part, because he hired a lawyer and to avoid accommodating his disability, an Ontario judge granted him the largest punitive damages award in Canadian employment law history.  In addition, Keays was awarded 9 months pay for bad faith damages, on top of his 15 months of wrongful dismissal damages.
Unsurprisingly, Honda appealed the case all the way to the Supreme Court, arguing its conduct in managing a disabled employee was neither high-handed nor a blatant disregard for his rights.  Seven of the nine judges who heard the case agreed: “Honda’s conduct in dismissing Keays was in no way an egregious display of bad faith justifying an award of damages for conduct in dismissal.”
The Court decided to make an impact: redefining workplace law, it ruled that damages for the manner of dismissal should no longer be assessed based on the potential for harm.  Rather, actual economic or moral losses would have to be demonstrated instead.
What does this decision mean for Canadian workplaces? 

  • Employees can no longer add zeros to their lawsuits based solely on allegations of bad faith.  Evidence of actual losses, such as longer periods of unemployment, decreased employment prospects or cogent medical evidence of mental distress is required before these claims will be taken seriously.
  • Employers, who had feared financial sanction for mishandling terminations or dealing with absent or disabled employees, need no longer be so cautious.
  • punitive damages, which were alleged by employees as a matter of course, will only be awarded in the most exceptional circumstances.