The Supreme Court of Canada’s decision in Honda Canada Inc. v. Keays (“Honda”) suggested that awards against employers for bad faith in the handling of an employee’s termination would become much less common. However, it is clear from two BC recent decisions that the Courts are still struggling with identifying the circumstances in which such awards are merited. In the first case, Kelowna Flightcraft Air Charter Ltd. v. Buchanan (“Kelowna Flightcraft”), the Court, on appeal, found that the employer’s conduct warranted an award of $8,500 in bad faith damages. In the second decision, Beggs v. Westport Foods Ltd. (“Beggs”), the Court of Appeal overturned a bad faith damage award of $20,000 made at trial.

When Honda was first released in 2008, the initial assessment of the decision was that it was a favourable one to employers. The Court’s reasons for rejecting an award of bad faith damages appeared to significantly limit the circumstances in which an employee might be entitled to “bad faith” damages arising from an employer’s conduct in the termination of an employee. Rather than punishing the employer for its conduct, the Supreme Court of Canada held that the focus in deciding whether to make an award of “bad faith” damages should be on the injury suffered by the employee:

Thus, if the employee can prove that the manner of dismissal caused mental distress that was in contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflect the actual damages.

The Court also confirmed that it was not the mere fact of termination that would enable an employee to claim for “bad faith” damages, as most terminations are likely to be upsetting to the dismissed employee. The Court held that it was the manner of the termination that gave rise to a bad claim – the employer must have acted in a manner that was “unfair or is in bad faith by being, for example, untruthful, misleading or unduly insensitive“.

Although the Court ultimately reached different conclusions on whether the employer’s conduct in dealing with the employee constituted bad faith in each of Kelowna Flightcraft and Beggs, the two cases do provide some useful insight into the factors that the Court will consider in determining an employer’s conduct reaches the level of bad faith:

• The Court will look carefully at the nature of the relationship between the employer and the employee. If there has been no indication of a problem or an issue with an employee who has worked for the employer for several years, escorting the employee from the premises on termination may be found to be evidence the employer was unduly insensitive.
• Changing the manner in which an employee’s performance and salary are reviewed may be viewed as evidence of bad faith, particularly when the employer’s practices change without any explanation to the employee who had otherwise received positive reviews.
• Making equivocal offers to return an employee to work will not be considered sufficient evidence of a genuine intention to return an employee to work.
• Terminating an employee just before the payment of a bonus or some other benefit that they would have otherwise been entitled may be considered bad faith.
• Expecting the employee who is to be terminated to train his replacement may be held against the employer if the employee was not previously involved in a training role and does not know he is going to be terminated.
• In both cases, the failure to provide a reference letter was noted in the decision. Although there is no legal requirement that an employer must provide a reference letter, the failure to provide one may provide further ammunition to a court unhappy with the employer’s other termination related conduct.

Kelowna Flightcraft Air Charter Ltd. v. Buchanan

In April 2007, Mr. Buchanan was terminated without cause after just over 3 years’ employment with Kelowna Flightcraft as a cost revenue accountant. On termination, Mr. Buchanan was advised that he was being laid off due to a restructuring of the Accounting Department. In addition to being advised that he would receive 16 days’ wages in severance, Mr. Buchanan was required to hand in his parking and security passes and was escorted off the premises. About a month after Mr. Buchanan’s dismissal, Kelowna Flightcraft issued bonuses to eligible full-time employees of approximately $2,700, net of taxes.

Mr. Buchanan commenced an action in Small Claims Court for wrongful dismissal. The Court concluded that Mr. Buchanan should have received 1 month’s notice of termination and was entitled to receive the difference in wages, vacation pay and benefits from that already received on termination. The trial judge also awarded Mr. Buchanan a further $8,500 as aggravated or punitive damages because of the employer’s conduct with respect to his termination. In that regard, the trial judge held that Mr. Buchanan was entitled to the award because:

… of the totality of treatment he received. In the year before termination his performance reviews stopped; he was denied, without explanation, scheduled pay raises. Although he was an employee with no supervisory role Mr. Buchanan was asked to train a new employee through the probation period, after which the employee was kept on by Flightcraft. His termination deprived him of chance for his yearly bonus, for which he would have qualified had he been kept on. His dismissal, because of the corporate reorganization, was carried out as if he was dismissed for just cause, and being escorted off company property was degrading. Finally he was unable to get a reference from Kelowna Flightcraft.

Kelowna Flightcraft unsuccessfully appealed the decision to the BC Supreme Court. On appeal, the judge’s first task was to determine whether the damages awarded to Mr. Buchanan were “punitive” damages (which are awarded for “wrongful acts that are so malicious and outrageous they are deserving of punishment on their own”) or “aggravated” damages (which are “compensatory damages flowing from the manner in which the employment is terminated“). The appeal judge concluded that the damages awarded by the trial court were compensatory in nature and therefore “aggravated” damages. This is because they were awarded to compensate for the unfair behaviour of the employer that caused Mr. Buchanan mental distress and that distress should have been within the reasonable contemplation of the parties. In upholding the decision to award aggravated damages, the appeal judge stated that the courts have “recognized that an employee’s actual termination may be part of a larger pattern of conduct” and that the employer’s conduct, both pre– and post-termination, may be relevant to the issue of bad faith in the manner of an employee’s dismissal. The appeal judge held that the factors identified by the trial judge indicated an insensitivity and a lack of candour on the employer’s part.

With respect to the nature of the mental distress suffered by Mr. Buchanan, the appeal judge noted that the trial judge had accepted Mr. Buchanan’s evidence regarding the consequences that flowed from his dismissal, including the end of Mr. Buchanan’s marriage. The appeal judge reiterated that, in determining whether damages should be awarded, the court must look at the manner of the termination, not simply the fact of the termination.

In challenging the award of “bad faith” damages on appeal, the employer argued that the conduct identified by the trial judge was not as severe or significant as that considered in other available decisions of the court. The appeal judge held that the court’s role in assessing bad faith damages was not simply to compare the facts in the case before the court with previously decided cases but also to consider the impugned conduct in the context of the particular employment relationship before the court. In that regard, the court held:

A variety of factors, including such things as the size of the enterprise and the nature of the community in which it operates, may influence how the employer should conduct itself in dismissing an employee.

Beggs v. Westport Foods Ltd.

In this case, the employer’s conduct leading up to and in respect of the termination of the employee resulted in an award of $20,000 for compensatory damages at trial. However, in an appeal released in February 2011, the Court of Appeal overturned the award, finding that there was not evidence that the employer had acted in bad faith or dealt unfairly with its employee.

Ms. Beggs work as a clerk at one of the defendant’s grocery stores and had been employed there for 10 years. In February 2009, Ms. Beggs’ home was destroyed by a fire. On the day after the fire, Ms. Beggs contacted her supervisor to advise him of the fire, that she would not be working that day, and that she did not know when she would return to work. In the month after the fire, there was no contact between Ms. Beggs and her employer, as Ms. Beggs focused on re-establishing her home. After the fire, Ms. Beggs’ phone was disconnected for approximately a week. Unfortunately, it was during this period that the employer unsuccessfully tried to contact Ms. Beggs by phone on two occasions to see what her plans were with respect to a return to work. In mid March 2009, having heard nothing further from Ms. Beggs since the day after the fire, the employer prepared a record of employment that indicated that Ms. Beggs had quit but did not forward a copy of the document to Ms. Beggs.

In early April 2009, Ms. Beggs was diagnosed with depression and her physician issued her a note advising that she should remain off work until the end of May 2009. During the course of applying for disability coverage through Employment Insurance, Ms. Beggs learned that her employer had issued an ROE in March 2009 that stated that she had quit her employment. Shortly thereafter, Ms. Beggs retained a lawyer who contacted the defendant, advising that Ms. Beggs had not quit and making a severance offer. The defendant employer maintained that Ms. Beggs had quit. Communications continued between Ms. Beggs’ lawyer and the defendant regarding the dispute continued for several months thereafter. The defendant ultimately offered Ms. Beggs to allow her to return to work; the defendant’s offer stated that it would “advise her regarding her work schedule and her employer’s expectations regarding her job.” Ms. Beggs declined to do so and instead started a lawsuit for wrongful dismissed.

At trial, the court concluded that Ms. Beggs was entitled to 11 months’ notice of termination and awarded her severance based on that period. The trial judge also found that Ms. Beggs was also entitled to an award of compensatory damages related to the manner of her dismissal in the amount of $20,000. The trial judge based her decision to make the “bad faith” damage award on the following factors:

• Ms. Beggs had been a 10 year senior employee who was well-regarded and had a good employment record.
• Ms. Beggs had called her employer on the day following the termination to advise that she would not be coming into work and that she did not know when she would be able to do so.
• Ms. Beggs had been off work in the past on an indeterminate leave due to a shoulder injury, with no idea that she would be terminated.
• Ms. Beggs gave no indication that she wanted to quit work.
• The letters from the defendant’s legal counsel disputed her medical condition and threatened a counterclaim if she began litigation.
• The defendant’s offer to allow her to return the work gave no indication as the basis she would return to work (such as the days and hours of work, the pay, the nature of the position and other terms of employment) and was held to be “guarded and ambivalent.“
• The defendant made no effort to apologize to Ms. Beggs once it was made more fully aware of her medical situation.
• The defendant maintained its position that Ms. Beggs had quit, jeopardizing Ms. Beggs’ EI benefits, despite the denial of such an intention by Ms. Beggs’ lawyer.
• The defendant made no genuine effort to try to get in touch with Ms. Beggs, despite being aware of the fire and Ms. Beggs’ emotional state in the call immediately following the fire.
• The defendant appeared not to have put its mind to Ms. Beggs’ situation and her circumstances.

Although the Court of Appeal did not touch the severance award, the Court found that the award of $20,000 for “bad faith” was not warranted. In setting the award aside, the Court noted that “generally, an implied term of an employment contract is that an employer will act in good faith in the manner of dismissal” and that the type of conduct that will may attract a “bad faith” award includes “attacking the employee’s reputation by declarations of made at the time of dismissal, misrepresentation regarding the reason for the decision, or dismissal meant to deprive the employee of a pension benefit or other right, permanent status for instance.”

In assessing the employer’s conduct and finding bad faith, the Court found that the trial judge relied solely on Ms. Beggs’ evidence and ignored the fact that the employer, at the time it issued the record of employment, had no knowledge as to why Ms. Beggs had not returned to work, something the Court attributed to Ms. Beggs herself: “It was only because of [Ms. Begg’s] lack of explanation for her absence that the ROE was issued indicating that [she] had quit.” In the absence of evidence to indicate that the employer had intentionally issued an incorrect ROE, the Court held that the employer did not act in bad faith.

The Court of Appeal also noted that the medical evidence tendered by Ms. Beggs failed to establish a causal link between her depression and the manner in which she was dismissed. Rather, the medical evidence demonstrated distress over the loss of her home and her job, but that the distress was no greater than one might typically expect from the loss of a job.

Conclusion

Based on the different outcomes reached by the Court in each of the Kelowna Flightcraft and Beggs cases, we can expect to see more decisions as the Courts continue to grapple with the concept of bad faith as it applies to employee terminations. For employers, the message from these two decisions is that ‘bad faith’ damages or damages arising from the manner in which employee are terminated are still being awarded, and on factual circumstances where, based on the Honda v Keyes decision, we would not have thought bad faith damages applied. Thus, employers should continue to exercise caution in how they treat employees who are terminated with or without just cause.