In Canada, employment relationships are typically governed by contract law and employment legislation. A key aspect of this relationship is how employment is terminated. While employers have the legal right to terminate employees under certain conditions, they must do so fairly and within the boundaries of Canadian law. One of the more contentious and complex areas of termination is a concept known as bad faith discharge.
This blog post explores what bad faith discharge means in the Canadian employment law context, the legal standards surrounding it, and what recourse is available to employees who believe they have been unfairly treated.
Understanding Employment Termination in Canada
To understand bad faith discharge, it’s essential to first grasp the general framework for employment termination in Canada. Canadian employers may end an employment relationship either with cause or without cause.
- Termination with Cause: This occurs when an employer has a valid, serious reason to dismiss an employee without notice or severance pay. Examples might include theft, fraud, gross misconduct, or serious insubordination.
- Termination without Cause: Employers can terminate employment for business-related reasons, like restructuring or poor performance, as long as the employee receives reasonable notice or compensation in lieu of notice.
However, even when an employer terminates an employee “without cause,” they are expected to act in good faith and fairly during the dismissal process.
Defining Bad Faith Discharge
Bad faith discharge, in the Canadian legal context, refers to an employer’s termination of an employee in a way that is dishonest, misleading, or insensitive. It does not necessarily mean that the dismissal itself is unjustified—it’s the manner in which the dismissal is carried out that comes under scrutiny.
Bad faith actions can include:
- Misrepresenting the reason for dismissal
- Terminating an employee to avoid paying bonuses or benefits
- Making defamatory statements about the employee during or after termination
- Firing an employee in a publicly humiliating way
- Failing to provide appropriate support during a termination, such as helping the employee understand their rights or entitlements
The concept stems from the duty of good faith and fair dealing, which the Supreme Court of Canada recognized in the landmark case Wallace v. United Grain Growers Ltd., 1997. This duty obliges employers to act honestly and fairly in the manner of termination.
Legal Evolution: From Wallace to Honda
The development of bad faith discharge in Canadian law was significantly influenced by two key cases:
- Wallace v. United Grain Growers Ltd. (1997): This case established that employees are entitled to damages when employers act in bad faith during the termination process. In this case, the Supreme Court ruled that employers must not mislead employees or treat them callously during termination.
- Honda Canada Inc. v. Keays (2008): This case modified the application of damages, clarifying that damages for bad faith discharge must be linked to actual harm, such as mental distress, and must be proven with evidence. The court emphasized that bad faith conduct must go beyond normal business decisions.
These cases have defined the boundaries for employee protection against emotionally and psychologically damaging termination practices.
Examples of Bad Faith Discharge
Here are some examples of what may constitute bad faith discharge in Canada:
- Deceptive Motives: Terminating an employee under false pretenses, such as blaming them for poor performance when the real reason is cost-cutting.
- Public Embarrassment: Firing an employee in front of colleagues or through a company-wide memo, damaging their reputation and self-worth.
- Failure to Accommodate: Dismissing an employee who is on medical leave without conducting proper inquiries or offering reasonable accommodations.
- Withholding Information: Refusing to explain the terms of severance or not informing the employee about benefits they’re entitled to receive.
Each of these scenarios highlights conduct that could harm the employee’s dignity, mental health, or professional standing.
Damages for Bad Faith Discharge
If a court determines that a termination was conducted in bad faith, the employee may be awarded aggravated damages. These are separate from the compensation owed in lieu of notice. Aggravated damages aim to compensate the employee for emotional distress caused by the employer’s conduct during termination.
In particularly egregious cases, punitive damages may also be awarded to penalize the employer and deter similar behavior in the future.
To be successful in a bad faith discharge claim, an employee must prove:
- The employer acted in a manner that was unfair, dishonest, or unduly insensitive
- The employee suffered actual harm, such as psychological stress or reputational damage
- There is a clear causal link between the employer’s conduct and the harm experienced
Medical records, witness testimony, and expert evaluations are often used to support such claims.
Employee Rights and Employer Responsibilities
Canadian employees are entitled to be treated fairly and respectfully during all stages of employment, including termination. Employers are expected to:
- Communicate termination decisions clearly and respectfully
- Provide valid, non-deceptive reasons for the dismissal
- Offer appropriate severance packages or notice
- Avoid defamatory statements or reputational harm
- Respect privacy and dignity throughout the process
Failure to adhere to these standards can result in legal liability for bad faith conduct.
Role of Legal Support
Navigating a termination—especially one potentially involving bad faith—can be emotionally and legally complex. Consulting a bad faith discharge lawyer can help affected employees understand their rights and determine if they are entitled to additional compensation.
A lawyer can also assist with:
- Assessing the fairness of the dismissal
- Reviewing severance packages
- Gathering evidence for claims of emotional or reputational harm
- Representing the employee in negotiations or court proceedings
Legal support is often crucial to ensuring that employees receive fair treatment and just compensation after a difficult dismissal.
Final Thoughts
Bad faith discharge is not about the fact of being let go—it’s about how the termination is handled. Canadian employment law seeks to uphold dignity, honesty, and fairness in the employer-employee relationship. Employers who disregard these principles may face legal consequences, including additional damages awarded to affected employees.
For employees, understanding your rights is the first step. If there’s any indication that a termination involved dishonesty, humiliation, or disregard for well-being, it may be more than just an unfortunate situation—it could be grounds for a legal claim. Taking timely legal advice and collecting evidence early on can make all the difference in achieving a fair outcome.
