Termination of employment can present significant challenges and stress for both the employer and the employee. Regardless of your role in the process, it’s essential to understand your rights and obligations when it comes to ending an employment relationship.
The duty of honesty in contractual performance, including employment contracts, was established by the Supreme Court of Canada in Bhasin v. Hrynew [1]. This duty requires that parties must not lie or knowingly mislead one another in relation to matters directly connected to the performance of the contract [2]. However, the way in which this duty specifically applies in the context of termination remained ambiguous.
A recent decision by the Ontario Court of Appeal in Krmpotic v. Thunder Bay Electronics Limited (“Krmpotic”) has expanded on this principle of good faith and clarified its applicability in the termination process. Specifically, the court affirmed that employers have a duty to be “candid, reasonable, honest and forthright, and to refrain from engaging in conduct that is unfair or in bad faith by being untruthful, misleading or unduly insensitive” [3].
Background of the Case
Krmpotic involved an employment dispute based on wrongful termination. The plaintiff, (Mr. Krmpotic), worked for the respondent (Thunder Bay Electronics Limited). Mr. Krmpotic worked for the company for 30 years before he was terminated without notice or cause. The termination occurred the day he returned from his medical leave following back surgery. In response, Mr. Krmpotic sued, claiming damages for wrongful dismissal, mental distress and aggravated damages [4].
The trial judge awarded him 24 months’ notice and an additional $50,000 in aggravated damages, finding that the employer’s conduct during the termination process warranted further compensation [5]. Thunder Bay Electronics Limited appealed this ruling.
The Appeal
Thunder Bay Electronics Limited argued that, based on Honda Canada Inc. v. Keays [6], aggravated damages should be awarded “only if there was evidence of both mental distress — that is, distress beyond the normal distress and hurt feelings resulting from dismissal — and that the mental distress was caused by the manner of dismissal” [7]. They submitted that damages for mental distress should not be awarded as there was a lack of medical evidence demonstrating that the company’s conduct during termination directly prompted the mental distress.
However, the Court of Appeal disagreed with the employer’s unduly narrow interpretation of the duty of good faith and mental distress in the termination process and dismissed the appeal [8].
The Court’s Reasoning
The Court determined that the company violated its duty of good faith during the termination process. Initially, the company asserted that the dismissal was due to financial reasons. However, the court concluded that the termination was carried out as a result of the employee’s physical limitations resulting from his recent back injury [9].
As a result, the company was found to have lacked honesty and transparency during termination, violating the duty of good faith. The Court described the termination process as being the opposite of an employer’s duty to be “candid, reasonable, honest, and forthright” [10]. Thus, drawing on Boucher v. Wal-Mart Canada Corp [11], the court affirmed that aggravated damages are appropriate in cases like this, when the employer’s conduct is unfair or amounts to bad faith causing “additional harm” suffered by the employee[12].
Key Takeaways: Employer’s Duty of Good Faith
The ruling in Krmpotic broadens the existing interpretation of an employer’s obligation to act in good faith during termination. The Court clarified that the employee does not need to prove dishonesty during termination. Instead, a lack of candor or forthright conduct can be sufficient in proving a breach of duty.
Additionally, the Court acknowledged that employees who suffer mental distress due to the manner of their termination may be entitled to aggravated damages, despite the absence of medical evidence. It was asserted that in order to assess mental distress and award aggravated damages, a judge must instead consider whether; “(1) the conduct, during the course of termination amounted to a breach of duty of honest performance; and (2), if so, whether the plaintiff suffered harm – beyond the normal distress and hurt feelings arising from dismissal – as a result of that breach” [13].
Whether you’re an employee navigating a dismissal or an employer managing a termination, this process can be complex. At Northern Law LLP, our experienced lawyers can guide you through the process. Contact us today at (705) 222-0111 or info@northernlaw.ca to schedule a consultation.
[1] Bhasin v. Hrynew, 2014 SCC 71, 2014 CSC 71. [2] Bhasin v. Hrynew, 2014 SCC 71, 2014 CSC 71. [3] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 15. [4] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 6. [5] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 15. [6] Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362. [7] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 29. [8] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 30. [9] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 36. [10] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 15. [11] Boucher v. Wal-Mart Canada Corp. 2014 ONCA 419, 120 O.R. (3d) 481. [12] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 33. [13] Krmpotic v. Thunder Bay Electronics Limited, 2024 ONCA 332 at para 35.