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What Is Bad Faith Dismissal and When Are Damages Available for Bad Faith Dismissal?

Posted On: January, 21 2015

Merrill Lynch Canada Inc. v. Soost (2010), 84 C.C.E.L. (3d) 241, 2010 ABCA 251; Soost v. Merrill Lynch Canada Inc., [2010] S.C.C.A. No. 399 [“Soost”]

On April 14, 2011, the Supreme Court of Canada refused to grant leave to appeal the recent decision of the Alberta Court of Appeal in Soost. The major question on this appeal was whether bad faith dismissal damages were available for damages other than mental suffering caused by the manner of dismissal.

In Soost, the plaintiff was a high-performing investment advisor who was dismissed without cause after three years of employment. At trial, the plaintiff was awarded one year of pay in lieu of notice, in addition to $1.6M to compensate the plaintiff for damage to his reputation and the loss of his book of business.

The employer appealed the trial award, primarily arguing that there was no basis in law for the award of $1.6M on top of reasonable notice. The Alberta Court of Appeal largely agreed with the employer’s position, finding that the $1.6M award was essentially double recovery for wrongful dismissal. In coming to this conclusion, the Alberta Court of Appeal discussed the availability of bad faith dismissal damages in some detail.

The Alberta Court of Appeal noted that reasonable notice damages are not the only damages available to a plaintiff who has been wrongfully dismissed. Bad faith dismissal damages are also available to the plaintiff. The Alberta Court of Appeal provided some helpful obiter examples of when bad faith dismissal damages might be available, but ultimately concluded that in the Soost case, such damages were not applicable because the employer did not act in bad faith. The Court provided the following examples of bad faith in dismissal:

  • a boss who tells all the fellow employees, or the employee’s spouse and children, that the dismissed employee is stupid or incompetent;
  • dismissing the employee within a day or two of a daughter’s wedding, or of the death of a parent;
  • insincerely alleging to others embarrassing or demeaning (but unfounded) reasons for the dismissal (whether or not they would be just cause if true), when the employer does not honestly believe those grounds exist.

Prior to the Supreme Court’s decision in Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362, damages above and beyond pay in lieu of reasonable notice were often awarded for bad faith in dismissal. The threshold for proving bad faith was ill-defined, and damages for bad faith, known as Wallace damages after an earlier Supreme Court decision, became quite common.

Prior to the Supreme Court’s decision in Honda Canada Inc. v. Keays, 2008 SCC 39, [2008] 2 S.C.R. 362, damages above and beyond pay in lieu of reasonable notice were often awarded for bad faith in dismissal. The threshold for proving bad faith was ill-defined, and damages for bad faith, known as Wallace damages after an earlier Supreme Court decision, became quite common.

The Supreme Court of Canada’s decision in the Honda case sharply curtailed the availability of bad faith dismissal damages, in part by clarifying that such damages must be compensatory, not punitive. In other words, they must relate to a provable loss suffered by the dismissed employee due to the manner of his or her dismissal. The mere fact of dismissal was not sufficient to trigger additional damages beyond reasonable notice.

 

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