An employee who is terminated without cause from their job is generally entitled to receive either reasonable working notice or pay in lieu of notice. Often, employment agreements will contain provisions specifying exactly how much notice or pay is required. These are important provisions for employers as, without these provisions, they may be obligated to pay very high compensation to terminated employees as damages for wrongful dismissal.

However, having such a provision, even if absolutely valid and enforceable, might not be enough. In the recent Ontario Superior Court decision Humphrey v. Menē, Justice Gina Papageorgiou found that an employer could not rely on such a provision because their bad faith conduct amounted to a repudiation of the entire employment contract, including the termination provisions therein.

Duty of Good Faith

Employers have an obligation of good faith and fair dealing in the manner of dismissal of their employees. They cannot be unduly insensitive and unreasonable in the manner of dismissal. They must also be candid and forthright with their employees. The duty of good faith also imposes an obligation to protect employees from bullying, intimidation and harassment by managers.

In Humphrey v. Menē, it was acknowledged that all employment agreements possess the implied term that employers will conduct themselves in good faith. Where an employer departs from this implied term of good faith in a significant way, employees should not be bound by the “extremely disadvantageous provisions” they agreed to.

Humphrey v. Menē: The Bad Faith Conduct

Justice Papageorgiou awarded the employee with $75,000 in aggravated and punitive damages as a result of the employer’s bad faith conduct. That bad faith conduct included:

  • Hostile, belittling and controlling behaviour by the CEO including swearing at the employee;
  • Subjecting the employee to a toxic workplace;
  • Setting the employee up to fail;
  • Embarrassing and humiliating the employee before co-workers and clients;
  • Significantly exaggerating performance issues; and
  • Alleging cause for termination when the employer knew or should have known that it did not have cause for termination. Here, the employer was aware for more than five months that their “for cause termination” argument was untenable.

Furthermore, the bad faith conduct amounted to a repudiation of the employment agreement and therefore entitled the employee to common law wrongful dismissal damages. The employee was awarded with 11 months’ notice, which amounted to approximately $82,500.

Key Takeaway

This decision represents an important reminder to all employers that they must treat their employees fairly and always comply with their implied duty of good faith Had the employer complied with their duty of good faith, the employee would only have been owed their minimum entitlements under the Employment Standards Act and the employer would not have had to pay $82,500 in wrongful dismissal damages and $75,000 in aggravated and punitive damages.

Employers, therefore, should strive to always act fairly and honestly when terminating an employee. Do not pretend to terminate for cause where you know cause does not exist. This may backfire in a very serious and very costly way.