Damages on Dismissal - Bad Faith Damages

Losing a job can be an upsetting and distressing experience. Generally, however, employees are not entitled to compensation for the emotional upset they experience as a result of being dismissed. Unlike other jurisdictions, the Canadian courts have been slow to award additional damages to terminated employees based on mental or psychological distress.

In certain circumstances, however, the poor conduct of the employer during the course of the termination may justify an extra damages award. To claim damages based on the employer's poor conduct, the employee must be able to prove that: (i) the employer acted in a bad faith manner during the dismissal, and (ii) this caused the employee to suffer additional mental distress.

(i) Bad Faith Conduct

When terminating employees, regardless of the reason, employers have an obligation to act in good faith. There is an expectation that employers will be candid, reasonable, honest, and forthright. If an employer breaches that obligation and engages in bad faith conduct, the dismissed employee may be able to claim damages.

A key component of the duty of good faith is the obligation to be honest. The Canadian courts have recognized that employees are entitled to know why they are being terminated, and that misleading an employee about the reason for their dismissal may do more harm than good. For example, in the recent Saskatchewan Court of Appeal case of Porcupine Opportunities Program Inc. v. Cooper, 2020 SKCA 33, the employee was awarded bad faith damages because his employer advised him that his position was being made redundant when in fact he was being terminated due to widely-circulated allegations against him of theft and misconduct.

Correspondingly, the fact an employer alleges cause for dismissal, even if it subsequently turns out that no cause existed, does not automatically entitle the dismissed employee to bad faith damages. In Mulvihill v. Ottawa (City), 2008 ONCA 201 the Ontario Court of Appeal confirmed that provided there are reasonable grounds to believe there is cause for termination, it is not unfair or bad faith to dismiss an employee for cause.

Bad faith conduct can include situations where the employer is unfair, deceptive, or unduly insensitive at the time of dismissal. Examples of bad faith conduct include:

  • Attacking an employee's reputation
  • Acting in an unnecessarily harsh or humiliating manner
  • Misrepresenting the reasons for dismissal
  • Dismissing an employee to deprive them of pension benefits or other rights.

Importantly, the bad faith conduct must be during the course of dismissal. The Courts have made clear that the focus is on the employer's conduct in the period immediately surrounding the dismissal. The Court will not normally engage in a review of the employer's conduct over what may be a long history of employment.

(ii) Mental Distress and Suffering

Bad faith damages are compensatory in nature. This means they are intended to compensate an employee for the damages they have actually suffered as a result of the employer acting in bad faith.

Thus, even if an employer acts poorly, an employee will have no entitlement to damages unless the employee can show they suffered additional mental distress and suffering above and beyond the normal distress of losing employment.

Although it may be helpful, an employee is not required to provide medical evidence in order to prove mental distress in the employment context. The Court will consider all the evidence, including the employee's subjective evidence about the distress they suffered and any decline in their mental health.


Terminations are often stressful and emotional. While employees are not normally entitled to compensation for that upset, employers who act in a bad faith manner and aggravate the employee's distress will be penalized.

Accordingly, when faced with a decision to terminate, employers should plan-ahead and develop a strategy for carrying out the termination in a candid, honest, and sensitive manner. Employees are entitled to be treated with respect and fairness throughout the termination process.

In all cases both employers and employees are encouraged to inform themselves about their respective rights and obligations on termination. Lee Workplace Law would be happy to answer any questions you may have.