What are Bad Faith / Moral Damages

By Matt Lalande in Employment Law on March 05, 2020

What are Bad Faith / Moral Damages

Terminating an employee in a manner that is unfair or is in bad faith by being untruthful, misleading or unduly insensitive may result in additional damages being awarded to the terminated employee. The basis for these additional damages is an implied duty that the employers must deal with its employees in good faith, including in the course of termination. It is assumed that at the outset of the employment relationship the parties expect the employer will be candid, reasonable, honest and forthright with the employee when termination of employment occurs.

It’s important to understand that these damages will not arise in every termination. The court will assume that the parties are aware that the employment relationship may be terminated. The normal distress and hurt feelings resulting from dismissal are not compensable. It is only where dishonest or overly harsh behaviour by the employer results in actual mental distress that damages arise.

As a result of the Supreme Court of Canada decision in 1997 case called Wallace v. United Grain Growers Ltd.,  bad faith damages (otherwise what used to be called Wallace damages) were awarded by extending the employee’s reasonable notice period.

Eleven years and over one thousand judicial considerations later, the Supreme Court of Canada ended this practice in a 2008 case called Keays v. Honda Canada Inc.  In this caes the court noted that bad faith damages are now only limited to compensatory damages such as mental distress or moral damages.

The Court in Honda stated that:

“[I]f the employee can prove that the manner of dismissal caused mental distress that was in the contemplation of the parties, those damages will be awarded not through an arbitrary extension of the notice period, but through an award that reflects the actual damages.”

As a result of Honda, the breach of the obligation of good faith and fair dealing is no longer a factor in determining the length of the reasonable notice period.  It is no longer open to trial judges to impose a Wallace “bump up”, by extending the period of reasonable notice even if bad faith is found to exist. While the majority of Courts have historically taken this approach, in Honda, the Supreme Court observed that the correct approach is no longer to extend the notice period, but to award actual damages for bad faith conduct causing mental distress.

While bad faith conduct no longer results in an extended reasonable notice period, the circumstances of an employee’s termination may still weigh towards a longer notice period where they affect the employee’s re-employment prospects. For example, wrongfully terminating an employee for unethical conduct may make a subsequent job search more difficult, where the employee is seeking new work “under an ethical cloud”. (Lin v. Ontario Teachers’ Pension Plan Board).

Have a question about mental distress or moral damages?

If you have a question about mental distress, moral damages, employer misconduct or termination, our employment lawyers are based in Hamilton and serve both employees throughout all of Southern Ontario. Call us at 905-333-8888 to speak to us, or fill in a contact form and we would be pleased to get back to you shortly.





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