The recent decision in Ruston v Keddco MFG (2011) Ltd demonstrates the high cost of bad faith when terminating a senior employee. The Court of Appeal upheld a 19-month notice period and awards of C$100,000 and C$25,000 for punitive and aggravated damages, respectively, after the employer had:
- terminated the employee for alleged fraud;
- threatened the employee; and
- filed an apparently baseless C$1.7 million counterclaim against the employee after he had sued for wrongful dismissal.
In June 2015 Keddco MFG (2011) Ltd terminated the company president for cause with no explanation. At the time, the president was 54 years old and had 11 years of service. When the president told Keddco that he planned to hire a lawyer, the company said it would sue him and that it would be an expensive process.
The president found out the reasons for his dismissal only after he had sued Keddco for wrongful dismissal. Keddco's defence was that the president had committed fraud and breached his fiduciary duties to the company. As threatened, Keddco sued the president for C$1.7 million for unjust enrichment and C$50,000 in punitive damages.
In the middle of the trial, Keddco reduced its C$1.7 million claim against the president to C$1. The trial judge ultimately found that Keddco could not prove any allegations of cause. The judge awarded the president a 19-month notice period based on:
- his age;
- his education;
- his position;
- his length of service; and
- the availability of comparable employment.
The judge also awarded punitive damages of C$100,000 to punish Keddco for threatening and intimidating the president at the termination meeting and for filing a C$1.7 million counterclaim against him only to drop the claim to C$1 mid-trial. An additional C$25,000 was awarded because Keddco had breached its obligation of good faith and fair dealing in the manner of dismissal.
The decision was upheld on appeal.
This decision reads as a how-to guide in reverse: what not to do when terminating an employee.
Employers should not:
- refuse to inform a terminated employee why they are alleging cause;
- threaten employees at the time of termination; or
- file baseless counterclaims against them.
Having a detailed termination letter outlining the specific circumstances or events that led to the employee's with-cause termination and an open conversation with the employee during the termination better aligns with the employer's duty of good faith and fair dealing at the time of termination. Doing so will also work in the employer's favour to argue against the breach of this duty, should the matter go to trial.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.