A recent decision, Ruston v. Keddco MFG (2011) Ltd., demonstrates the high cost of bad faith in terminating a senior employee. The Court of Appeal upheld a 19-month notice period and awards of $100,000 and $25,000 for punitive and aggravated damages, respectively, after the employer terminated the employee for alleged fraud, threatened the employee, then filed an apparently baseless $1.7 million counterclaim against him when he sued for wrongful dismissal.

What Happened in this Case?

In June 2015, Keddco MFG (2011) Ltd. ("Keddco") terminated the company president for cause without providing him any explanation. At the time, the president was 54 years old, and had 11 years of service. Keddco did not explain why the company was alleging cause. When the president told Keddco he planned to hire a lawyer, the company said it would sue him and that it would be an expensive process.

The president only found out the reasons for his dismissal after he 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 $1.7 million for the unjust enrichment and $50,000 in punitive damages.

In the middle of the trial, Keddco reduced its claim of $1.7 million claim against the president to $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, education, position, length of service, and the availability of comparable employment.

The judge also awarded punitive damages of $100,000 to punish the company for threatening and intimidating the president at the termination meeting, and filing a $1.7 million counterclaim against him only to drop the claim to $1 mid-trial. An additional $25,000 was awarded because of Keddco's breach of its obligation of good faith and fair dealing in the manner of dismissal.

The decision was upheld on appeal.

What Should you take Away?

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 of the reason they are alleging cause. Employer should also not 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 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, and will work in the employer's favour to argue against the breach of this duty, should the matter go to trial.